Wednesday, June 17, 2009

Report on YouTube overreaches with claims of nefarious Google plot

Industry speculation over how much money YouTube is losing for parent company Google heated up again Wednesday with the release of a new report.
In the report, consulting firm RampRate estimates that YouTube will lose about $174 million this year. That compares with an estimate by Credit Suisse of a $470 million annual loss.
So, either YouTube is losing a lot of money or an astronomical amount of money.
Much of RampRate’s report seems self-serving, touting how it has saved clients “an average of 20% on IT infrastructure services including bandwidth, data center/co-location, managed services, content delivery, IT support/helpdesk, and other related areas.”
Ring the bell for a marketing plug!
RampRate says it can “secure very favorable wholesale (bandwidth) rates … based on our experience working with other top Internet, e-Commerce, and media firms.”
Ring! Ring!
RampRate seems to know what it’s talking about when it comes to how much companies can and do spend on securing Internet bandwidth for distributing video.
But where I fault the report is on some of its other headline-grabbing conclusions.
The authors of the RampRate report say Google is seeking to create the impression that YouTube is a big money loser in order to ward off competitors, secure favorable deals with licensed content providers and to keep copyright lawyers at bay.
The name of the report is provocative: “YouTube: Google’s Phantom Loss Leader. How Google shelters profits from content owners while building a delivery juggernaut.”
What profits? Even RampRate admits the video-sharing Web site is a big money loser.
RampRate says Google likely gets very favorable wholesale rates for bandwidth and runs its data centers in less expensive locales.
What RampRate admittedly doesn’t understand is advertising and the content side of the business. And that’s precisely where RampRate overreaches with its nefarious claims for “Don’t be evil” company Google.
RampRate doesn’t challenge Credit Suisse’s revenue assessment for YouTube, which is trying to build a business selling advertising with its videos.
Most of the videos on YouTube are low-quality, user-generated content that YouTube can’t monetize. And there’s a lot of it. In May, YouTube reported that users were uploading a staggering 20 hours of video every minute. And that figure has been growing.
RampRate must assume professional content providers like the TV networks and movie studios are a bunch of rubes. Content providers can see the metrics on video viewership. They aren’t going to give away their content because they feel sorry for Google losing money. The value of their content has been established by other channels of distribution and the studios won’t want to undercut that.
As for competition, Hulu and other video sites have sprung up to offer professional video content. No one is going to chase the user-generated video content business now, because there’s no money there. Rivals however will go after the premium content business.
As the Associated Press notes, there’s no benefit to Google for making public its expenses for running YouTube. It’s likely Google is using the scale from YouTube’s traffic to get favorable IT infrastructure deals for its Web search and cloud computing businesses.
So Google is not trying to scare away rivals and attorneys with reports about its massive losses at YouTube. It’s speculation by analysts and consultants who are driving this story.
RampRate should stick to what it knows well and leave the crazy conspiracy theories to the bloggers.

Amid all the garbage on YouTube, there are some gems. At top is a video of a dance-off at the 2009 Big East Baseball Tournament. When their baseball game got rain delayed on May 21, players from the USF and UConn settled the score not with bats, but with dance.
For more entertaining YouTube videos check out sister site One Stop Video.

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