Google’s Nuclear Option to Monetize YouTube

During the Great Depression, farmers would destroy crops in order to create some kind of floor price for their fruits and vegetables, even though many of their fellow citizens were starving to death. John Steinbeck chronicles this plight in Grapes of Wrath, a book I will pretend to have read (I actually read some of it, but man that book was thick).

Today, despite homelessness being as rampant as ever, some are considering actually demolishing homes in order to create some kind of defense against sliding home prices. As foreclosures skyrocket and empty houses proliferate the marketplace, the specter of unsold, empty homes keeps a lid on recovering real estate prices (in a best case scenario) and accelerates plummeting home values in a worst case scenario. Indeed, according to a recent piece in The Economist:

Of the 129m housing units in America, 18.6m stand empty. At 2.9%, the home-owner vacancy rate, which measures the share of vacant homes for sale, has reached its highest point since measurement began in 1956. At the end of the first quarter there were 2.3m empty homes on the market, an increase of more than 160,000 from the end of 2007.

As horrific as the prospect might be, construction cranes might very well be replaced by bulldozers in a neighborhood near you. While sociologists cringe at the mere thought thereof, economists would be quick to argue the merits of such a strategy when there is endless supply on one side but weak - or non-existent - demand on the other.

Last week, the Wall Street Journal reported that of YouTube’s vast inventory of content, only 4% was monetizable. The remaining 96% consisted either of pirated videos or user-generated content (or crap, as I like to call it). The net effect of this, on a site which generates 70% of the streams online and commands 35% market share of eyeballs, was simple: YouTube cannot really exert any pricing power… especially in a battleground such as display, which gets by even less on mathematical logic and economic determinism and more so on gut feeling and perception.

Allow me to add a quick disclaimer: our company, WatchMojo.com, provides professional content (to which we own the rights) to YouTube, amongst a myriad of other players.

So connecting all of these variables, I wondered, would Google (GOOG) ever consider going nuclear and simply scrub YouTube of all of the crap found on the site? Sure, traffic would take a beating, but if one thing is clear, it’s that online, and with online video in particular, traffic does not (at least not presently) equal revenues.

“There will be new monetization forms. That is what we are seeking. That is the holy grail,” Eric Schmidt said on a conference call after Google reported disappointing second-quarter earnings. “When we find it, it (monetization) is likely to be very large because of the scope and scale of YouTube.”

The idea sounds crazy, but if YouTube gets rid of 96% of the seedier and undesirable content on the site, no doubt you very well might see a proportionate loss of streams, maybe not a drop of 96%, but probably something in the 50-85%.

But what about users? I don’t think YouTube would lose 96%, 69% or even 50% of its users in the short-term.

Initially, people would find something to watch on YouTube, and in fact, they would suddenly find something of higher quality to watch, something that YouTube owns the rights to, in fact.

As such, if YouTube loses even 75% of its streams, it would be left with a leadership position in streams, and it would still remain in a leadership position in terms of eyeballs and market share.

Most importantly, if the site were devoid of the crap that scares away traditional content owners - let alone marketers - many more companies would partner with Google (hint: Viacom) and give YouTube more monetizable content that would in turn open the floodgates with marketers.

But, of course, here’s the problem:

Google might as well launch a new site, called YouTube Prime (or YouTube Light) because what made YouTube YouTube is the UGC, or as I call it, the crap. As a content owner with nearly 2,000 high quality clips on YouTube, I want to see nothing else but Google and YouTube printing money, but when I think of what your typical marketer looks for, I have to say, I’m just not sure if YouTube is the holy grail. It’s an important part of the ecosystem, no doubt, but the holy grail?  Je ne sais pas.

In case you are wondering: no, I don’t actually think Google will press the red button and flush YouTube clean, but then again, with mounting bandwidth and legal costs, and no real revenue to match YouTube’s awesome stream count, you have to wonder: what is more likely,

• a publicly traded company burning UGC videos in order to maintain its profit margins and make Wall Street happy,

or

• a government approving the burning of food crops and the destruction of homes which affects the many, in order to protect the investment of a few.

Yeah, welcome to crazy times people… I’m heading for the bunker.

Comments

[tyneham:]

Another excellent 10/10 analysis by Ash who is in the bunker or ivory tower as the "crazy times" starts 1929 once again... tyneham.blogspot.com

2008 Jul 20 09:30 AM

[tyneham:]

Sorry for the typo (above). I just checked, Ash is NOT in the bunker or ivory tower.

2008 Jul 20 09:33 AM

[GeorgeR:]

Good morning, Ashkan

I find your insight refreshing.

Fact is, until the U.S. Government and large public companies (with all of the money Google doen't already have) in this country decide to hold Google accountable for their massive and flagrant illegal distributions over YouTude, (and though their Image Search functions, too, I might add), we wil see no major changes in my view.

Google wil simply keep mixing other people's property with "crap" until they find the mix that advertisers and "average users" accept and are willing to pay for.

Your idea of a Major League, with a Minor League training and sorting out system could work as well, but only if the content is truly "clean". I see no indications that Google (and other major search engine companies as well) have any intention of cleaning up their pircy acts until the courts start to hold them acountable and make them pay.

Maybe last week's court decision up in New York will help this cause.

Although it is quite long, some of your readers may enjoy the attached article I wrote shortly after reading about the decision in the Viacom v. Google/YouTube case.

By the way, I am 100% for privacy , but NOT at the expense of subsidizing a system that willfully steals property from innocent non-participants.

George

**********************...

Ding dong ... the witch is dead!

... or at least she is starting to melt!

Wow ... I would say this is very good news for the entire copyright industry. While potentially inconvenient to YouTube viewers, and understanding the importance of privacy protection in the complex world of the Internet these days, this decision by the judge in the Viacom v. Google/YouTube case in New York may be the best thing that has happened to the copyright industries in this country, and to our overall economy, in practically a decade.

I have been following this infringment case, and others like it, now for several years. I, for one, am sick and tired of the Google's of the world blaming their own customers for all of the infringing activity that occurs day in and day out over the Google sponsored networks. Who do you think gains the most financially from these obvious infringements - Google or the poor smuck in Louisville who does not have a clue what is right or wrong, let alone what is infringing and what is not?

In fact, if it is true that an individual typically adapts his or her production and viewing habits from what they see and are taught by the larger media, entertainment, Fortune 500, and technology companies in this country ("if this weren't legal, certainly mighty Google wouldn't encourage it as they do or run AdSense ads on the infringing sites, and Exxon/Mobile wouldn't be placing ads on the sites that are displaying the "shared" works, either") then who do we really have to blame for this chaos? You guessed it.

It is an unfortunate reality today that many of the copyright defense lawyers, and their publicly financed clients out to make the big bucks regardless of the rules, have made a mockery of the Digital Millennium Copyright Act (the DMCA), which was signed into law in 1998 by President Clinton. Like the music industry has learned in the school of hard knocks (aka "the real world"), it is virtually impossible today to hold the middlemen in these unlawful Internet distribution channels and networks accountable. So, what do the copyright companies have to do to protect their valuable property? Go directly after the often innocent "end users" who are often sucked into this game, more often unknowingly than not. It is shameful.

Perhaps this New York court decision will help to turn those tides.

Google enables widespread copyright infringement activity like no other company on this planet. Google subsidizes entire networks of infringers through it Adwords and AdSense marketing and advertising programs. Google facilitates willful copyright infringement. Google enables widespread copyright infringement. Day in and day out. Google causes enormous damages to legitimate copyright holders every second of every single day. Google has been doing this for years. They earn a substantial portion of their overall revenue and profits by sponsoring illegal activities over the Internet. And their operations outside the U.S. are far more egregious than the infringement activity we see referenced in this Viacom case, which is largely within our borders.

I, for one, have had enough. Baseless, if not ludicrous, excuses and piracy defense strategies, implemented by what used to be some of the finest copyright law firms in this country - "fair use", "safe harbor", "no harm", "unclean hands", "de minimus damage", "copyright misuse", "DMCA safeguards", "willful blindness", "laches", and on and on, can drag these cases on for years - haven't we seen it all?

What do the legal terms all mean in Google's true vernacular? How about this. "We are big. We are powerful. We can do anything we damn well please. Quit complaining, copyright owners, or we'll cut you off from all the online revenues streams, as well". Better yet, "... if you don't conform, we'll simply run some of this stuff from our operations in Brazil , Russia , India , and China (those BRICS have plenty of money), and let them beam the content back here to the states."

Aren't you tired of watching Google hide behind the skirt-tails of their customers. "They were the ones who loaded the illegal videos onto our system, not us." Or , better yet, "how were we to know that Bart Simpson and the Spice Girls weren't already in the 'Public Domain'?"

Is Google alone in this? Unfortunately, the answer is no. Microsoft, AOL, Yahoo, and others are moving as fast as they can to mimic and duplicate Google's cash cow system, whether the law is violated or not. Cash is the king. And copyrights from the creative industries are not the only victims. Haven't you seen lately, similar claims (and penalties) levied against these giant Internet companies for their advertising efforts to support, or even subsidize in many cases, the distribution of harmful pharmaceutical drugs and counterfeits over the Internet, sponsor illegal gambling and pornography web sites, and many others too numerous to mention. Billions and billions and billions of dollars every single month.

"What do you expect us to do, your honor. Try out every single drug our customers illegally deliver just because we provide the advertising revenues for them to survive?"

This kind of unlawful activity not only helps to destroy our economy, it breaks down the moral fiber of our society. What makes you think this young generation that has grown up witnessing these wide scale unlawful activities delivered to them (usually "free of charge") via the Internet, will be able to draw a distinction between the virtual world and the physical world where STEALING is concerned as they get older and have to put food on a table full of their own babies and elderly parents? The jury is still out on that one.

I applaud the nerve, and the intelligence, of the judge up there in New York who presides over this case between Google and Viacom. Maybe your recent ruling will cause all of these Internet parasites to wake up and see the error of their ways before it is too late for all of us.

As a pleasant footnote to copyright holders. Do you think the judge would have allowed the complete user logs of YouTube to be released in this case if the outcome of this case was not leaning in Viacom's direction? I certainly do not. This may, indeed, be one of the most important weeks in the history of protecting the original works of copyright owners in this country ... one of the few absolute rights that was guaranteed to all of us in our Constitution over 200 years ago.

Congratulations New York . Congratulations copyright holders. It must feel good to know you have some judges up that way have your best interests at heart in enforcing our critically important (and "endangered") copyright laws and maintaining the delicate balance between managing and policing unbridled growth (i.e. "growth at ANY cost") over the Internet and maintaining our vital and long standing ethical, moral, and legal business practices going forward, while looking out for your best interests.

... which old witch ... the wicked witch!

George P. Riddick, III
Chairman/CEO
Imageline, Inc.

[e-mail]...

2008 Jul 20 10:26 AM

[Joyful Alte...:]

But user-generated crap is why I go to YouTube!

2008 Jul 20 12:21 PM

[Tom B:]

I think "joyful" has it right; let's get MORE "seedier and undesirable content". In fact, if you make it seedy enough, people might pay subscription fees.....I mean-- people pay for cable TV, right? That's at least 96% junk.

2008 Jul 21 08:29 AM

[Twowan:]

To make money with YouTube, this is what Google has to do...

On the most viewed clips (clips with, let say, at least 1000 views) (doesn't matter who posted them) you implement a 5 seconds overlay ad, that appears over the player and blocks out (darkens) everything else. (It gives a bit of time for the clip to load in the background as well).

This overlay is a 5 seconds spot (can't be longer than that and it doesn't link to a company website if you click on it. It's like a really, really short TV spot. It can be a still picture for outfits with very little budgets...)

Now, people don't like ads... but they like GAMES and they like to COLLECT stuff.

Each overlay ad is a mini 5 seconds GAME. You have three colored dots on the overlay. The viewer clicks on ONE of them. One is a winner, two are duds. If you're lucky to pick the winner (you only have one chance) during the 5 secs, you receive a TOKEN that is automatically added to your YouTube account. (It encourages you to stay registered...)

Now, you COLLECT these tokens. If you win a certain number of similar tokens, you can EXCHANGE them against full-length HD Hollywood Films or TV shows on YouTube. The fun part could be that you have different categorires of tokens. (Some would be for specific film genres or just for one TV show and some could be really hard to find, worth maybe ten tokens, etc.) (Tokens are generated randomly by the system.)

Now, you have the problem of guys posting shows and seeing Google make money off their film. Well, they need to be rewarded too. For a succesful posting (ie lots of viewers) they receive TOKENS as well to be exchanged to watch high-quality HD movies or TV shows...

Now, these HD movies or TV shows can also be sponsored with a longer lead-in spot... That's even more money for Google.

Now, we have the problem of big brand names not wanting to have their spots stuck on "Jimmy and his weird cat"... Well, they could "control" where their 5 Secs. spots go by teaming with content suppliers through YouTube. Example, a Coca-Cola campaign with Viacom clips... Viacom takes all the succesful shows they own like, as an example, "Spongebob". They cut out little "gems", two to three minute clips and they post them on YouTube to watch for free... Viacom via Google sell their 5 second spots to Coca-cola. Everybody is happy. The viewer, who enjoys these mini-clips, can even link to the full episode of Spongebob on YouTube. He can pay by redeeming TOKENS or he can PAY with a CC for the full episode or combine both. (It's all streaming! It's like TV a la carte.)

Now, what about the "Jim and his weird cat" clips. Who pays for these 5 secs ads? Well, it's like Google's Adsense, it's small outfits who purchase so many spots. You can buy a thousand spots or ten thousand spots to be randomly placed on clips or based on the clip's TAGS. The outfit supplies the spot or the still and pays Google directly up front.

A system like this is not that difficult to implement. It's fun for all involved. Everybody is a winner especially Google who makes tons of money from the big guys but also... most importantly...from the long, long tail of all the little guys. Viewers are hooked to YouTube forever!

Here, you have it.

Twowan,

(If Google wants more ideas like this one, they can contact me. I'm the guy behind laboratoryfilms.com)

2008 Nov 06 07:51 PM