Premium content website Hulu, owned by several large multimedia companies, claims it will revolutionize how people get high-end video online and make a great deal of money in the process. VEVO claims the same thing. The other track to profit for online video sites is advertising, which carries a higher price than regular display or text ads. For that revenue to transform the profits of web portal and content sites, the number of these ads will have to rise at an extraordinary pace. The hurdle these models face is that only one online video site has incredible mass — the video-sharing site YouTube. The Google Inc. (NASDAQ: GOOG) property remains dominated by grainy amateur video. And it has bumbled as it has tried to make money on the property. Eventually the search company will figure out successful models, and all the smaller video sites will face a new, huge challenge.
The rise of YouTube as an e-commerce operation likely will be similar to the rise of Facebook Inc. (NASDAQ: FB) in the display advertising industry. Three years ago, Yahoo! Inc. (NASDAQ: YHOO), MSN and AOL Inc. (NYSE: AOL) had the lion’s share of the market. Now, they each run far behind the social network, which according to some studies has a quarter of all the display ad inventory online. Facebook charges relatively low prices for this inventory, which puts downward pressure on revenue from all of its competitors, which in sum are the entire online ad sector.
Comscore data show that YouTube’s total unique visitors were more than 150 million in August. That is against a U.S. market in which video sites had 188 million unique visitors. Yahoo!, the next site in size, had only 55 million visitors. The situation gets worse for sites beyond YouTube in terms of total videos viewed last month. For YouTube the figure for the United States was 13.8 billion. Yahoo’s number was 529 million. Average time spent on Google last month was 443 minutes per user. The next set of sites below it, which includes Yahoo!, Microsoft (NASDAQ: MSFT) and VEVO, were barely 10% of that YouTube figure.
The advantage YouTube competitors have had so far is that Google has been late to successfully sell ads on the site or turn it into a video rental destination. Some analysts believe that is because the site is dominated by awful amateur offerings. But Google has begun to work around that by setting search features that get users to premium content and highlighting that premium content on the most visited section of the site. In other words, Google means to correct the mistakes it has made with YouTube. And it only has to be partially successful to dominate the revenue-generating portions of the video industry.
Sites that want to make profits from online video are bound to find it harder. YouTube has too much of the market.
Douglas A. McIntyre
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