Old, traditional methods of advertising and marketing are beginning to take a new shape or some even fade away. The question remains in regards to online video. How can it be monetized? However, some of the biggest names in video have yet to fully embrace the medium as a highly effective marketing platform. The largest of them is YouTube.com, a video site Google paid $1.6 billion to buy, which has not yet shown to be able to generate significant revenues given its huge audience of 62,000,000 monthly visitors. If Google stands for innovation, why is video monetization such a difficult task?

However, YouTube, despite its large numbers, has not been innovative enough to introduce a business model that works. Every future company will need to have some type of video on its website. Those videos are either going to be commercials or infomercials highlighting the company's products or services. Product demonstrations, training guides, video spokespeople and customer testimonials are just a few examples of video elements consumers are beginning to expect from businesses. Transparency is key today.

The Paid Subscription Business Model

In Google's case, given that they are a public company, what is the point in building something that isn't going to generate money? Let us say that YouTube launches a subscription model with a monthly fee of $40 and 2,000,000 business subscribers signing up. Here is the math: 2,000,000 x $40 x 12 months. That equals about $960,000,000  a year i.e approximately $1 billion of real money.

The question is whether the $40/month is value warranted compared to a free model. The answer is yes given the broadness of Google's channels and the significance of its paid search model.  Here are a few things that could create value to business under the subscription model:

  • Universal search integration for videos and visibility across all Google distribution channels
  • The ability to add your own branded logo instead of the YouTube logo on the player
  • Live Broadcasting
  • Full HD capability
  • Longer videos
  • Unlimited views and fixed bandwidth cost covered by subscription price
  • Trend Tracking, video stats and analytics such as conversion rates
  • Private label
  • Customized channels and design
I think it is about time that Google stops worrying about to stop worrying about funny videos and start thinking about introducing some practical money-making offerings to businesses that solve problems for millions of revenue generating, and spending, businesses. All these businesses already pay a fortune to Google for their PPC on Adwords. Why doesn't Google incorporate an online video business strategy?

YouTube's Current Business Model

YouTube is expected to bring in $200 million in revenue by the end of 2008, and may increased that figure by 75% or more in 2009. That would amount to $350 million. Not that much considering the total videos served by YouTube.com. eMarketer says industry wide spending on Web video advertisement will reach $1.35 billion in 2008. Google serves a rough 38% of video streams according to comScore. The math just does not add up here.

Forbes magazine presented numbers as to per-day front page advertising, as well as the cost associated with companies’ establishment of branded channels. As far as front page advert placement is concerned, YouTube takes some $175,000 a piece, with a commitment by the advertiser to pay “$50,000 or more in ads on Google and YouTube” with branded channels cost $200,000 each.

Of course another reason for its slow revenue generation is that a great deal of untapped advertising power on YouTube can be blamed on marketers’ hesitation to advertise on user-generated content given the low conversion rates associated with it. Marketers fear the buying placements that might land beside user-generated content (UGC) videos might also create a picture that they are associated with unsavory and potentially damaging content to their brand. However, 2007 IDC report titled "Social Networking Services in the U.S. — Popular, Yes, But How to Monetize Them?." asserts that TV advertising would move more quickly online to sites such as YouTube if marketers felt the content was “brand-safe.” The problem is that user-generated content is just not ‘brand-safe’ inventory. If it’s unsafe and companies run their ad against it, it could hurt their brand, especially if the content the brand advertiser is marketing with violates copyrights and is stolen content.

Conclusion

The issue still remains: YouTube is still using the Digital Millenium Copyright Act as a safe haven for attracting the largest audiences who can post illegal content without Google being accountable (even though Viacom would disagree with that given their billion dollar lawsuit against them). The revenue generated per user is abysmal and so is the revenue generated per video. Is quantity better than quality when it comes to making money? That is a decision that Google execs need to make. Founders Chad Hurley and Steve Chen have sold the YouTube for $1.6 billion and created the new "user-generated Napster." As Shawn Fanning, the founder of Napster will say, making money legally is harder than ever, as his SNOCAP music venture has indicated. It certainly seems that people gather where they can get free content without any guilt about infringing on copyrights. This is the new digital economy. Embrace it, innovate or be gone.