YouTube is an unprofitable business?

Since its launch in 2005 YouTube became one of the most popular web contents, reflecting the enormous growth in its popularity, visited and watched by millions of viewers every day. A recent report by eMarketer showed that while revenues of YouTube may be significant they still do not cover the company’s expenses.

According to Nielsen Online, YouTube was the fifth-most-popular Web brand in the US, with over 83 million unique visitors in February. 

Credit Suisse estimates that 41% of all US video streams will go through YouTube in 2009, and the site will see 375 million unique viewers worldwide. 

But if you thought that time spent and a high usage rate would equate to big business for the video giant, you would be mistaken. 

Several sources in the market research community have estimated YouTube’s revenues (for 2008 or 2009, as noted):

• Jefferies & Co., 2009: $500 million 
• Bear Stearns, 2008: $90 million 
• Screen Digest, 2009: $120 million 
• Forbes, 2009: $350 million 
• Morgan Stanley, 2008: $75 million to $189 million 
• Credit Suisse, 2009: $240 million 

While significant, and wildly varied, those revenues are dwarfed by the cost of running the site. 

According to Multichannel News, Credit Suisse analysts project that YouTube bandwidth costs, content licensing agreements, hardware needs and other expenses will reach over $700 million in 2009. 

In fact, bandwidth and content licensing agreements, costs that cannot be easily allayed, will account for 87% of total expenses.

“In our view,” said the analysts, “the issue for YouTube going forward is to increase the percentage of its videos that can be monetized (likely through more deals with content companies) and to drive more advertiser demand through standardization of ad formats and improved ad effectiveness.” 

In layman’s terms, that means fewer sneezing pandas and more slick production.