YouTube versus TV: Collision Looming?

On its fifth birthday last week the Sunday Telegraph interviewed the leaders of the internet video phenomenon YouTube, to gain an insight into how the phenomena unfolded, assessing its current performance and goals for the future, along with a identifying a potential collision looming between the worlds of online and TV over the next few years.

Five years ago last week, the first video was uploaded on youtube.com. The company is currently estimated to be worth billions of dollars, with further potential market scope assumed to be in the region of hundreds of billions of dollars. The only two bigger websites driving visitor traffic in the world include Google, which bought YouTube in 2006 for $1.65bn and Facebook. There are now more than a billion views a day on YouTube and every minute 24 hours of new content is uploaded onto the site.

Brief History of YouTube

The drive for the development of YouTube originated from the desire of empowering people with a video solution along with building an ad-supported business. Once launched initial word of month was slow and the selection of videos onsite was fairly limited. It was assumed that visitor traffic levels would layoff somewhat once 30m views were recorded per day and this formed the benchmark in terms of the resource planned to handle that amount of traffic. This was a significant underestimation as the phenomena really began to take off and as the frequency and range of videos posted onto YouTube rises, the number of millions of viewers has also risen.

Problems started to be incurred when people posted traditional media material on the site including various film clips, music videos, football highlights, sometimes as backing or sound visuals to their own material, raising copyright concerns. However rather than viewing these issues as a problem, they were viewed as an opportunity and unique concept models were developed allowing companies to block material from the site, but also identify and generate revenue from it.  Yet there remains the issue of companies uploading on one hand and complaining on the other. Although YouTube have a number of mechanisms in place to stop copyright and authorisation infringement, this issue remains unsolved and the case will go on until YouTube are confident of where they stand.

Is YouTube actually making any money?

Last week, Google, the owner of YouTube, announced that first-quarter sales increased equating to ‘$1.95bn (£1.26bn)’ of profits on sales of ‘$6.78bn’. The only statement issue in direct association with YouTube was that very impressive growth has been seen and that several exciting new content deals had been signed. Internet video chief Chad Hurley states ‘we continue to invest for tomorrow, higher quality video, better ways to distribute that video – we’re not looking to prove everyone wrong on the profit issue, we still continue to have our eyes down the road on what this will become’.

How can YouTube increase its profitability?

Google is now pushing YouTube in terms of generating revenue, placing Salar Kamangar, vice president of product management, one of the key personnel behind Adwords at the top of YouTube. YouTube has recently been developing its revenue streams for instance placing banner advertisements on the homepage for various product launches and new movies. There are also ads on the search pages and ads on the page where people actually watch the videos which are specifically influenced by search terms. Added to that there is also transactional revenue, such as YouTube rental or individuals selling their own DVDs or other products. YouTube takes a cut of all the advertising and transactional opportunities. The actual content creators can also benefit financially from what they do by selling advertising against their content. Content identification allows owners of content to track material as it is viewed, advertise against it and create revenue.

Disney, Channel 4, Five, Warner, Universal, Sony, Cadbury, and Evian are all seeing the commercial advantage, attempting to find new ways to present their content and engage shoppers. Furthermore for each deal, each advertising impression or click-through, YouTube gets a share. It was only last year when things started to click from a business perspective, the ad formats and models began to click and advertisers began to start understanding the power and reach of YouTube, measuring and the accountability of the ad model.

The future of YouTube

The internet video chief Chad Hurley wants YouTube to be watched in the same way as television, up from 15 minutes a day to an average of five hours.  ‘It’s hard for me to imagine that in five to 10 years from now most of the content we consume won’t be delivered over the internet. People think about the world of TV and the world of online video as being different ways to distribute video – but what happens when every TV is connected to Wi-Fi and the world’s of online and TV collide?’. In an area of convergence between mobile phones, computers and television, there will only be one winner, YouTube hopes, and that’s online. However to support the transition from minutes to hours, a more seamless experience is required across devices. Once this number of minutes is large enough it opens up a whole new set of revenue opportunities such as the future of the way people buy TV ads, the ads purchasing process and the way you track and report it.

It is important to identify that if YouTube generates significant enough revenue for professional content producers to consider it a viable platform to invest in, then it faces the additional problem of having to decide which content to generate traffic to.  Companies making a significant investment will expect YouTube to send traffic its way. Hence at some point YouTube will have to schedule its traffic in order to enable profit maximisation.

The future ultimately looks very exciting for YouTube, but a number of challenges have yet to be overcome.