So you thought that Google (NASDAQ:GOOG) isn't making money from YouTube? "Worst $1.45 billion ever spent!"
Think again, amigo.
Big G just tipped its hand again, showing more evidence of the leading online video site's money-making powers. And Google is doing it in order to make more money. The two-year-old revenue sharing program now covers one-off "viral video" hits, rather than only dependable makers of multiple hit videos.
What's new?
If your video of the grandkids doing the Rhumba with your albino cat hits a nerve or funny bone on the online community and rakes in tens of thousands of views, Google may offer to put money-making ads in your video -- and share the wealth with you. Previously, you had to apply for an ad-enabled account and hope to impress the program managers. That's a big difference.
According to Google, many ad-enabled video sharing accounts make "thousands of dollars a month" through this program. Don't forget that Google also takes a cut of the ad profits every time. Expanding the reach of the ad program will also increase Google's own take-home pay. And it's an opportunistic approach -- wait for a video to hit critical mass, and then invite it into the cash-making club.
What else should Google be doing?
I'm still waiting for a better solution to the never-ending copyright issues of YouTube -- and revenue sharing could be just the ticket. For example, take the recent viral hit concept of "literal music videos." Joe the Plumber takes a famous music video like Bonnie Tyler's “Total Eclipse of the Heart,” writes new lyrics that interpret the video images in a hilariously literal way, and uploads his altered cover version to YouTube. Hilarity ensues -- until EMI, which owns the rights to the song, issues a takedown notice.
Here's where you're facing a couple of possible outcomes:
- YouTube removes the video, apologizing for inconveniences all around, and nobody makes any money. This is what happened to the literal “Eclipse” video, and to thousands of other popular clips. I'd call that an opportunity cost both for Google and for the offended copyright holders.
- YouTube slaps advertising on the video, sending viewers off to buy Bonnie Tyler's original recording from Apple's (NASDAQ:AAPL) iTunes or the Amazon (NASDAQ:AMZN) MP3 store. The record label gets a cut, Google takes a share, and maybe even the copyright infringer could see some money as a thank-you for sending incremental profits for everyone else. Everyone is happy, from consumer to record label and everyone in between. Today, this is just a pipe dream, but Google's proactive revenue sharing opens the door to this sort of solution.
The current default action -- remove the offending content -- simply does not work for a couple of reasons:
- Viral videos can become very effective and essentially free advertising, as Coca-Cola (NASDAQ:KO) learned the hard way a couple of years ago. Why would you shut down a free advertisement that people go out of their way to watch?
- Sorry, but once the content is out there on the Wild, Wild Web, it is nigh-on impossible to put the cat back in the bag. That banned “Total Eclipse” video is available today on Microsoft's (NASDAQ:MSFT) MSN Video site, on Yahoo! (NASDAQ:YHOO) Video, and a plethora of smaller sites. Oh yeah, and there are multiple copies still available on YouTube, too -- you just shut down the original uploader's 15 minutes of fame.
What's next?
As you can see, there's still a lot to do here. The process of monetizing online video streams is far from perfect, and I expect to see many improvements in the coming years. Google is clearly on the ball with a continuous stream of innovative policies and technologies, and I expect to see the company making YouTube's profitability a matter of public record before too long.
I've never seen a goodwill writedown against the YouTube buyout, and I don't expect one, either. eBay (NASDAQ:EBAY) took $1.4 billion off Skype's value within a couple of years, and is looking to spin the failing asset off again. Break it out as a reportable segment, guys. It is becoming glaringly obvious that you're making money here.
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