Where do you go when you check out music? Allmusic.com? HMV? Amazon? No. Not if you are like most people. It's on a video site. It's YouTube. What about a tv video clip? YouTube.

With cost cutting rampant among large corporations, it is the bottom line that matters most.

Therein lies the problem in its business model.

According to a report by Credit Suisse, YouTube is on track to lose roughly $470 million in 2009!
It is estimated that YouTube will generate about $240 million in ad revenue in 2009. It will have operating costs of roughly $711 million. This leads to a shortfall of about $470 million. Is Google worried?

The problem with YouTube is that the bandwidth and storage costs in the delivery of its content is proportional to the revenue generated. Even if $30 per CPU (“CPM” is the industry standard – click per thousand – for quoting the cost charged to the advertiser) were used, YouTube will never make money.

In Business Insider, the author goes further in predicting the fate of YouTube:
1) Follow the business model of Hulu (Cancel your Cable! Watch streaming video!)
2) Make YouTube subscription-only

#2 will certainly kill YouTube's business model. Once you offer free content, users feel entitled. If you suddenly start charging people, traffic will plummet.

Either way, YouTube is finished.

Odd things may happen though. Copyright costs might plummet, bandwidth rates might fall, and the cost of storage may fall even further still. YouTube will require all three events to take place to survive.

More Supporting Links:


Ads on YouTube. I don't think so:

Free Music, Artists not paid?

Full Disclosure: No position in Google (GOOG).

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