YouTube + Google != The Next Dot-com Bust

It seems everyone and their kid sister is looking at the You Tube deal and going, “WTF? How the hell do they expect to make any money out of that?” I was scratching my head too, until the answer came to me, naturally enough, while reading a blog. In fact, this one, where Shamus poses that very question. And once it occured to me, I had to go “OMFG, it’s brilliant! Why didn’t I think of that!” (The answer is, of course, because I’m not brilliant, and I don’t have a billion and a half just lying around to do it.)

Firstly, lets examine the problem. I’ll borrow from Shamus for this:

YouTube hosts videos and lets people watch them for free. They incur massive storage and bandwidth fees, and they get nothing in return. Unless they find a way to convert movies of people falling over and getting hit in the head into currency, (which is not currently possible outside of Japan) it will continue to lose money. If the site becomes more popular, they will lose more money.

Secondly, I was going to add a couple of samples of the stuff you can find on YouTube, but its object code doesn’t agree with WP. (I’m rapidly becoming a non-fan of the WP 2.0 interface. Give me back my pure HTML.) But I can still do ordinary links, I guess:

Yuki + Mugen Lightsaber Duel Buzz TV
Ok, the Yuki in Mugen. Bah. Cute, mildly amusing, but nothing special. The duel: Whoa. You’ve probably seen Ryan and Michael’s lightsaber duels before, but if you haven’t, you have seriously missed out. They kick ass, unlike the horde of lamers who think just waving a lightsaber around is the coolest. BuzzTV, well some folks are interested in that kind of thing, even if I’m not.

Thirdly, who’s making money blogging? People writing blogs? Hahahahahahaha. No. Take Shamus’ word for it; his expenses are pretty close to mine, per blog (but I support two blogs now), and his return exactly equals mine: zero. Nope, it’s the blog enablers that make money. WordPress and Blogger, and other such companies.
Now that I’ve put the pieces on the table, let me ask you this: Would you pay a nominal fee to watch Yuki+Mugen? Nah, me neither. But what about Ryan and Michael doing a lightsaber dual. If it only cost you $1 for a five minute video? Would you pay to watch it then, especially if it had great “buzz” and all your friends were talking about it? And if you would, what about a few million people scattered across the globe?

And if you had a track record for producing hot vids that people wanted to see, do you think maybe you could sell a 15 second block at the start of your program of advertising to the video equivilent of GoogleAds? Hey, maybe I don’t make money, but that doesn’t mean some folks aren’t. Eight years ago, would anyone have predicted the existance of Doubleclick, GoogleAds, and several other web advertising companies, effectively paying for space on sites with niche content created by individuals, instead of large companies?
If you were an individual with the talent to make videos like Ryan and Michael, would you leap at this deal from Google? “Make us content, and we’ll give you $0.35 out of every $1 we make from your video, and we’ll split the advertising revenue too.” And here’s the kicker: YouTube has been inking some deals with movie and song publishers that would allow the use of their materials without YouTube or the creator getting sued or recieving C&D notices–I bet such deals probably have something in the way of royalty provisions. After all, if KyoAni were to get $0.05 for every single viewing of the over two thousand Melancholy clips on You Tube, they’d probably have paid for the series several times over. The ED alone has been played 484,894 times. Sure, nobody would pay $1 to watch the ED when you could do it for free, but what about the Gundam Robot version? In a world where over a billion people are wired to the net (and more every day), what tiny percentage of them have to click on your link before you make a profit, especially if you’re a talented amatuer with few costs? And how many “talented amatuers” will jump at the chance?

Add Google’s search engine technology for viewers to locate the clip they want to see, and licensing deals to create a deep pool of available songs, shows, and games for people to work with, and then toss in original content like BuzzTV. Forget podcasting, let’s Tubecast! Is “straight to YouTube” the OVA of the future? Who knows? A lot of it will depend on the DRM used–or not used, as the case may be. Then there’s a way Google could lower the costs: distributed hosting, where the file stays on your server, but they list it in their search engine. All that’s left is to “rotate the stock” by dropping off the old and lame stuff.

As for the good stuff, further opportunities exist. “Buy the Best of YouTube 2007 from K-Tel DVD’s for the low, low price of only $19.99, plus $3 shipping and handling!”

Oh yes, Google knows exactly what it’s doing, and it’s not setting itself up for the next dot-com crash. 

 (Edit: Don’t get me wrong… it won’t be easy.  I’d expect it to take about two years of tuning before it becomes a “popular success,” and another 2-3 to become a “profitable success. But Google believes it has the deep pockets to absorb the losses during the interim.)