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9 July 2008

YouTube’s Revenue Model

by Patrick

It is widely reported that YouTube makes no money. It is also widely mocked that being an “internet star” has absolutely no financial benefit. You create a great, funny, viral video, upload it to YouTube, get four or five million views, but no profit.

Often in life, when you have two problems, they can solve each other.

Seems to me it would be easy for YouTube to start making money in the exact same way Google currently makes all its money – sell advertisements.

Now, YouTube sells advertisements today. But apparently very little money comes from these ads; certainly not enough money to pay the bills.

What I see instead is an opt-in program for video content creators. People who upload their videos can also choose to have a 5 second ad displayed either at the beginning or the end of their video.

Then, just like with Ad Words, people can bid on the types of videos they want their ads displayed on, and then they pay per view of their advertisement.  Pay per click won’t work in this scenario, of course, because if someone is watching a video they are not going to want to be taken away from watching that video.

People bid on video keywords. Their ads are displayed up to the daily budget they set. And, best of all, the people who uploaded the videos get some of the money that their video made. This way, the next time someone like the Star Wars Kid has their incredibly humiliating video uploaded and viewed millions and millions of times, he can at least make some money based on the people who watched his humiliation.

There are a couple issues with this I can think of. The first is technical – I don’t know how hard it would be to dynamically splice together videos at the point where it is requested. Certainly the server requirements on that would be enormous. But this is Google. Surely they can figure out a clever way to solve it. And it would need to actually be embedded, IMO. Showing two videos in a row like most sites do is just painful and annoying. It often takes longer for the video to buffer than it does to play. Part of YouTube’s success is that videos being to play immediately. They can’t lose that.

The second issue I can think of is legal. People create derivative works, they re-upload videos. They upload videos they don’t own and are owned by large corporations.  They use licensed property (like songs and clips from other movies) without permission or payment to the license owners. People could make a tidy buck simply by taking videos that get a lot of views and re-uploading them using their own accounts.

If Google / YouTube could somehow get themselves out of the middle of this legal headache and leave the license wrangling up to the individual uploaders and license owners that would be ideal. Unfortunately, Google’s pockets are *way* too deep for that to ever happen.

But if Google could overcome these issues – then making money with YouTube would work.

tags: oldposts - youtube