The high costs of running YouTube.

Innovation, the Internet, gadgets, and more.
April 14 2009 6:17 PM

Do You Think Bandwidth Grows on Trees?

User-generated content may have changed the Internet, but sites like YouTube are suffocating under the costs of storing it.

(Continued from Page 1)

YouTube isn't alone in Poor House 2.0. Yahoo bought the popular photo-sharing site Flickr in 2005, and though the service might be marginally profitable, it certainly hasn't added appreciably to Yahoo's bottom line. (Yahoo similarly doesn't break out Flickr's financials.) Facebook provides an even better example. The social network is running up a huge tab to store and serve up all the photos, videos, and other junk you stuff into your profile. Last year, TechCrunch reported that Facebook spends $1 million a month on electricity, $500,000 a month on bandwidth, and up to $2 million per week on new servers to keep up with its users' insatiable photo-uploading needs. (Members post nearly a billion photos every month.) But Facebook gets relatively little in return for storing all your memories. Ad rates on its network are terribly low, the company doesn't make a profit, and it hasn't shed any light on how it will make good on investments that valued the company at $15 billion.

For all the frenzy surrounding citizen-produced media, the content that seems to do best online is the same stuff that did well offline—content produced by professionals. My colleague Jack Shafer recently listed the many services that people are willing to pay for online. They include music from iTunes, game videos from MLB.TV, reviews from Consumer Reports, and articles from the Wall Street Journal—and nothing made on some dude's cell phone. Or look at Hulu, the video site that shows TV shows and movies. It attracts far less traffic than YouTube does (and thus pays far less for bandwidth). But because advertisers are willing to pay much more to be featured on its videos, Hulu is on track to match YouTube's revenues and with much lower overhead.

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YouTube has been trying to catch up to Hulu in the non-user-generated video business. It has signed content-licensing deals with several Hollywood studios and recording companies in the hopes that it can attract an audience—and advertisers—for the kind of quality programming we now run to Hulu for. But as Benjamin Wayne points out, those deals won't solve YouTube's fundamental problem; even if it does begin to make respectable profits from, say, showing old feature films, it'll still have to keep paying huge infrastructure costs to host the world's home videos. It's possible that over the next few years, Google's engineers could find a way to reduce dramatically the costs of hosting such a service. (They're capable of amazing things.) But that proposition is iffy. As Wayne argues, there's a very real possibility that YouTube as we know it is doomed. The company may have to institute restrictions to keep its bandwidth in check, or it could unveil any number of pay-per-use schemes (as some other video sites have done). Then the video free-for-all that we've grown to love will come to an end.

That would be unfortunate. Time wasn't wrong: YouTube and its fellow user-contributed sites really did change the world. Too bad nobody could find a way to pay for it.

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