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Apr 16, 2008

NEWS: Google Is Saved! YouTube Money Machine Mints $1 CPMs

Search & Social Networks neck & neck for video referrals

Online video is a hot topic these days with new entrants coming online (e.g. PluggedIn) and out of beta (e.g. Hulu) every day. We are seeing users spend a bit more more time with the video websites, spending an average of 16 minutes and 12 seconds for the week ending April 12, 2008 as compared to 15 minutes and 14 seconds during the same week last year. One interesting trend that I have noticed is that search engines and social networks are now accounting for an equal share of referred traffic. Last week (ending April 12, 2008) the share of upstream traffic from search increased 35% over the same week the previous year, while the referred traffic from social networks declined 20%.

Upstream 04-12-2008.png

Google Is Saved! YouTube Money Machine Mints $1 CPMs

googlelogo.gifWaiting for the explosion of YouTube video revenue to spark the next wave of torrid Google (GOOG) growth? Better curl up like Rip Van Winkle. Judging by the miniscule commissions Google just paid out to its production partners, you'll be waiting for years.

As SAI's Vas Sridharan reports, YouTube proudly reported that it has shelled out...ONE MIIIIIILLLLLLLION DOLLARS...to producer partners in the past four months. The producer of one video, the smash hit "Break a Leg," which logged a ginormous 2 million views, got a check for $1,600--which equates to a net $0.80 CPM.

As we recall, Google is pretty generous with its producer partners, giving them about 75% of the gross revenue. If so, this means Google grossed about $2,133 on those 2 million views, or a CPM of about $1. Of this, Google got to keep about $500--or $0.25 per thousand.

According to Comscore, YouTube streamed about 3.4 billion videos in January. If YouTube generated a net $0.25 CPM on all of them, it would log about $850,000 of revenue per month, or a run-rate of about $10 million a year. Yes, YouTube doesn't have to pay production partners on all videos. But a vast percentage of YouTube videos are also completely unmonetizable.

According to New Tee Vee, JP Morgan Stearns analyst Bob Peck estimates that YouTube will clock about $100 million of revenue this year, of which only $20 million will come from overlay ads (presumably the kind that YouTube is paying a split to production partners on). The rest will come from display advertising on the video pages.

Based on paltry $1 million YouTube has paid to production partners in the past four months, this revenue estimate looks pretty accurate. Unfortunately, on a base of $20 billion of search and AdSense revenue, it's also immaterial.

Ed: So much effort to earn so little.

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