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Summary:

Citi Investment Research’s Mark Mahaney said today he’d been convinced that online video companies like YouTube can become profitable because infrastructure prices have come down dramatically. After holding a call with RampRate, the IT services analysts who’d recently declared that YouTube’s costs were vastly overestimated, Citi […]

Citi Investment Research’s Mark Mahaney said today he’d been convinced that online video companies like YouTube can become profitable because infrastructure prices have come down dramatically.

After holding a call with RampRate, the IT services analysts who’d recently declared that YouTube’s costs were vastly overestimated, Citi issued a note saying it agreed. Google CFO Patrick Pichette had said of YouTube on Google’s latest earnings call “in the not long, too long distance future, we actually see a very profitable and good business for us.” Citi said today that it believes that assertion.

RampRate contends that a widely cited Credit Suisse report about YouTube losing some $470 million this year was wrong because it didn’t account for significant cost reductions on bandwidth, storage and hardware — especially Google’s ability to peer (basically, trade) traffic with ISPs.

Citi further added that other video sites should be able to take advantage of at least some of these cost reductions. Where in the past delivering video might have been a major strain, now, “The biggest hurdle to profitability is attaining sufficient user and usage volumes, obtaining contracts for content rights, and monetizing against the video content,” said Citi.

  1. Why does Citi even care? YouTube’s financials are rolled up into Google’s making them only a source of meaningless speculation.

    How many people ask about the cost:revenue of Gmail, Apps or Maps?

    Google was one of the only companies that could absorb YouTube without significantly impacting its bottom line too much.

    YouTube will always lose money as its topology does not scale well. Increased demand is its worst case scenario.

    Just when I thought the YouTube specultion was going away, this report surfaces. Liz, do you think they do it to see who’s the smartest analyst? They are all over the map with respect to their projections so one of them has got to be right. One day, one of them will be crowned the victor and they will pat themselves on the back and collect on the $1 bet they made with each other while the poor schmucks who listened to the losers research lose their retirement savings.

    TK

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    1. @TimeKeeper — What with the future of entertainment industry revenue so unclear, I think it’s only natural that there’s so much attention to what the next generation business could be. Though it’s funny how people are staking a claim on all these different precise numbers. There’s another one that I’m not sure we’ve previously mentioned here — $323M: http://bits.blogs.nytimes.com/2009/07/16/should-youtube-charge-a-fee-to-upload-video/

      But I believe as soon as the revenue becomes significant it will show up in Google earnings, so if the latest estimates are on the right track we don’t have long to wait.

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  2. Google’s revenue for last quarter was $5.52 billion. Written out that’s $5,520,000,000. $323 million for the YEAR is $80,750,000 per quarter. Comparatively, that’s so insignificant to Google’s over all revenue it would barely be considered a rounding error.

    Getting the proper perspective on the scale at which Google operates makes YouTube look like more of a hobby to Google than AppleTV does to Apple.

    YouTube is good for generating press for Google but it is very insignificant in the grand scheme of things to Google when it comes to generating revenue.

    I’ll go on record stating that, in it’s current form, YouTube will not generate enough revenue for it to become significant enough to be mentioned on Google’s financials – EVER.

    Don’t get me wrong, YouTube is a powerful brand with the POTENTIAL to generate large amounts of cash – just not Google Sized amounts.

    YouTube is lucky that Google is a nurturing parent and is looking to grow it into something bigger – unlike Apple and AppleTV.

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  4. [...] YouTube has said that it has doubled its revenue each year for the past three years. Analysts predict that it will bring in $450 million this year, which is enough to turn a [...]

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