Analysis: The YouTube Tea Leaves: Stock Imagery, as a Business, is Not Sustainable

The recent analysis of YouTube’s earning potential by Credit Suisse (reported here and here) points to a big red blot of ink, YouTube is losing lots of money, remains totally subsidized by Google earnings, and might always be. In short only a handful of Google’s total pieces bring in much of the revenues. Here’s a short list. Credit Suisse analysts Spencer Wang and Kenneth Sena write of YouTube (which was purchased for $1.76 billion in stocks, money, whatever by Google which makes about $4.2 billion a year), “monetization remains challenging.”

What is found, similar to the rest of the entertainment market, is that well-produced and popular content brings in the money and is where all future growth lies. YouTube might have spent these past few years as a loss-leader to gain audience awareness by offering the video-sharing tools, but in truth they’re seeking to be a purveyor (like cable) of traditional content.

Todd Spangler of Multichannel News notes:

YouTube, which still derives most of its traffic from user-generated content, has been attempting to increase its lineup of professionally produced content. Earlier this week, for example, YouTube announced a deal with Disney-ABC Television Group and ESPN, which will provide content clips for dedicated channels on the video site.

So best-quality content IS the goal. And YouTube wants to be the distributor/vendor/purveyor of this top-quality content in competition with others such as Hulu or Tv.com.

What is learned? There is not enough money in crowd-sourced content to sustain a business, the revenues don’t cover the costs. The only way to sustain the model is to keep investments coming in OR shift gears and go all-pro.

What does this mean for Stock imagery? it means two things:

1. Structurally, the bottom will fall out of the crowd-sourced image model. There will be so many little pieces of revenues that cannot support substantive growth, which is what investors seek. The investors will cash in their chips (digital railroad?)

2. Culturally, the truth is coming out, professional, well-crafted content works to gain revenues, crowd-sourced stuff doesn’t.

Short consolidation time-line: The investment firm Hellman & Friedman purchased Getty. Getty then purchased Jupiter.  Hellman & Friedman own a piece of everything (including 15% of the Nasdaq market, Doubleclick, Digitas, more…) so, similar to the Google-YouTube relationship, they can subsidize the Getty business into the near horizon, or at least until they figure out what to do with it if not fold it into another of their businesses.

In the meantime artists keep lowering their prices to compete with stock, but stock has no bottom as it doesn’t need to keep itself afloat. Dangerous waters to swim in!

The answer: raise your prices and point to the truth: crowd-sourced imagery will never gain the client the same long-term results as professional imagery. Yes, you cost more, but as the YouTube model proves, showing the best stuff is where the money is.