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Report: YouTube losing less money than thought, happy Hollywood doesn't know it

June 17, 2009 |  4:53 pm

YouTubeAlf In the entertainment business, it's customary practice to publicly boast that almost every new movie and TV show is a hit.

If a new report from IT consulting firm RampRate (not your usual savvy analysts of showbiz, but bear with us) is right, Silicon Valley's biggest company might be taking just the opposite approach.

RampRate's study, titled "YouTube: Google's Phantom Loss Leader," claims that the No. 1 video website is losing far less than the widely cited $470 million per year figure from an April report by Credit Suisse Equity Research. Using a different analysis of the bandwidth and other tech costs needed to operate YouTube, Ramprate estimates the site's losses this year will be a much more narrow $174.2 million.

So why isn't YouTube owner Google making a stink? We all know any movie executive wouldn't keep silent if a report claimed his or her project lost more money than it actually did (or even as much).

RampRate offers an intriguing, and plausible, theory: "Any appearance of profits leads to more draconian revenue share demands from partners and additional lawsuits from owners of unlicensed content. An apparent loss deters this behavior, making it eminently advisable for Google to let the rumors of YouTube's losses grow and compound."

Translation: If YouTube was known to be losing less money, or even close to making a profit, then the "sharks" in Hollywood might demand higher payments for their content, both legitimate and pirated, posted on the site. The longer Google can hold off sharing more revenue with content suppliers, the more money it makes on YouTube.

There's no way, of course, to reliably determine YouTube's financials since Google doesn't break out the results. And the circumstantial evidence is mixed. YouTube recently launched a "shows" section in an effort to get more television episodes and movies to compete against Hulu. The only way to increase its offerings, however, would be to pay more money, not less.

On the other hand, unless and until somebody figures out a profitable model for Web video advertising, YouTube and competitors like Hulu are left with much less revenue than their television counterparts. For now, Google might like the idea of content providers believing it's losing nearly half a billion dollars a year as it tries to help build a digital platform that could benefit studios.

As far as conspiracy theories go, it's not too far out by Hollywood standards.

Update (June 17, 5:40 PM): YouTube's losses may be shrinking fast. In a report released today, Nielsen said that YouTube is the top entertainment site on the Web and carried about 24% of all online display ads for the consumer goods category. The industry is estimated to have spent $156.2 million for online marketing in the first quarter of 2009.

— Ben Fritz

Photo: Episodes of "Alf" on YouTube. Credit: YouTube.

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