Google’s foray into the online video market has been criticized by many. In fact, some believe that Google’s decision to acquire YouTube was one of the worst it has ever made, thanks to the confluence of massive copyright violations and Google’s financial backing, which gave copyright holders the impetus they needed to sue the popular site. Others believe that Google’s decision to enter the online video market and become a quasi-content firm wasn’t the best way for it to capitalize on the booming video advertising business. Either way, Google is now wholeheartedly invested in online video and YouTube is the centerpiece of its strategy.
YouTube’s Sorry Situation
YouTube may be wildly popular, but Google’s ability to realize a profit has been difficult, at best. The company spent $1.65 billion for YouTube and so far, it has yet to find a way to monetize it effectively and realize a positive return on its investment.
Estimates for how much revenues YouTube can produce are all over the place. While Forbes estimates YouTube’s revenue will reach $200 million worldwide this year and $350 million next year, Citi analyst Mark Mahaney thinks Google can make $500 million next year if it focuses more of its efforts on display ads.
But just because YouTube may be able to recognize revenue of $500 million next year, doesn’t mean it will. YouTube needs to do a much better job in the advertising department to get there. It has done little to allay many of the fears advertisers have about the content presented on the site—the limited success of its Video ID program aside. Whether YouTube, the business, can be as successful as YouTube, the video site, is still a big question mark.
For all its business challenges, YouTube remains the most popular video service on the Web. The site commands 34 percent of all Web videos streamed in the U.S. market, while the second-place service, MySpaceTV, only controls 6.4 percent, and Hulu brings up the rear with 0.7 percent (according to May, 2008 numbers from comScore Video Metrix).
Head-to-Head With Hulu
Hulu may not size up well against YouTube – in May 2008, Hulu served about 88 million videos compared to YouTube’s 4.2 billion videos – but it has the luxury of monetizing the vast majority of its videos instead of the three percent that YouTube can sell ads against. Three percent of 4.2 billion is 126 million videos a month that can carry ads—not much more than Hulu.
That pretty much levels the playing field in terms of revenue and profit potential. According to one estimate, Hulu could enjoy $90 million in revenue in its first year. And although it may not be quite as much as YouTube’s estimated worldwide revenue total of $200 million this year, it equals a Bear Stearns estimate for YouTube’s domestic 2008 revenue (of $90 million). Considering that Hulu mainly caters to an American audience, both YouTube and Hulu could see roughly the same revenues in the U.S. this year.
Unlike YouTube, Hulu isn’t plagued by copyright concerns and doesn’t need to worry about questionable user-generated content. More importantly, all of its content appeals to advertisers.
As Chris B. Allen, director of video innovation at Starcom told Forbes, “most of the momentum now is for ads within full episodes run on the TV networks’ sites, such as NBC and Fox’s Hulu, ABC.com and CBS.com. It’s a format that advertisers understand.”
But understanding the format is just a modicum of the business advantage Hulu has over YouTube. In contrast to much of YouTube’s videos, Hulu’s content doesn’t cross as many lines of decency and demographics are readily available. (Albeit, Google did launch Insight, its video statistics service, to help with demographic information).
If YouTube has shown us anything, it proves that there is a huge market for user-generated content. But from a business standpoint, professional content is the place where advertisers want to spend money and how video sites will solidify their financial position. Athough Hulu will probably never grow to the size of YouTube and Google can use that size to its advantage, Hulu’s own advantage is its ability to draw advertisers to the content that more effectively attracts their target audience.
The heart of the issue is the value of mainstream versus niche buys. Advertisers want to place ads on videos that they know their target audience is watching. YouTube has started to make a push for professional content as of late, including a deal with Family Guy creator, Seth MacFarlane. But it needs to work harder to solve the problem of making money from its costly user-generated content, which is not only the vast majority of its videos, but also the content that most advertisers don’t want any part of.
In contrast, Hulu is the epitome of a video site that has capitalized on the inertia of the industry by providing users with content they know and can enjoy, while making it a service that would appeal to practically any advertiser.
Advertisers are throwing money at Web video, but who is going to capture that growth?. According to eMarketer, online video advertising will amount to $1.35 billion this year and Google, a company that controls more than 30 percent of the U.S. video market, can only attract 15 percent of advertising spending this year. As more advertisers look to spend money on online videos and continue their search for professional content with dependable demographics data, Hulu could become the service of choice.
We can’t forget that Hulu is still in its infancy and quite a bit can happen between now and when it becomes a more powerful brand. But we also can’t forget that it’s quickly becoming the place where TV and film studios – organizations that have historically distrusted the Web – want to place content for free on the Internet. We also can’t forget that YouTube is public enemy number one for those studios because it was once (and still is, to some extent) a haven for copyright infringement.
All Google needs to do to ward off the Hulu threat is to make a little bit more of its video inventory appealing to advertisers. Not much, maybe 10 percent.
But if Google doesn’t lure more professional content as quickly as possible and do its best to monetize user-generated content, Hulu will gain ground financially and could solidify itself as a big money maker in the industry. Perhaps even bigger than YouTube. All the while, Google will keep spending millions each quarter to pay for YouTube and desperately search for business models that will one day hopefully see it turn a profit, while NBC and the rest laugh all the way to the bank.
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As anyone who has had the pleasure of doing web design and development through marketing agencies knows, Flash tends to be wildly popular among clients and wildly unpopular among, well, pretty much everyone else. Part of the reason for this is because Flash is so inherently un-Googleable; anything that goes into a Flash-only site is basically invisible to search engines and therefore, the world. That will no longer be the case, however, as Adobe announced today that it has teamed up with Google and Yahoo to make Flash files indexable by search engines.
This announcement has been a long time coming, as Flash developers have been wishing for ways to make their content searchable for close to a decade. Adobe acknowledges this in its announcement, saying that although search engines are able to index static text and links within Flash SWF files, “[Rich Internet Applications] and dynamic Web content have been generally difficult to fully expose to search engines because of their changing states—a problem also inherent in other RIA technologies.”
This announcement may also result in some major usability changes (for the better) for Flash on the web. In a post to its Webmaster Central Blog, Google wrote that it can now index all kinds of textual content in SWF files, like that included in Flash gadgets, buttons, menus, entirely self-contained Flash web sites, “and everything in between.” Google can now also follow URLs embedded within Flash files to add to the crawling pipeline. This new indexing technology does not, however, include FLV files (video files that are found on sites like YouTube) because those are generated as videos and don’t contain any text elements like an SWF file does.
Google says it’s able to do this by developing an algorithm that “explores Flash files in the same way that a person would,” by clicking buttons and manually going through Flash content. “Our algorithm remembers all of the text that it encounters along the way, and that content is then available to be indexed,” wrote the company. “We can’t tell you all of the proprietary details, but we can tell you that the algorithm’s effectiveness was improved by utilizing Adobe’s new Searchable SWF library.”
Of course, Google (and eventually Yahoo) won’t be able to index everything embedded within a Flash file—at least not yet. Anything that is image-related, including text that is embedded into images, will be invisible to the search engines for the time being. Google also noted that it can’t execute certain JavaScripts that may be embedded into a Flash file, and that while it indexes content that is contained in a separate HTML or XML file, it won’t be counted as part of the content in the Flash file. These are all issues that are being worked on, however, and are likely to change in the future.
Yahoo is also working with Adobe to index SWF files, but doesn’t appear to be as far along as Google just yet. One player that is noticeably missing is Microsoft, though. From Adobe’s announcement and the language used by Google, it appears as if each search engine has to work with Adobe to make this possible—meaning that Microsoft has either been excluded by Adobe for this round or has decided to voluntarily sit this one out. Either way, with searchable SWF files down, usability experts can now focus all of their attention on other Flash-related concerns, like blatant design perversion and excessive animation abuse.
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YouTube has refused a request from U.S. Sen. Joe Lieberman (ID-Conn.) to remove all videos sponsored by terrorist organizations like Al-Qaeda, contending that most of them don’t violate its community guidelines.
Lieberman, chairman of the Senate Committee on Homeland Security and Governmental Affairs, Monday called on the Google Inc. subsidiary to remove video content produced by terrorist organizations that showed assassinations, deaths of U.S. soldiers and civilians, weapons training, “incendiary” speeches and other material intended to “encourage violence against the West.”
“Islamist terrorist organizations use YouTube to disseminate their propaganda, enlist followers, and provide weapons training,” Lieberman said in a letter to Google CEO Eric Schmidt. “YouTube also, unwittingly, permits Islamist terrorist groups to maintain an active, pervasive, and amplified voice, despite military setbacks or successful operations by the law enforcement and intelligence communities.”
In the letter, Lieberman noted that while YouTube posts community guidelines for its users, it does not appear that the company follows the guidelines. For example, he noted that despite rules that prohibit gratuitous violence on the site, there are videos of Al-Qaeda attacks on U.S. forces in which some soldiers are killed or injured.
When contacted, Google pointed to a YouTube blog post that said the company has removed some of the videos cited by Lieberman, primarily because they depicted gratuitous violence, advocated violence or used hate speech. However, the post also noted that most of the videos in question remain on the site “because they do not violate our community guidelines.”
“Hundreds of thousands of videos are uploaded to YouTube every day,” the YouTube blog post said. “Because it is not possible to pre-screen this much content, we have developed an innovative and reliable community policing system that involves our users in helping us enforce YouTube’s standards. Millions of users report potential violations of our community guidelines.”
YouTube went on to say that it encourages free speech and defends the right of its users to express unpopular points of view
“We believe that YouTube is a richer and more relevant platform for users precisely because it hosts a diverse range of views, and rather than stifle debate we allow our users to view all acceptable content and make up their own minds,” the company said. “Of course, users are always free to express their disagreement with a particular video on the site, by leaving comments or their own response video. That debate is healthy.”
Mark Hopkins, a blogger for Mashable, noted that YouTube has been “capricious and arbitrary” in deciding what content promotes hate speech or violence and should be removed. For example, he pointed out that YouTube took down a video showing victims of a Muslim terrorist attack, but allowed videos of homeless people who were paid to beat each other. A video of clothed females in Hong Kong with derogatory music towards women being played in the background was removed, while a video of a strip tease with nudity was allowed to remain on the site, he noted.
“[Lieberman's] primary concerns weren’t the usual suspects when you think of the things that American politicians find objectionable (rap music, graphic portrayals of violence, Grand Theft Auto and Janet Jackson’s nipple),” Hopkins noted.
Instead Lieberman brought up a topic that YouTube should be called on — allowing itself to be a participant in the dissemination of propaganda videos produced by Islamic terrorist organizations, Hopkins said. “If YouTube can spend millions enforcing DMCA and piracy concerns, they can take a few minutes and respond to valid citizen complaints against usage of the system to promote terrorist organizations,” he added.
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