Value of YouTube 'clip culture'? Junk CPMs

On deflating the latest YouTube fantasia and "Top Five Reasons NOT to Buy YouTube!"
Written by Donna Bogatin, Contributor
In “YouTube yearly revenue potential: Fred says $150M a year, I say $20M.” Jason Calacanis deflates the latest YouTube fantasia, responding to Fred Wilson’s “YouTube’s Potential Revenue.”

Fred Wilson literally disclaims the validity of the metrics he himself uses to calculate the revenues YouTube “could be generating”:

Let's say that advertisers will pay on average a $15cpm for a ten second pre-roll ad in front of licensed content and high quality user generated content (lisa nova, etc). And let's say that 60% of the videos being served on YouTube are unlicensed content that could be licensed with the right business deal. And let's say that another 20% of the videos being served on YouTube are user generated content that is high quality. That leaves 20% of the videos being served that are not monetizable. I realize these are unsubstantiated assumptions, but my point is not to be accurate, it's to make a point.

If you make those assumptions, then YouTube could be generating $440 million in annual revenue at their current volume of videos served. $213 million of that revenue would be passed on to content owners assuming a 65/35 rev share in favor of the content owners. And another $70 million would go to the creators of high quality user generated content. That would leave YouTube with net revenue of $150 million at it's current run rate.

Wilson plugs his unsubstantiated assumptions into spreadsheet analysis and presents two “VC” worthy presentation graphs.

While Calacanis does not support his case with financial graphs, the metrics he uses in his calculations presumably reflect his direct, operational knowledge of actual industry “going rates.”

Calacanis’ numbers:

A $15 CPM for 10 second preroll on unqualified video is not gonna happen. It would be more like a $2-3 "junk" CPM like you see around the web today. $15-25CPMs are reserved for *qualified* videos with a high editorial benchmark. If an advertiser is going to break the $5 CPM barrier they are going to want to know what type of video is on the other side with very rare exceptions. Real branding folks do not just throw their advertisements on content. They want to be associated with high-quality editorial…

They are not going to sellout their inventory. When you have as much ad space as YouTube or MySpace you are never going to have any scarcity, and that is what drives high CPMs. Niche properties get the $15-25CPMs because they are sold out. YouTube's flood of traffic is not going to sellout. Fred comes to a $150M *potential* number. I think they could do 10-20% of that number today, and over time they might get to half the $150M number *if* they get video owners (think SNL) to hand over archives. However, these folks are going to want a floor CPM.

Calacanis concludes his analysis by noting that “YouTube is not a real business” and postulating on a potential “negative” worth:

I don't think YouTube is gonna get bought at this point. This is the hottest M&A market *ever* for Web companies…Whoever buys YouTube gets left holding the lawsuit bag--just like Napster. I wouldn't touch it with a Yahoo's 100 foot M&A pole!

I recently put forth a similar argument in:


Editorial standards