YouTube May Lose $470 Million In 2009: Credit Suisse Report

Todd Spangler -- Multichannel News, 4/3/2009 7:43:40 AM MT

Google's YouTube -- the Internet's most popular video site -- could be on track to lose approximately $470 million in 2009, according to a report Friday by Credit Suisse.

While YouTube remains the leader in online video with 41% share of total domestic video streams, "monetization remains challenging," Credit Suisse analysts Spencer Wang and Kenneth Sena wrote.

According to the firm's analysis of YouTube traffic and ad strategies, the site is on track to generate about $240 million in revenue in 2009, up about 20% year over year.

But the cost of bandwidth, content licensing, ad-revenue shares, hardware storage, sales and marketing and other expenses will total about $711 million, putting YouTube squarely in the red, the Credit Suisse report estimated. Bandwidth accounts for about 51% of expenses -- with a run rate of $1 million per day -- with content licensing accounting for 36%.

"In our view, the issue for YouTube going forward is to increase the percentage of its videos that can be monetized (likely through more deals with content companies) and to drive more advertiser demand through standardization of ad formats and improved ad effectiveness," the analysts wrote.

YouTube, which still derives most of its traffic from user-generated content, has been attempting to increase its lineup of professionally produced content. Earlier this week, for example, YouTube announced a deal withDisney-ABC Television Group and ESPN, which will provide content clips for dedicated channels on the video site.

Credit Suisse projected YouTube will serve 75 billion video streams in 2009, up 38% compared with last year.

To arrive at the estimated $360 million bandwidth tab for YouTube, the analysts assumed the site will receive 375 million unique visitors in 2009 and that a maximum of 20% of those users are on the site at any given time. Credit Suisse's analysis then assumed each user downloads a video at 400 kilobits per second, to yield a peak bit run-rate for YouTube of 30 million megabits per second.