Google Inc (GOOG)’s Video Prospects Are Phenomenal

Page 2 of 2

Also, YouTube is increasingly being adopted by TV manufacturers as an app for their offerings. YouTube is a great source of user generated content (UGC) and would be a great add-on offering along with over-the-top offerings like Netflix, Inc. (NASDAQ:NFLX) and Hulu. However, it is unlikely that YouTube will directly compete with TV networks, due to the high quality content and live events provided by the channels on cable. YouTube did try to organize its platform into channels to give a more TV-like feel, but that is unlikely to have a material positive impact overall. It will lead to more video advertising dollars, however, as more gaming consoles and Rokus are used to stream on TV, especially by the younger demographic.

Paid subscriptions for video

YouTube now has more than 1 million channels that are generating revenue. These content creators have been repeatedly asking YouTube to allow them to charge subscription fees to the 1 billion+ monthly user traffic. YouTube recently introduced a small-scale pilot test with a select group of partners by allowing them to charge user subscription fees ranging from $1-$10 a month, after a trial period of ~2 weeks.

This is likely to have very minimal impact on Google Inc (NASDAQ:GOOG)’s overall fortunes but would entice more high-quality content producers to jump on board, which would help Google to earn more revenue from display advertising. In the last twelve months, Google generated revenues of ~$32.5 billion from its own websites, and many investors are widely estimating that annual revenues from YouTube are in the $4 billion-$5 billion range. YouTube plays a pivotal part in Google’s display advertising fortunes, as it provides a whole suite of video, interactive and other, newer ad formats to advertisers, which has been a major driver of YouTube’s fortunes.

Going forward

YouTube can monetize its user-generated content by just hosting the video and paying out the revenue share portion of ~55% to the content creator. As more and more content is uploaded on YouTube, the company’s hosting costs will scale down, which will lead to higher margin ad revenues for the company across desktop and mobile. It will get substantial tailwinds down the road from higher Internet speeds from projects like Google Fiber, which will enable higher quality and faster streams on YouTube. Clearly, the company has years of double digit growth rates ahead.

The article Google’s Video Prospects Are Phenomenal originally appeared on and is written by Ishfaque Faruk.

Ishfaque Faruk has no position in any stocks mentioned. The Motley Fool recommends Facebook and Google. The Motley Fool owns shares of Facebook Inc (NASDAQ:FB) and Google Inc (NASDAQ:GOOG). Ishfaque is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Page 2 of 2