A mini-controversy is brewing following comments made last week by YouTube's leaders about how the video service is headed to profitability.
In the wake of YouTube's good news, Chris Dale and Aaron Zamost, two YouTube public relations types, appeared to gloat when they posted a blog designed to do some "myth busting" about oft-written assumptions about the company. Two of the "myths" are "advertisers are afraid of YouTube" and "YouTube is only monetizing 3 to 5 percent of the site."
Dale and Zamost were taking the opportunity to debunk these allegedly inaccurate assertions, but as Peter Kafka at the blog All Things Digital wrote, the Google duo did so without supporting their arguments with any hard facts or numbers.
"The Google folks are feeling ever more confident about YouTube's prospects enough to do some public chest-beating," wrote Kafka. "But not enough to actually talk about those prospects in concrete terms."
The criticism that Kafka and others appear to have is that if YouTube isn't willing to reveal exactly how close it is to profitability, than perhaps it's wise to hush up. Closing in on profitability isn't the same as banking the money.
YouTube has always declined to provide details about its finances and the secrecy bears much of the responsibility for the vast amounts of speculation. When you're the Godzilla of Web video, one of the biggest entertainment destinations, and one of the most disruptive communication tools to emerge since the telephone, people are bound to be curious about your business.
Perhaps YouTube failed to recognize that early in its history. It's hard to forget about YouTube's haughty attitude back before the Google acquisition in October 2006, back when the start-up was riding its first wave of popularity. That was when YouTube's public relations representatives put the beat down on reporters who dared inquire about the company's business model.
The line was YouTube was so popular, it could make money in a plethora of ways, so don't worry about it. The company would reveal everything when the time was right.
As we all know now, generating revenue hasn't come easy to YouTube. Eric Schmidt acknowledged in May 2008 that Google hadn't quite figured out how to make money from the video site. Learning how was Google's biggest priority last year, Schmidt said.
For Google's part, if you give the company the benefit of doubt that YouTube is becoming profitable, then Dale and Zamost have likely been forced to stay quiet while a stream of erroneous analyst reports floated past. Their blog appears to be a venting of frustration.
In November, Screen Digest analyst Arash Amel predicted YouTube would generate $100 million in U.S. revenue and eventually be outpaced by Hulu. In March, Jefferies & Co stated that YouTube would account for only roughly 3 percent of Google's net revenue this year, or $500 million. In April, Credit Suisse projected YouTube would lose $470 million this year. Some of the projections gave rise to subtle headlines, such as "YouTube is Doomed."
In the analyst reports, many of the same weaknesses are repeated: YouTube revenue is hurt by its inability to draw advertisers to user-generated content. For that reason a small percentage of the site's videos can be turned into cash.
"This oft-cited statistic is old and wrong," wrote Zamost and Dale. "In our view, the percentage is far less important than the total number of monetized views, and we are now helping partners generate revenue from hundreds of millions of video views in the U.S. every week (and billions worldwide)."
As for advertisers rejecting user-generated content, Dale and Zamost state that not only is that inaccurate, but they note YouTube offers hundreds of TV shows and films.
"Advertisers just want control," Dale and Zamost wrote in their blog post. "So, we're continuing to develop tools and targeting products that give advertisers more control over where their ads appear on the site."
In the end though, Dale and Zamost and YouTube and Google should remember, none of their nibbling at the edges of the debate is going to stop the guessing about YouTube's numbers, which likely won't stop even when YouTube does become profitable. Google won't be required to reveal actual revenue or earnings numbers until they become "material."
That could be a while.