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 (s GOOG) 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.