By David Worthington | Friday, April 3, 2009 at 4:39 pm
International financial services company Credit Suisse has burst Google’s bubble: Its analysts report that YouTube could be on track to lose $470 million this year due to outrageously high operating costs and a poor business plan.
Credit Suisse estimates that YouTube has a gross income of $240 million a year, but that its expenses far exceed that, totalling an astonishing $711 million. According to the report, about half of YouTube’s expenses come from meeting bandwidth demand, while the remainder derives from licensing costs, hardware, marketing, and other operational expenses.
The analysts determined YouTube’s bandwidth costs by assuming that 375 million unique visitors would visit the site in 2009, with 20 percent of those users consuming 400 kilobits per second of video at any given time. That works out to 30 million megabits being served up per second. That’s a heck of a lot of bandwidth to devote to videos of sneezing pandas.
However, Credit Suisse’s revenue forecast deviates from other reports. In March, Jefferies Co. said that YouTube would earn $500 million, and Screen Digest predicted $120 million in earnings earlier this week.
The Credit Suisse analysts’ proposed path to profitability is for Google to change YouTube’s business model to place an emphasis on premium content over user-generated content–like Hulu. NewTeeVee, a blog dedicated to online digital media, reported that Google is poised to unveil a site redesign that will do just that.
That would be the end of YouTube as we known it, but we are living in a new economic reality. YouTube built its business without ever having any viable way to become profitable in the short term, and it cannot continue to lose money just because its users are accustomed to receiving free entertainment. That just does not cut it anymore– shareholders won’t tolerate white elephants forever. Even Google shareholders.