The Motley Fool Previous Page

How Google Makes Money From YouTube

Anders Bylund
July 21, 2009

Google (Nasdaq: GOOG  ) finally got fed up with the negative rumors around its YouTube video service, and decided to debunk five of the worst ones. I love the smell of indignant napalm in the morning!

Myths? We don't need no stinkin' myths!
We can boil down the five myths Google wanted to dispel into one simple sentence: YouTube videos are short and low-quality, and there's no way Google is making any money off of them.

All of that makes intuitive sense, of course. The average YouTube user can only upload clips no more than10 minutes long, mostly of cute babies and crazy teenage stunts. What advertiser wants their name attached to some grainy three-minute clip that has nothing to do with their product? And the minority of YouTube videos that don't fall into that category are copyright-breaking rips from TV shows, unauthorized music videos, and other non-commercial abominations. Right?

Not so fast, amigo
While short, user-submitted videos form the bulk of YouTube's content library, there's plenty of commercial fare, too. Major music labels from Sony (NYSE: SNE  ) to Warner Music (NYSE: WMG  ) host official music videos, where some of the advertising revenue streams back to the copyright owners.

Premium partners also get to break those limiting 10-minute and 2-gigabyte upload restrictions, so there are plenty of full-length movies to peruse. Most may be indie flicks, but big-time names like Lions Gate Entertainment (NYSE: LGF  ) , PBS, and Time Warner (NYSE: TWX  ) subsidiary HBO all post two-hour films to YouTube.

There will be blood
And where there is content, there will be advertising. According to Google's myth-busting post, "over 70% of Ad Age Top 100 advertisers" ran ad campaigns on the site last year. Just a couple of clicks around the site reveal ongoing banner ads for 3M's (NYSE: MMM  ) Post-it Notes and satellite broadcaster Dish Network (