YouTube Closer To Profitability Than Hulu?

There’s a general assumption that YouTube is losing Google gobs of money, fueled in great part by the much-bandied idea that YouTube is generating ad revenue on just 3 percent of the content on its site.

This may be far from the case; AdAge recently speculated that YouTube is now monetizing as much as 9 percent of its content, but Google spokesman Chris Dale told me the number is actually even higher than that. To get an idea of what that represents, understand that YouTube has fifteen hours of video uploaded to its site every minute — that’s nine hundred hours per day, twenty seven thousand hours of video per month — and gets 5.3 billion views every month.

Of course, there’s an expense equation there; you would need a huge number of servers and storage to deal with all that content, but Dale was quick to bring to my attention the fact that YouTube’s infrastructure is home-grown; in contrast, industry sources tell me, online video rival Hulu needs to outsource its infrastructure. Hulu was created by NBC Universal and News Corp. to capture the Web traffic YouTube had been garnering with the use of their content, but still pays royalties for content, making its prospects for profitability fairly dubious.

Meanwhile, the video ad market is growing despite the slumping economy. Magna, ad agency Interpublic Group’s market research arm, forecasts the U.S. market for online video will grow by 32 percent this year, rising from $531 million in 2008 to $699 million in 2009. And YouTube is poised to take a commanding share of that spending, particularly since signing deals with Sony, CBS, and Metro-Goldwyn-Mayer last week to show their movies and TV shows on a new section of the online video site. Other studios uploading content to YouTube include independent film studio Lions Gate Entertainment and Liberty Media, which owns the Starz movie channel.

YouTube isn’t forsaking the formula that initially made it a phenomenon, continuing to cater to the narcissistic side of our culture by allowing registered users to upload their own videos and share them with friends — and anyone else who cares to watch their cats break-dance or their kids ride skateboards off the diving board and into an empty pool. A new feature just introduced in a limited beta will allow visitors to see what videos their friends are watching at a given moment, “creating their social video experience,” Dale told me.

Dale said the company intends to become a “comprehensive destination for all online video” — including professionally produced video from the likes of Sony, specialized content appealing to particular demographics like Nascar fans and the kind of amateur productions for which YouTube became famous (and which provided many users with dubious and ephemeral fame).

YouTube also provides potential customers with a tool, Google Insight, that can be used to create demographic information about who is watching which videos, and to analyze data such as the point where viewers start to fast-forward or stop watching a clip altogether, all for the purpose of helping marketers get more comfortable with the idea of sponsoring video content on YouTube. One area where YouTube falls short, though, is search, which is ironic considering that Google is the king of online search. But YouTube cannot search text within a video clip, for instance, (as can video search engine Blinkx) to bring up more relevant results. Its search engine thus has to rely on the terms used when a YouTube member tags a video they’re uploading to the site. Those tags are often incomplete or nonexistent, reducing the potential inventory for a possible paid search.

But there’s little doubt that, despite the popularity of programs available on Hulu, YouTube has a huge head start because it has created a community of users uploading and watching their own videos. This disparity in viewership is underscored by the fact that Hulu often runs public service announcements instead of paid ads, even for hit shows like The Colbert Report and The Daily Show.