Possible YouTube Outcomes

2011 was the year that YouTube clocked in over a trillion video views and committed to spending anywhere from $100 to $250 million to lock in exclusive premium and super-premium content. YouTube’s content initiative was aimed at duplicating the cable strategy of offering programming along verticals. Broadly speaking, it also served to move away from the prosumer and user-generated content that made the site so popular.

Will it work? Let’s consider three potential outcomes of the company’s content bet:

Outcome 1: Disaster (10% chance)

Sure, it’s possible that despite Google's spending all of that money, viewers say “meh” and advertisers balk at the offerings even though the content looks more professional than the rest of the fare on the site.

While this is a possibility, I think that YouTube will leverage Google’s marketing muscle and ensure that it sends enough viewers to the programming. Whether or not this makes a difference is the bigger question. As I have said, while content is king, without distribution it’s not worth as much. 

Outcome 2: Home Run (20% chance)

It’s also possible -- though unlikely -- that YouTube’s initiative will be a smashing success: viewers flock to the programming in droves, and advertisers open up their wallets en masse.

Outcome 3: A Stepping Stone and Step in the Right Direction (70%)

As much as I’d like to strike a controversial note and suggest that YouTube’s content play will bomb or “be the bomb” in 2012, I think it will likely find that some aspects of the initiative were smart and necessary, while others rather unnecessary and a waste.

However, with anywhere from $500 million to $1 billion in revenues in 2011, YouTube will likely make $750 million to $1.5 billion in 2012 and as such, will be able to allocate enough campaigns against its programming initiative to say both internally and externally, “look, this was a financial success.”

And the fact of the matter is that with over $40 billion in cash just sitting on its balance, to take any amount of that and “shift” it to its income statement is just smart financial engineering.

YouTube will learn a lot of lessons along the way and likely realize that it needs to keep spending money, though it will have its hands tied on the programming end of things. After all, the networks have nearly a century's worth of experience -- and still can’t deliver hits with precision.

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