As I have already written, I don't think much of YouTube from a business perspective. But each time you look it just seems like things keep getting worse.
There are really several axes for my bearish YouTube perspective.
First, they do not seem to be making any money on the ads they show. Most recent calculations suggest CPMs in the $1 range.
Second, according to the Wall Street Journal, it appears they can only monetize the 4% of their inventory that they have content licenses with. The reason? They fear they will be sued by content owners for attempting to monetize illegally uploaded stuff that they do not have licenses for.
Third, according to the same WSJ article, Google claims to be generating $200 million a year in advertising on YouTube, I strongly suspect that, given that 96% of their content is not even available for monetization, that the cost of operating YouTube, primarily bandwidth, is close to or exceeds that $200 million.
But the fourth reason is the biggest deal of all. I think they are going to lose the Viacom lawsuit in a really big way. If that happens, not only will there be a massive liability, but it will open the doors to everyone else sitting on the sidelines letting Sumner Redstone do the hard work. YouTube will be torn apart by plaintiffs like piranha going after fresh bloody meat.
Why do I think they will lose? Well, in my gut I just have never bought the idea that they had no idea what was on their service and no way to control it. But it was really Mark Cuban who crystallized the issue for me. Mark says its all about porn.
In the early days of YouTube, I was always amazed that there was no porn. Dirty word searches never triggered anything "interesting." How could this be? Porn is always at the cutting edge of new stuff. How could YouTube avoid it?
But since that time I had really forgotten about the issue, until Mark brought the subject back front and center.
Google's argument is that they have no way of policing the content on YouTube. And I would totally buy that if they did not have such an absolutely awesome program for rooting out porn. From day one, YouTube was essentially porn free. Google argues that it deserves protection from the safe harbor protections of the DMCA because they are an ISP with no control over their content. But clearly, at least in the area of porn, they have absolute control, and they exercise it.
This will all come out in the lawsuit. And when it does, I think YouTube will lose safe harbor protections, and ultimately Google will be responsible for every single piece of content on the system.
Can you say Aremgeddon?