• Silicon Alley Insider, Thursday, April 9, 2009 11:45 AM

"YouTube is soaring towards the future like a pigeon towards a plate glass window," says Silicon Alley Insider contributor Benjamin Wayne. The online video sharing service is just too expensive to maintain even for a company the size of Google. According to Credit Suisse, YouTube's 2009 revenues will be about $240 million against operating costs of roughly $711 million. "No matter Google's $116 billion market cap: a half-billion dollar loss on a single property, even one as large as YouTube, is a bitter pill to swallow," Wayne notes.

In a recent interview with The New York Times, Google CEO Eric Schmidt was forced to admit that going forward, Google would be "more careful with potential large expense streams, which are of uncertain return." Meanwhile, Google keeps tinkering with various advertising tie-ups in the hope that they'll find a solution that makes YouTube pay off. "Looking at the math, it doesn't seem likely," says Wayne.

If YouTube delivers 75 billion streams in 2009, as Credit Suisse projects, then it would have to achieve a nearly $10 CPM for every impression shown to overcome its current deficit. However, it's impossible for YouTube to sell all 75 billion streams due to the fact that most of its content is user generated content, which at worst, is unmonetizable, and at best, fetches a CPM in fractions of a dollar. Meanwhile, Wayne says user-generated content will continue to outstrip professional content on the site, which means that less and less of YouTube's library will be revenue-contributing, as the costs of delivering that library continue to grow.

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