Google Closer to Break Even on YouTube.com Not Losing 1.6M a Day

David Silversmith has a history of making bombastic headlines that are so far from the truth, backed by numbers that are no where near a whole picture, but this one is probably the one furthest from the truth I have seen.

Let’s assume most of David’s Numbers are right, he cites where he got them so they are easy to not argue with, but let’s all look at what he is missing.

Google is spending more than $2 million a day on YouTube.  I think this is probably a fair assumption.  I don’t know where the number came from but it is believable.

But some of his other numbers are in conflict with each other.  David says Google is sharing $66k a day with its top tier video providers.  I also believe this number.  Now Google is sharing about 40% of the revenue with about 3% of its providers (by audience)  That means Google is keeping 100% of revenue from 97% of videos + 60% of 3% this works out to $3.7M per day.  We do have to adjust this number some amount and I have no clue how much to accommodate the fact that the videos from the top tier are better quality, and better tagged so the ads are more relevant, and there for earn more.

But the above numbers are orders of magnitude from where David at Internet Evolution has them.

What else is he missing?

David has the cost of streaming at More than $1 per visitor.  The problem is that $513M that it cost Google Supposedly to keep the lights on at Youtube isn’t divided by 375 million Unique visitors to Youtube, it is divided by the 1.6 BILLION ( with a B ) Unique visitors to all sites containing YouTube Videos.  My little XYHD.tv serves more than 200k YouTube videos a year.  I am a drop in the bucket.

Stack on top of this that Ads are paid per Impression not per Unique person, and you start looking at the 24 billion Video impressions Google will serve this year.  To recover the $513M that Credit Suisse says YouTube costs you would need to get $21.35 eCPM’s which is higher than most sites earn and Video ads do tend to earn less than standard text banner ads.  But I think it is safe to say that Google is making at minimum $10 eCPM’s as they are keeping 98% (100% – 40% of 3%).

This would put the “Floor” at $240M a year in revenue.  Making the Deficit $747k a day.  1/3 what David Silversmith is quoting.

I do expect that Google is losing a small amount on YouTube.com from a pure numbers game, but I think that with the Amortization of Hardware, and software Youtube is profitable if you were to look at it from the IRS’s point of view.  Most of the costs on David’s List are unrealistic:

Bandwidth $1,000,000
Content Acquisition $710,000
Revenue Sharing $66,000
Administrative Costs $252,054
Data Center Costs $36,000

Google because of Peering relationships spends a tenth of what anyone else pays for bandwidth.

Content is good for more than a day so you have to Amortize that over say 3 Years?

The others are fixed, but that changes the numbers to:

Bandwidth $100,000
Content Acquisition $236,000
Revenue Sharing $66,000
Administrative Costs $252,054
Data Center Costs $36,000

Making the Daily cost for Google $694k on paper.  Not the $2M a day that their burn rate would be.

If YouTube’s Daily Revenue really is only the  $657k that David Claims, then this puts Google at $-37k a day.  Not a money maker but losing $1m a year is not bad in this economy.