Look out TV, YouTube has figured out how to make money: Kohler

I’ve got some good news and bad news for the TV networks: YouTube has figured out how to make money.

A couple of days ago in Jerusalem the CEO and co-founder of the business now owned by Google, Chad Hurley, said YouTube had had “two spectacular quarters”, although he wouldn’t reveal any numbers. He was in Israel, by the way, to launch President Shimon Peres’s new YouTube peace channel.

At about the same time as Hurley was in Jerusalem, his product development manager, David King, was visiting Australia and briefing, or rather gobsmacking, Business Spectator about how YouTube is monetising its videos.

It’s complicated because YouTube is a platform for anyone to upload videos, anywhere in the world, but the company can only make money if it deals with copyright – that is if it shares any revenue with copyright owners. That’s why YouTube has been an unprofitable phenomenon.

With a billion page views a day and more than 20 hours of content going up every minute, the task of checking copyright is not humanly possible.

So they haven’t done it humanly.

Copyright owners were invited to give YouTube a sample of all their music, TV shows and music, and according to King, all of the movie studios, music publishers, TV networks have done that. In addition, YouTube has done individual revenue sharing agreements with each of the copyright owners.

The reference material is compressed and turned into a video reference library, which is constantly, automatically cross-checked against the billions of videos that are uploaded on YouTube – that is, identified by YouTube’s monitoring software. I saw some examples of quite blurry video that had been shot off a TV screen that the system had picked up, so it’s quite sophisticated software.

If the video contains copyrighted material – music or a part of a movie or TV programme – the copyright owner has three pre-programmed choices: take it down, let it go, or monetise.

If it’s “monetise” – and 90 per cent of the copyright owners want to do that – Google ads automatically appear next to the video and money flows to both the copyright owner and YouTube. The proportions are secret, as are the numbers.

But we can’t be talking millions yet, let’s face it. The price of a Google ad could be anything from $1 to $10 per thousand views – ads are sold directly on a CPM basis or through AdSense on a CPM or CPC basis.

One of the biggest videos on YouTube this year has been the JK Wedding Dance, which includes a copyrighted song (check it out here – it’s very funny). This video has so far had 33,276,504 views. Even at $10 CPM, that’s only $330,276.50, and it’s not the wedding party that is getting rich out of it, it’s record label Sony.

And that’s the other way in which YouTube is monetising its videos. If someone starts to get a lot of views of the videos they are posting on YouTube, they get an email from HQ inviting them to make some money. If they sign the revenue sharing agreement, Google ads start appearing against those videos.

There’s apparently a young woman in Sydney named Natalie Tran who is making several thousands of dollars a month by posting two or three videos a week on YouTube that she makes in her mum’s house (here’s her channel).

She is easily the most subscribed-to video blogger in Australia, and is among the top in the world. Her special trick is that she re-enacts the scenes from her day and plays all of the characters – it’s very well done.

Natalie’s videos are two or three minutes long and seem to be averaging about 1 million views each. She would easily make $100,000 a year.

The YouTube engineers are working on a third way to monetise videos – on top of deals with copyright owners and regular users like Natalie Tran. It involves building software that monitors all uploaded videos and predicts which ones are going to go “viral” – that is, get a lot of views.

There’s no magic about this: the software simply reacts to how often the video is watched in the first few minutes and then sends an email to the uploader inviting them to click here if they want to make some money. As soon as the agreement comes back, Google ads automatically start appearing next to the video.

David King says YouTube is now monetising a billion videos a week, which is one-seventh of the videos being published.

The good news? TV networks, movie studios and record labels can finally start making some money out of YouTube.

The bad news is that like everything else on the internet it’s not much money, and now that YouTube and its owner Google have built a copyright-checking system, they have been liberated.

YouTube can now become a fully legitimate video platform that is already starting to move from the computer to the TV set in the living room through plasma and LCD televisions connected to the internet via broadband.

This article first appeared on Business Spectator.