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Credit Suisse Concedes Ground on YouTube Costs

Investment bank Credit Suisse, which had garnered major attention for claiming YouTube would lose $470 million this year, and then sustained criticism from infrastructure experts who said it greatly overestimated YouTube’s (s GOOG) costs, has revised its estimates. A little bit.

Now Credit Suisse analysts Spencer Wang and Kenneth Sena say (via Multichannel News and Contentinople) the Google-owned video site will spend $300 million on bandwidth in 2009, down from the $360 million they’d estimated in April, with the lower costs due to YouTube’s use of peering — where large online entities exchange traffic for free.

RampRate, a firm that advises companies on IT costs, in June released a challenge to Credit Suisse’s report saying YouTube’s peering and bandwidth costs would amount to just $75 million in 2009. RampRate also shaved off Credit Suisse’s storage and data center costs for YouTube, though the bank has apparently not made adjustments to those estimates.

Credit Suisse thinks only 20 percent of YouTube traffic is peered, compared with RampRate’s estimate of 73 percent. RampRate said its figures were educated assumptions based on deep market knowledge, while Credit Suisse said its newly added peering cost structure is based on “public peering data provided by Google engineers and conversations with bandwidth providers, transporters, peering facilities, and Google peering partners.”

With an unadjusted revenue figure of $240 million, Credit Suisse still thinks YouTube will lose more than $400 million in 2009. Yet Wang and Sena estimate YouTube makes 35 percent margins on its monetized video streams, so if the site puts ads on more videos (something it’s definitely been doing lately), its finances could improve dramatically.

9 Responses to “Credit Suisse Concedes Ground on YouTube Costs”

  1. I agree, but then, it depends more on advertisers increasing their budgets for online video than on youtube increasing inventory opportunities. It is unlikely that youtube had much unexploited potential, mainly because google is a very well managed company.

    Greetings!

    LG
    Oops…forgot to say great post! Looking forward to your next one.

  2. I agree, but then, it depends more on advertisers increasing their budgets for online video than on youtube increasing inventory opportunities. It is unlikely that youtube had much unexploited potential, mainly because google is a very well managed company.

    Greetings!

    LG

  3. Ok, that is taking into account that dramatically increasing ads in videos wont reduce cost per ad nor audience.
    In a paid per performance scheme, the more invetory you add, the less cost per inventory piece you pay. That has been true for display, and same will happen to video advertising.
    It will be good, but, let’s wait to see to what extent it will improve youtube’s PnL.