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.

And Comscore which likely undercounts pages views by a factor of 2 to 3x is OVERstating videos.  In their stats, they estimate the AVERAGE online user watches 83 videos a month!  Seriously.  Personally I can’t believe that stat.  I’m as addicted to the Internet as the next guy and I watch maybe 30 videos a month.  Maybe.

So even if you take Comscore’s numbers at face value, 11.5 billion isn’t that big of a number when you look at the economic size of the video market.  Assuming a range of $1 to $5 cpm and 1 ad per video (any format, method, size, style doesn’t really matter), you’re looking at a TOTAL market size of just $11.5 million to $57.5 million for all online video.  That’s out of a total online ad market of about $2 billion a month.

My point isn’t to say online video won’t be or isn’t important.  It’s more a comment about the incredibly large scale required to build a large media business or market.  The media business is about a little off a whole heck of a lot.  That’s why ads are priced in cost per thousands.  And the need to have immense scale also explains why the media business gravitates towards consolidation but that’s a post for another day.  When videos viewed starts approaching trillions then we’ll be somewhere.

Oh wait – that’s right it’s because it’s the kazaa and skype guys who made a bundle on both.  Maybe someday the hype will be justified – I’m just not there yet.  And this coming from a guy who is a total sucker for shiny, new balls evidenced by the fact I bought an apple newton (pda) and pj jukebox (first HD based mp3 player) back in the day.