This post is by Paul Kasamias, Head of Biddable Media at Starcom MediaVest Group.
After Google acquired YouTube in 2006, the world's foremost video site has gone from strength to strength, bringing in $4b in revenue in 2014. With numbers like these, it may be a surprise to learn the video site has always been a loss-making business for Google.
A staggering 300 hours of video are uploaded to YouTube every minute. The cost of the streaming infrastructure to cope with this demand exceeds the revenue YouTube generates.
It is also worth considering how users access YouTube. It has been reported that 50% of YouTube's views come from embedded videos on third party sites. This includes portals, news sites and social media. If a large portion of traffic is not entering the site at the YouTube homepage, this impacts Google's ability to monetise homepage formats and other deals contingent on visitors. Users viewing videos outside of the YouTube platform are also less likely to watch and discover additional videos, giving a further threat to monetisation. Furthermore, recent research has shown that 9% of viewers watch 85% of online videos. This suggests that the viewing audience on YouTube is in fact quite niche and therefore harder to monetise than may first appear.
To combat this problem, YouTube is investing more in high quality, licensed content. YouTube is diversifying its audience through initiatives such as the release of the YouTube Kids app and recently securing the rights to NFL and NCAA March Madness clips. A monthly subscription service currently in beta, Music Key, will also allow music fans to watch videos ad-free and offline.
The aim of these initiatives is to create distinct audience segments tied to quality content: this will be a more enticing prospect to advertisers, who have previously been reluctant to invest in ads that could be placed alongside low-quality UGC.
This debate emerges at a time when Facebook, Twitter, Vessel and other video platforms are threatening the dominance of YouTube. YouTube continues to exceed its competitors with flexibility through lack of video length restrictions, and discoverability through organic reach. Although YouTube's profitability remains in doubt, its popularity remains high through low barriers to entry for brands and creators alike.