news analysis A big audience doesn't automatically mean big profits.
That's the lesson that YouTube and Google are learning the hard way, according to a story published Tuesday evening by The Wall Street Journal. The newspaper's Web site reported that YouTube is generating $200 million in ad sales and is stilling failing to meet its revenue expectations.
Other startling revelations in the piece include a plan by Google to allow preroll and postroll advertisements to appear on YouTube, and that it has identified 105 problems with YouTube's ad sales. Another surprise came when it was suggested that the $1 billion copyright lawsuit that Viacom filed against Google last year has forced YouTube to water down its advertising strategy.
"The Viacom suit has complicated matters," the Journal wrote. "Fearful of fueling allegations that it is profiting from copyright infringement, Google will only sell ads against YouTube clips that have been posted or approved by media companies and other partners."
This is simply inaccurate. Any assertion that Viacom's lawsuit has held Google back from employing some winning ad strategy is just not factual.
One has to wonder whether someone in the Google camp decided that Viacom might make a convenient scapegoat for YouTube's ad woes. Last week, Viacom had to fend off accusations that it was invading people's privacy after a federal judge ordered YouTube to turn over user information to the media company.
The truth about YouTube's ad sales is that the company has always been limited in how it sells ads on the site. Viacom didn't make that complicated. YouTube did when it sought protection from copyright suits under the Digital Millennium Copyright Act (DMCA).
Scores of YouTube users post unauthorized clips on YouTube every day, but YouTube has always claimed to be an Internet service provider, just like Craigslist or eBay, thereby protected from liability under copyright law, or more specifically, the DMCA's Safe Harbor provision.
But Safe Harbor requires that for an ISP to be protected, it must not directly profit from copyright-infringing material. That means that if YouTube posts ads alongside pirated videos, it risks losing the protection.
Perhaps few have called more attention to the tightrope that Google must walk between ad sales and copyright law than Mark Cuban.
Last month, the founder of Broadcast.com and owner of the NBA's Dallas Mavericks predicted in a blog post that Hulu, the video portal and YouTube competitor owned by NBC Universal and News Corp., would expose YouTube's advertising shortcomings.
"Hulu has one huge advantage over YouTube," wrote Cuban, a longtime YouTube critic. "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 (where) it has a licensing deal."
It all comes back to YouTube's business model. After three years, it needs to find one.