Will live video make YouTube rich?

Innovation, the Internet, gadgets, and more.
Sept. 14 2010 12:17 PM

Will Live Video Make YouTube Rich?

Assessing the pathway from live-streaming to big bucks.

Chad Hurley and Steve Chen. Click image to expand.
YouTube creators Chad Hurley and Steve Chen 

This week, YouTube began experimenting with what seems like a modest evolution of its mission: a live-streaming video platform. On Monday and Tuesday, the company allowed four of its content partners to stream live video through their YouTube channels.

On its face, this sounds like a cool little feature, but nothing earth-shattering. Officially, YouTube is not even claiming that this experiment—assuming it's deemed a success—will be extended to all content partners, only that it will "evaluate" rolling out the feature.

Yet to hear some bloggers tell it, this is YouTube's breakthrough moment. Douglas McIntyre of 24/7 Wall Street calls it "one of the most ambitious projects in [YouTube's] history" and predicts not only that YouTube "should be able to become the dominant force in presenting live events," but that this move "could be the first thing that makes it a viable business." Seth Weintraub at Fortune.com is already looking to a time when YouTube streaming of live sports and newscasts will eliminate the need for cable.

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These predictions are a tad premature. No one questions YouTube's dominance of online video; according to comScore, of the 178 million Internet users in America who watched a video online in July, 80 percent did so on YouTube. And with the blinding volume of 2 billion videos watched a day, it's obvious that once YouTube finds the right way to sell ads against videos, it will rake in a fortune.

Yet if every good idea automatically became a success, then YouTube's owner, Google, would rule a lot more sectors of the technology world than it does today. Just like watching a video on a shaky Internet connection, there's a lot of "buffering" between the Platonic ideal of live-streaming and guaranteed big bucks. Here are a few buffers:

They've got to get the technology right. More than half the times I checked in on YouTube's live streaming, either the picture didn't work at all or the video stuttered and stopped until I refreshed the browser. (This was true on two different machines, a PC and a Mac, hooked up to separate connections.) When it did work, the lagging of sound and image was seriously annoying, as many of the live commenters pointed out. YouTube acknowledged that there would be bumps in the road, and there were.

They've got to get the content right. In its announcement, YouTube boasted that in the past, it's done one-shot live-streaming with partners "from U2 to the Indian Premier League to the White House to E3." Fair enough, but for this to be a major business, it's going to need such content every day. YouTube didn't explain why it chose its four partners for the experiment: Howcast, Next New Networks, Rocketboom, and Young Hollywood. Without wanting to insult those outlets, the live-streamed material was far from compelling. I watched part of a tutorial on magic, a woman exercising underneath a fake double rainbow, and a spoof that presented Internet memes as a science class. Right now, this content not only doesn't threaten cable; it doesn't threaten public-access cable.

They've got to get the costs right. This is critical to the idea of live-streaming as a gateway to profitability. Essentially, no one outside Google knows the true state of YouTube's finances, since Google doesn't break the numbers out in its financial statements. Last year, you could find a wide range of estimates for YouTube's losses from Credit Suisse's prediction that it would lose $470 million (later revised down a bit) to RampRate's estimate of only $174 million. Much of the uncertainty hinges on how much YouTube spends on bandwidth and storage. Industry leaders note that bandwidth costs for streaming video are coming down, but costs haven't come down to zero. It will remain more expensive than recorded video for the foreseeable future. How much more YouTube will have to shell out depends, of course, on how widely it expands the live-streaming idea.

They've got to get the relationships right. McIntyre's vision of live-streaming as a moneymaker seems to be that when major media companies (such as TV networks) want to make a big splash with a live event, they will pay YouTube to be a secondary distributor. OK, but in that circumstance YouTube would presumably get only an ad revenue split; anything more, and the networks would be cannibalizing their own online properties. That won't close a nine-figure deficit (see above) any time soon.

Weintraub seems to think something similar will happen with sports, which is a lot harder to pull off than it sounds. Sports leagues are notoriously vigilant about prohibiting any manner of real-time transmission of any aspect of their games on any technology platform (including, in the not-too-distant past, prohibiting fans from making too many phone calls during NBA games). While it is not theoretically impossible for American sports leagues to give a piece of their online promotion to YouTube, it would require negotiations with incumbent network and cable companies and the leagues' own paid online channels; at best, that is a few years away.

These challenges, individually and collectively, need not be fatal. With the audience for online video absolutely exploding—a sevenfold increase over the last year, according to comScore—it would be foolish to project that YouTube won't grab some important slice of the live-streaming audience. But YouTube's very success is a reminder that domination can come out of left field. Yes, it's true that no major media corporation has stepped in to dominate streaming video. It's also true that YouTube wasn't a major media corporation when it began to dominate the online video universe. It's entirely possible that companies already focused on live-streaming video—such as Livestream and Ustream—will be able to move more quickly and decisively than YouTube. If anything, what distinguishes YouTube at this stage is that it can actually afford not to succeed at live-streaming, and wait instead for some other video trend to make it rich.

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