The recent WSJ article on Google’s difficulties monetizing YouTube has caught a lot of attention with the stat that Google can only sell ads around 4% of the videos on the site (due to copyright concerns). With roughly a billion videos viewed a day that leaves a lot of unmonetized traffic.
At the same time as noted by SAI and Venturebeat, a bunch of silly and seemingly crack-smoking inspired revenue estimates were published by Wall Street analysts estimating YouTube’s 2008 revenue at around $200 million for 2008 and $350 to $400 million for next year.
As I noted in a recent post – the video ad market has a long way to go to be anything of significance. Given Wall Street’s ability to hype hallucinogenic estimates I am not surprised to see those crazy numbers thrown out there. But someone has to take a closer look and expose the crack smoking for what it is.
Let’s take a look – 4% of YouTube’s content is monetizable. Let’s assume for a moment that 4% represents 10% of YouTube’s traffic – given the 1 billion videos viewed per day – that’s 100 million views. YouTube is selling a new format – the video overlay with some estimates as high as a $20 cpm. Now being in the ad business – I doubt very much that Google is actually getting anywhere close to $20 – real 30 second video ads are getting $20 CPM for essentially the equivalent of a 5-10 second banner-sized pop-up ad.
Let’s say Google sales force is good and they are getting a $10 cpm on what they can sell and let’s assume they are achieving a typical premium sell through of 30% of their inventory. That means that they aren’t selling 100 million overlay ads per day that means they are selling 30 million. At a $10 CPM that’s $300k per day, $9 million a month and just under a $100 million per year. And given the amount of inventory – I highly doubt YouTube is seeing a 30% fill rate and a $10 eCPM a much more likely scenario is half that fill rate at half that CPM or $25 million a year. Also as more inventory opens up to Google, the eCPM’s are likely to fall as the social networks have shown having a ton of inventory puts a lot of downward pressure on CPM’s.
Now a $25 to $100 million dollar a year business is nice especially for a business that’s not even 4 years old but I doubt that even covers YouTube’s bandwidth costs even at the high end of the estimate.