YouTube Finally Turning Videos Into Profits

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A whopping two billion videos a day are watched on YouTube — and if you’ve ever watched one, you probably wondered, “How the heck does YouTube make money showing free videos?”

It’s a valid question that five-year-old video portal has itself asked since its founding in February 2005. It’s the question its owner, Google, has wrestled with for the last 18 months, when Google started to really focus on YouTube’s revenue.

Now, it seems, the answer is essentially the same answer you’d get when you ask how Google itself makes money — it’s all about the ads.[more]

Over 90% of Google’s revenue comes from AdWords, so it comes as no surprise that YouTube is making money the same way, by offering ads; specifically, “display ads on its home page and on the video pages, ads that promotes videos and ads that run in the video stream or pop up on the bottom of a video,” according to the New York Times. That ad revenue is shared with content partners.

YouTube has also managed to work around the knotty issue of copyrights. More than one-third of the videos on YouTube are uploaded by users without the copyright owner’s permission. Using a system called Content ID, YouTube can identify this material. But often the copyright owners look the other way — because the videos get wide exposure and also generate revenue for the copyright owners from the ads accompanying them. It’s a win for everybody, even though intellectual property is technically being shared without authorization.

YouTube’s video business is estimated to be about $450 million for 2010 and the Google unit expects to be profitable. YouTube says revenue has “more than doubled each year for the last three years.” Content partners are also benefiting from YouTube’s growth; “hundreds of these partners make more than $100,000 a year,” reports the Times.

YouTube has been a vanguard in the massification of video streaming technology, and now it’s reaping the rewards. In addition to video views via computer, video streaming via mobile phones and televisions is becoming commonplace. YouTube has seen its mobile views triple this year, with 160 million views daily. YouTube expects be a player in the emerging Internet-enabled television market when Google TV is introduced towards the end of this year.

For its part, Google is anticipating that its $1.65 billion investment in YouTube in 2006 will finally start to pay off.

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