It is coming up on 2 years post my declaration that only a moron would buy Youtube and that Google was crazy for actually going through with it.
In that period of time, while Youtube traffic has skyrocketed, they have been steadfast in their admission that they haven't been able to monetize Youtube's traffic in a profitable manner. Youtube has become the poster child for the old saying "we are losing money on every sale, but we will make it up in volume". To the Youtube fan club, its inconceivable that any website with so much traffic and marketshare could be in anything but an enviable position. The fan boys would be increasingly wrong. The Youtube business model is broken and there is no light at the end of the tunnel as they are currently constructed.
The reason is Hulu.
Hulu doesn't serve up more videos than Youtube. They aren't even remotely close in number of total users or videos served. But there is one area in which Hulu is just stomping up and down Youtube, and another in which Hulu is laughing at Youtube all the way to bank.
Lets start with the 2nd, Hulu laughing at Youtube. Youtube has presented to Hulu something that we can simply call The Youtube Arbitrage. Whats the Youtube Arbitrage you ask ? Simple. Hulu posts clips, not full episodes, clips on its Youtube channel and elsewhere on Youtube. Those clips are preroll AND overlays AND post rolls promoting Hulu and its full episodes of shows and movies. All of which costs Hulu the ginormous cost of ....nothing. From which it generates traffic to its Hulu site on which it sells, to the point of often selling out, display and preroll ads. That's the ultimate arbitrage. We pay you nothing, and you send us traffic that generates ad revenue for us.
Which leads us to the one area, OK lets say two areas that Hulu is just stomping all over Youtube;
1. Revenue Per Video
2. Revenue Per User
Hulu has one HUGE advantage over Youtube, it has the right to sell advertising in and around every single video on its site. It can package and sell any way that might make its customers happy. Youtube on the other hand, has that right for only the small percentage of the videos on its site that it has a licensing deal with. For probably 99pct or more of the videos on the site, Youtube isn't supposed to know what they even are.
How can that be ? Because Youtube hides behind the Digital Millennium Copyright Act. Hulu is a media site that presents videos with advertising. It can do whatever it wants. Youtube ts a hosting service. Its not allowed to know what videos are uploaded by users and its not allowed to generate revenue against those videos. It can only sell advertising around videos it has licenses to.
Which leads to a question and a prediction.
The Question: Which site currently has more monetizable video and traffic, Youtube or Hulu ? I don't know the answer. I'm guessing that its already a close race and may even be in Hulu's favor. I do know that Youtube's need for more monetizable traffic is why they added the check box for Partner Videos. Notice that those are the only videos that you see ads next to.
The Prediction: That by next year, not only will Hulu have more monetizable traffic than Youtube, but it will have more total revenues than Youtube as well. It wouldn't sup rise me if they are already at a higher annual run rate than Youtube.
All of which puts Youtube in a VERY BAD spot. Because Hulu can monetize 100pct of their growing traffic, they should be in a position to pay for the best content available. Not a lot of money, but even with the tiniest of guaranteed payments to producers, they will not only attract better content than Youtube, but they will also increase the cost to Youtube for the content they want most to license. Furthermore, because Hulu knows exactly what they have on the site and can sell 100pct of it, their professional sales force will be in a better position to package and sell bigger and more profitable ad solutions.
It will be interesting to see how Youtube responds.
As it stands today however, there is no doubt that Hulu, if it doesn't already, will have more monetizable traffic and greater revenues than Youtube going forward.
Which means that the more traffic Hulu generates, the more money it makes. The more traffic Youtube generates, the more money it loses.. Maybe they think they will make it up with even more volume ?
I'm sure the fan boys are convinced they will.
Hulu is kicking Youtube's Ass
Reader Comments
(Page 1)2. YouTube also the $1 Billion Viacom lawsuit hanging over its head. If Viacom wins there will be a flood of similar lawsuits from other copyright holders.
YouTube content is very difficult to monetize, even more difficult than other User Generated Content, because it is not searchable.
Google knows how to sell CPC ads against search terms. Yahoo is pretty good at selling display ads against their own text based content because they know the subject and context. YouTube can't effectively sell CPC or CPM display ads.
Plus, it is enormously expensive to host and stream all this video content. This is the worst of all possible worlds for YouTube. Even might Google, the king of web advertising can't figure this one out.
3. Hulu has better content, no question. I especially love having access to classic TV Shows that have not aired in years.
I feel for Gootube, but these are some intelligent guys running the company and i`m sure they will figure something out.
Prosumers in the mean time need to study film making books because the quality of videos people have been posting on the site just seems to be getting worse. I wonder how many return visitors actually look for user generated content vs. stolen media.
gr
Posted at 10:02PM on Jun 16th 2008 by G Rueda
4. But youtube has a huge advantage; it doesn't have to produce content, whereas Hulu (being backed by Big Media), directly or indirectly, has to fund all of it's media. Not sure that the economics of either site are great...but if Hulu properly accounts for its fair share of the cost of the content it hosts, then its probably very deep in the red as well.
Posted at 10:08PM on Jun 16th 2008 by EPK
5. The YouTube guys were smart to sell to google and not become Shawn Fanning. (He did recently get some cash, but how long ago was napster?) When you agitate those whose help you need, usually it ends badly. Big media already funds all the shows on hulu, this gives them more ad inventory to sell against the same content.
7. The bottom line is this:
Those guys who owned YouTube (Chad Hurley and Steve Chen) and sold it are now rich - just like you Mark.
That is all that matters.
While you (and probably a few others) look to Google's mistake for some sort of, "I told you so" enjoyment...
I look at some dudes who sold at the right time and became filthy.
(Pretty familiar scenario, right?)
You sold at the right time Mark. Honestly, you would not be a billionaire had you got in later. But my hat’s off to you.
But you should probably remember your luck sometimes.
I used to admire you so much. But now... enh. You are not a genius...
You just got lucky with timing.
I have sold 35+ million albums with artists that I have signed... so I am cocky in the same regard (when it comes to music).
But I do understand that I sold those millions of records at the right time.
Could I sell 18 million of one album as I did in the past in 2008?
Not even close.
I am the best in the industry...
But I also had a lot of help by getting in at the right time.
Time was your greatest success Mark.
Time.
Let us both acknowledge that.
(I wonder if the Steelers and Niners would have won that many Super Bowls with FA in place - just something to think about)
Posted at 11:33PM on Jun 16th 2008 by Anonymous
8. ballsy post, anonymous.
Posted at 11:42PM on Jun 16th 2008 by mike
9. Google peers directly with many backbone providers, negating bandwidth costs for both parties, and is aggressively expanding in this area.
The idea that they lose money on every sale is therefore not necessarily true, although I agree with the bulk of your post that Hulu is in a good position.
10. I recently learned about Hulu and I love love love it. I advise that everyone go check out the offbeat travel show Three Sheets. I was able to catch up on the two seasons I missed - for free. And, just before I dropped $1.99/episode on iTunes.
LOVE Hulu and great post. I agree 100%
Posted at 12:21AM on Jun 17th 2008 by The Travel Pirate
11. Mark I agree, I'm a big fan of Hulu but there is a flaw. Hulu currently lacks content. I'm a big Babylon 5 fan and was excited to see it offered on Hulu but unfortunatley it only had the first season (IMO the weakest season). You see this CONSTANTLY, and it's really annoying. I also think if Hulu really takes off then FOX, NBC and the other content providers will inevitably fight over and ruin Hulu. Hulu doesn't have the leverage someone like Steve Jobs has to keep the content providers in line.
I don't think YouTube will ever be a uber profit maker but you can't deny the impact and influence it has on our society. Maybe it's not monetizeable but it's become important to a lot of people. I know you're not high on user content but YouTube just has some incredible videos that you will never see on a buttoned down website like Hulu. I don't agree with pirated content but nobody can deny that YouTube has tapped into something special. Long live YouTube.
Posted at 12:23AM on Jun 17th 2008 by JH
13. Mark Cuban is Jewish right? I heard that jews hate asian men like Yao ming.
Posted at 2:14AM on Jun 17th 2008 by nick
14. With all due respect... and I am a long time reader and huge fan Mark.... There may be 1 Million and 1 reasons why YouTube was a bad buy, bad business model and the reason for all things evil... but just as I feel that the GoDaddy guy has become a horny old bastard and should just stick with selling domain names in lue of pushing soft porn spokes models... Why can't you let this one go Mark? YouTube sucks... we get it. With every third post being a dig on YouTube; it's getting old bro.
Hulu is the new Messiah....
YouTube causes cancer...
Posted at 5:46AM on Jun 17th 2008 by Adam
15. You are finally right about a web issue. You nailed this right on the head! I am also a contrarian on YouTube.
Posted at 7:14AM on Jun 17th 2008 by Michael Yavonditte
16. This is very good point Mark is looking at right now. Actually, very interesting to know more about all these legal things :) havent looked at all that from this view.
But.. the hulu is only in U.S. so the geographical market, for now, is limited for Hulu. But for youtube it is all world, I guess. mostly, I know that some clips are not available in my country.
Posted at 8:40AM on Jun 17th 2008 by Aris
17. > Which means that the more traffic Hulu generates, the more
> money it makes. The more traffic Youtube generates, the more > money it loses
So perhaps if Hulu steals more of YouTube's traffic, YouTube will make more money too because they lose traffic? Everyone wins!
18. Mark suffers from severe Google envy. Google was criticized for years on their inability to monetize search as they dominated in search volume. Today that seems ridiculous, but it was true. Mark, Steve Ballmer, and the others suffering from Google envy, GET A LIFE!
Posted at 11:11AM on Jun 17th 2008 by Dave
19. I'd love to give Hulu a try except I use Unbuntu and last I checked it won't work with my computer. I moved away from Windows because I wanted an OS that simply works and didn't have the cash for a Mac. I don't have to work code, but when people have overly restricted formats they drive customers away. Add in that networks are pulling episodes of shows they have on the site I have heard alot of complaints from end users. Now granted that is the content providers fault, not Hulu, but they ought to be encouraging content providers to be smarter about such things if they want to succeed as a site. But I'll agree it worth watching what they are doing.
20. Never heard of Hulu... YouTube may just be hosting videos now, but they could easily change their tune and copy Hulu if there was a clear profit stream.
Posted at 12:53PM on Jun 17th 2008 by Money and Finance
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1. Mark,
Thanks for writing about Hulu, I actually hadn't heard of them until now. Looks interesting and I can definitely see why it could make more money than youtube. Also would seem to be a low-budget version of Netflix's "instant watching" business venture. Probably more profitable than that too...
Posted at 9:49PM on Jun 16th 2008 by Mike