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YouTube only 'breaks even'

News, 02 March 2015

SAN FRANCISCO: YouTube, the online video site that Google acquired for $1.65bn, is still not profitable nine years later despite building up a base of one billion monthly users.

According to a report in the Wall Street Journal, an unnamed source familiar with the tech giant's finances has revealed YouTube's bottom line is "roughly break-even".

YouTube posted revenue of about $4bn in 2014, which accounted for roughly 6% of Google's overall sales, but it has to spend huge sums on its infrastructure each year.

It also faces a mounting challenge from other online streaming services, such as Amazon and Netflix, at the same time that Facebook and Twitter, which routinely send traffic to YouTube, are building up their own video alternatives.

Another problem, according to analysts, is that YouTube appeals to a narrow audience of mostly younger viewers who are less inclined to buy from ads.

While the youthful audience may appeal to some advertisers seeking to reach them to build brand affinities, the narrow demographic means advertisers typically reach far fewer consumers than they would on TV.

Brian Weiser, an analyst at Pivotal Research, estimates 9% of viewers account for a full 85% of online video views and that YouTube's problem is that "there's a lot of junk" on the platform. "If they want meaningful TV budgets, they need to invest in TV content," he advised.

On top of that, Google is struggling to attract users directly to YouTube and most users access it via a link or an embedded video on another site.

Therefore, Google executives want users to turn on YouTube the way they turn on television, as a habit, where they can expect to find different "channels" of entertainment, the report said.

Executives also have been looking into extending YouTube's subscription services to non-music content, which would be in addition to its existing ad-supported service.

Another revenue stream under consideration is to improve the site's ad-targeting capability and the sources indicated a new ad-targeting system could be rolled out later this year if technical complications can be overcome.

Data sourced from Wall Street Journal; additional content by Warc staff