Peter Kafka

Recent Posts by Peter Kafka

YouTube’s Profit Plan: Spend Less, Sell More (Duh)

skateboarding-dogHow is Google (GOOG) going to transform YouTube from a money pit into a profit center?

Part of the magic trick will involve cutting costs. That’s hard to see play out in real time, except when we get flare-ups like YouTube’s fight with Warner Music Group (WMG) over new contract terms. The other part of the abracadabra–selling more ads on more videos, particularly “viral” hits–is easier to spot, particularly because YouTube keeps pointing it out.

For instance: Yesterday’s announcement that the site would start attaching ads to many more popular videos submitted by users and share the proceeds with the uploaders.

YouTube was typically vague about how the plan will work, but the most telling news is that it thinks it can increase the number of “partners” it shares ad revenue with from “thousands” to “tens of thousands.”

Translation: All those skateboarding dog videos you make fun of? We’re going to turn them into money machines. Just watch!

I’m going to make an educated guess and posit that for all the effort YouTube has made  to “monetize”–I hate that word, but what can you do?–its gazillions of videos, its most important revenue generator is still its homepage. YouTube’s competitors think a one-day “takeover” there may cost an advertiser as much as $500,000.

There’s not a whole lot of upside left for YouTube in the homepage, though. It’s the gateway to the world’s biggest video site, and the second-biggest search engine, and you either want to advertise on it or you don’t.

But the rest of site remains a big opportunity. YouTube can keep chasing splashy “premium content” deals like the ones it has struck with Sony (SNE), Disney (DIS) and Time Warner (TWX). And at the same time, it can try selling more of the “long tail”–basically, everything that isn’t “premium.”

YouTube’s long-tail efforts sometimes get ignored, especially when the site is compared to Hulu and its array of TV shows and movies. But YouTube executives have insisted for a while that long-tail videos will play a big role in the site’s future, and the new move underscores that.

“I think they are working [the long tail] hard but are not articulating it well,” the head of a competing Web video company told me earlier this month. “It may be because they are worried about how advertisers and agencies will view them, but it may also be that they are not revealing it all until it’s farther along.” Yesterday, YouTube gave us another peek.

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