Back in October 2006, a few days before Google (GOOG) acquired YouTube, I wrote a post called YouTube is wildy profitable, no doubts about it. It was probably the first thing I published on my blog that got a lot of attention. Anyway, I had no proof that YouTube was actually profitable or for that matter generating material revenues, but the point was: it could be in a very strong state despite the alleged hosting fees, which we now know through 'peering' arrangements can be contained.
However, with Viacom (VIA) and Google disclosing numerous documents, it turns out, that while not profitable (after all expenses), YouTube was indeed generating revenues which covered most of their expenses as early as August 2006. You knew that if Google was willing to pay $1.65B for a company that was 18 months old, it wasn’t doing so simply for the promise, but still, that is quite impressive. I guess what Steve Chen and Chad Hurley knew then was that at that pace, YouTube’s growth would ensure that its costs would far exceed its revenues in the short term, and a sale to Google would make that concern evaporate.