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Weekly Column

The Old New Thing: Why YouTube is not (yet) the future of television.

Status: [CLOSED]
By Robert X. Cringely
bob@cringely.com

Everyone knows by now that Google is buying YouTube for $1.65 billion in stock and most everyone sees the purchase as a risk for Google. Sure, YouTube has 100 million video downloads per day (as the site constantly tells us, though PaidContent seems to think it is more like 40 million downloads per day) but a decided lack of video advertising and harping over copyright infringement by various movie studios and TV networks suggests to most pundits that YouTube will be a drain on Google for sometime to come.

Apparently not.

YouTube was fooling us. The company allowed we pundits to think it was broke because it worked to YouTube's advantage to be perceived as broke. It was newsworthy, for one thing, and YouTube loves being in the news. Being broke made YouTube appear to be an underdog to the bigger boys like Google Video and Yahoo Video and consumers often like an underdog. And being broke strongly implied the company had shallow pockets, making it a less-than-desirable target for copyright infringement charges.

Only it turned out not to be true at all. YouTube runs at a considerable profit.

I can't take the credit for figuring this one out, though I sure feel foolish for having not done so. The big brain on this case is blogger named Froosh writing at HipMojo.com (it's in this week's links). Froosh throws out some wild-ass numbers that suggest YouTube has gross revenues of around $7.5 million per month against expenses of less than $2 million.

Frankly, I think the real revenue numbers are lower and the expense numbers are higher, but even if YouTube is just breaking even, it is doing vastly better than most of us thought.

Froosh's numbers are too high and were trashed by ZDNet based on that outfit's evident ignorance of what video streaming actually costs to do. ZDNet seems to think it costs about $0.85 per gigabyte for YouTube to download video through Limelight Networks. Frankly, I don't know what Limelight charges YouTube, but I know DataPipe charges NerdTV only $0.20 per gigabyte and I am not a great negotiator, nor am I using the kind of bandwidth YouTube is. Based on my NerdTV experience and YouTube's enormous volume, I would have guessed YouTube's costs at more like $0.10 per gigabyte.

The real news here isn't that YouTube is profitable and probably banking a couple million bucks per month, it is HOW YouTube is profitable, which is through banner and contextual ads. While we were all looking for pre-roll and post-roll video ads, and lamenting their absence, YouTube was making its money the old fashioned way just like nearly any other web site.

Just like Google, in fact, which is why the fit between the two companies is good and the price, well the price doesn't matter, since it is only Google shares, which have never been held to any realistic standard before, so why should they be now?

YouTube is less a video-sharing site than it is a social networking site based around video. The company gets its content for free and has built a profitable business from acting as a video portal. In the strictest sense this isn't Web 2.0 at all and actually harkens back to Web 1.0 applications like the Motley Fool.

So is YouTube the future of television or isn't it?

The answer to this question has to be based more on how WE use the medium rather than on how it uses us. I don't think YouTube as it exists today is even remotely the future of television, because if it is then television is in huge trouble.

Where are the folks who watch YouTube six hours per day? They exist, I'm sure, but there was a time when Americans watched television an AVERAGE of six hours per day, which is more than YouTube will ever know. YouTube gets stale for me after about 20 minutes, which hardly makes it the next Seinfeld.

If YouTube has 100 million video downloads per day and if those downloaded videos average 2.5 minutes in length as PaidContent suggests, then the average daily YouTube audience consumes 250 million minutes or less than ONE MINUTE OF VIDEO PER U.S. RESIDENT PER DAY. That's a lifestyle change, true, but not a big one, nor is it even guaranteed to be permanent.

The whole television viewer experience has always been based on two factors: immediacy and production values. TV brought us live events we could share as a nation. YouTube can't do that. TV brought us production values beyond what we could afford as individuals. YouTube doesn't do that unless it is by ripping off copyrighted content.

Its evident profitability is how YouTube is now able to cut revenue-sharing deals with record companies and TV networks. There has to be revenue to share for revenue sharing to work. But if you look closely at those deals, they also involve the prospect of original YouTube-only content from partners like CBS.

Is CBS going to put $1 million per hour into its YouTube content? I don't think so. CBS is going to throw on YouTube all its old pilots and episodes it had previously written off -- content that costs it absolutely nothing because it was paid for long ago out of a different budget.

YouTube is the factory outlet of commercial television, at least for now.

The fact that YouTube isn't the future of television doesn't mean that television has no future. We are constantly finding new ways to view old content and will eventually find new content to view in those new ways, too.

I think it is ironic that YouTube doesn't carry full NerdTV episodes because the shows are too long and too big to meet YouTube specifications (max 10 minutes and 100 megabytes). Longer form videos like NerdTV that serve niche audiences are more likely the future of television than what is presently on YouTube, though of course that could change over time.

Right now the numbers say video is more of a gimmick and the substance of YouTube is actually its social networking. It isn't the new new thing at all, but more of the old new thing.

And speaking of new things, in two weeks this column will have a completely new look. This will be our fourth redesign in nine years, but this time we're changing almost everything, even the underlying code base, which is going from Jurassic HTML to a Movable Type blogging platform.

Yes, I, Cringely is becoming a blog. I fought this for a long time but the economics of change are evident here and many readers will appreciate the new commenting capability you will all shortly have. But just as many of you will hate the whole darned thing, not because it is bad but because readers nearly always hate change.

I say "Bring it on."

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