FICRY

Your Tube or Mine?

Is the internet monolith YouTube hemorrhaging Google’s money or are the losses exaggerated? The AP reports that technology consultants RampRate Inc. projected a $174.2 million dollar operating loss for the 2009 fiscal year for the video site. In April of last year, YouTube’s quarterly projections, as estimated by Credit Suisse analysts Spencer Wang and Kenneth Sena, set them on a path to a whooping $470.6 million dollars in annual profits. So what could have happened, if anything, to topple the internet business par exemplar? The truth, which was begrudgingly admitted this week to investment analysts, is that Youtube never made the search engine money. And in light of this admission and Google’s refusal to detail the losses, reports are surfacing that the video site is bleeding the search engine dry.

In 2006, Google acquired Youtube for a cool $1.76 billion. As a result of the deal the video sharing site became ubiquitous; it transformed from niche market to internet cornerstone seemingly overnight. Now the search engine giant may be suggesting that they paid too much. The associated press claims that this week, Google Execs acknowledged that YouTube does not generate profit, but they were not willing to offer any details. Experts and pundits have now descended on the news story and provided their own catastrophic projections, which contributes to the overall devaluation of the YouTube brand.

Despite appearances, this is good news for Google. It’s a savvy stunt; it drives down legal costs which helps them appeal, to a newly budget conscious Hollywood. If YouTube is perceived by those in the entertainment licensing business as a good deal, then they Google will have an easier time getting contracts. the AP writes: “San Francisco-based RampRate reasons the perception of large losses at YouTube helps Google negotiate more favorable contracts with movie, TV and music studios licensing their video. What’s more, copyright owners also are less likely to go to court in pursuit of unpaid royalties and damages if they believe YouTube is a big money loser, according to RampRate’s thesis.”  Industry insiders claim that “Google is no doubt thrilled to let YouTube be known as a financial folly.”

The decision to slander the YouTube name positioned the video sharing site as the primary vehicle for promotional content. Whereas video sharing has been touted as the death knell of for-pay media, the reality is that YouTube is the furthest reaching promotional tool out there and has the ability to generate huge profits, albeit indirectly.

Despite, or perhaps, as a result of YouTube’s performance and the global economic downturn, Google is has proved itself to be somewhat recession proof. Google earned  $4.2 billion last year and started off this year with a first-quarter profit of $1.4 billion.

Here at FICRY.com, we have reported on the havoc wreaked in the mainstream media by YouTube sharing sites and alike. While rumors circulate that the internet will do to television what television did to movies, Google’s actions in demonstrate a new approach to tackling the free media movement. The internet giant is baiting Hollywood producers, encouraging them to using video sharing technology to their financial advantage instead of fighting a loosing battle in court.

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