YouTube has come out with its own system to put video advertising onto its site. And, Google (GOOG) is hoping its works. After paying $1.6 billion plus for the world’s largest video sharing site, all the search company has to show is a $1 billion copyright infringement lawsuit from Viacom (VIA).
How much is the new advertising initiative worth? According to Silicon Allen Insider, $108 miliion, about 1% of GOOG revenue. UBS puts that figure at $120 million. According to TheStreet.com, Piper Jaffray analyst Gene Munster sees the company making $1.1 billion over the next year
The devil is, as always, in the details. The video ads will not run on all of the YouTube content, but on partner content where the content owners have deals with the site. Then, there is the issue of whether the ads work. If the project starts out by giving marketers low response rates, revenue may never pick up. And, some models have YouTube getting a cost per thousand of $40, which would be at the very high end for internet advertising. If the number ends up being $10, it is not much of a contributor.
YouTube has been a headache for Google. Now, Wall St. wants to see if it can make any money or if it is just another Skype in sheep’s clothing.
Douglas A. McIntyre