Can online video be profitable?

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When Google coughed up the small matter of $1.65 billion for YouTube back in 2006, it clearly thought that it was picking up something of a bargain.

After all, YouTube was a genuine internet phenomenon, bursting with videos covering interests as broad as the planet itself. Comedy clips? Check. Bad home movies? Check. Clips of programmes from yesteryear? Yep, them too. Porn? Only if you’re willing to fill in a simple registration form, and that’s no price to pay.

Boasting a stampede of traffic, with an ability to keep visitors stuck to one site for long periods at a time, YouTube was a money-making machine, all primed and ready for action.

Strains

And yet, rather than significantly adding to Google’s resources, YouTube has arguably been a strain on it, a high profile case that many can relate to, of struggling to effectively make money out of video online.

When not beating back copyright claims and strenuously policing the service, defending itself against lawsuits and battling privacy challenges, Google has had to contend with political controversies, immense bandwidth costs, and the fact that the cons of owning YouTube may well outweigh the pros.

For the flip side of this particularly proverbial coin is that, three years on, Google still has been unable to marry an advertising model to YouTube that takes full advantage of the site’s traffic. Or, you’d imagine, come anywhere near close to balancing its books.

In 2007, it was estimated that YouTube was using nearly a tenth of the entire bandwidth of the entire internet. One website, one tenth of the web all to itself. It’s a staggering figure, and even if it’s only slightly diluted since, there’s no equivalent service to touch it. If anything the site is growing even more popular, and Alexa ranks it as the third most popular on the entire planet.

Yet married to that is the frightening statistic that the projected revenue – not profit – from advertising for YouTube in 2009 is likely to be around the $240 million mark. Take out the bandwidth costs alone - which are increasing, as more and more people upload high definition content to the service - and it’s difficult to see YouTube close to profit, for all its successes.

Google faces several problems when attempting to monetise video content, and these are common to some other services that have realised that marrying up large visitor numbers to ad money is far easier to put on a PowerPoint presentation than do.

The major stumbling block is that it can only, as things stand, put advertising content in front of clips over which it has some ownership, or some kind of revenue share. There’s an abundance of material on YouTube that could be argued is in breach of copyright, yet many turn a blind eye to it as Google isn’t seen to be profiting from it.

As soon as the firm puts an advert in front of a clip it doesn’t own, it opens up a proverbial can of worms that Google might not be able to afford. Hence, a reluctance to do it, which is shared by other video services of the same ilk.

Further attempts to monetise the service have included pay per download trials, and shoring up content partnerships. The latter has seen a Hulu-esque rival being developed within the YouTube service, to broadcast feature length films as well as television shows, where the firm can place advertising revenue alongside the content.

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