VentureBeat

A number of financial analysts have been raising their expectations about YouTube’s revenue in recent weeks, under differing presumptions about how fast the company’s various new ad formats are starting to make money. But based on what we’re hearing about YouTube and some international rivals, the growth in optimism seems to be outpacing the growth in revenue.

Today, Lehman Brothers’s Doug Anmuth projects that YouTube will bring in somewhere under $200 million for 2008, about double analyst projections last fall. Meanwhile, Forbes and Citi have recently projected the company’s 2009 revenue to be $350 million and $500 million, respectively. (Silicon Alley Insider has more on the numbers, here.) Remember that this is revenue — not profit after paying for video hosting and other expenses.

One immediate problem with the analysts’ analysis is that each assumes different revenue paths to justify the growth. Display ads are the cause, Citi thinks, while Lehman’s Anmuth sees dollars from in-video overlay ads and the new ability for video creators to sell their own ads.

But I’ve heard from others in the industry that YouTube is only breaking even.

Also, hosting costs are high for any online video company. For example, I hear Chinese online video sites like Tudou, Youku and 56.com have been spending $1 million to $2 million a month in hosting costs. As YouTube is the largest video site in the world, it likely is spending at least that much, even with Google’s optimized, cheap server farms to support it.

Tudou’s funding deck: A window into what video sites themselves are thinking

Meanwhile, for sake of comparison, here’s a behind-the-scenes look at numbers from Tudou, which goes up against Youku as the largest video site in China. Note: Tudou gets around 60 million unique visitors a month, from what I hear; for a reference point, YouTube had 83.7 million U.S. visitors in April, according to comScore.

A source on this side of the Pacific has sent me the deck that Tudou used to raise a recent $57 million funding round. The deck, created last fall, shows the Shanghai company’s making $44 million this year, $123.7 million next year, and an even $200 million in 2010.

True, the size of the Chinese ad market, while growing, is still much smaller than the U.S. ad market. And, both the Chinese internet’s online video ad formats and its third-party traffic measurement are less developed than in the U.S. Fewer ad dollars are available to Tudou than to YouTube.

(Note: There are other factors facing Tudou, but not YouTube. I also hear a rumor it was very close to being permanently shut down by the Chinese government in March due to censorship before one of its investors with government connections personally intervened on its behalf.)

So assuming Tudou’s self-assessments are accurate, one would still expect YouTube to bring in revenue at a faster rate than Tudou because of monetization issues in China, even though Tudou is relatively large compared to most YouTube competitors in the world.

But maybe not. Tudou itself told me last month that it has focusing on monetization for many months, and it believes its efforts — which span pre-roll, post-roll, splash page ads, viral ads and others that YouTube has been experimenting with — are as innovative as any rival. It also told me that it still isn’t seeing anything exceptional on the revenue front.

Tudou is one example, but I know of no other online video site that is seeing the sort of revenue growth that the analysts are now expecting out of YouTube. Add this fact with the rumor that YouTube is only breaking even, and the analysts’ contradicting rationales for revenue growth and the sum is this: The analyst estimates from last fall, ranging from $75 million to $90 million, still seem the most probable.

56.com, the third largest online video-sharing site in China, has been offline since June 3rd. The company says the cause is “technical” problems, via the error message pictured above, but there are two other possible reasons.

The first is that the Chinese government simply shut it down to censor content on the site. That possibility has been covered by a number of prominent China bloggers, this publication and now a number of Western media outlets, and has led to speculation that 56.com’s mysterious downtime implies new and greater risks for any video site, including market leaders Youku and Tudou.

If nothing else, the site being down for so long is perhaps fatal, and a blow to a lot of big names in technology investing that are looking for hit investments in China, and have put money into 56.com. More on that, below.

Fueling general speculation about censorship shutdowns, a new set of government regulations were implemented in February that require any online video companies to get a license certifying that a government-controlled entity has at least a 50 percent stake in it. While none of these three sites have received licenses to officially operate, smaller competitors have.

But even if the government did shut down the site, the move may not be a concern for neither rivals nor rival investors. The most recent rumor I’ve heard going around in China is that 56.com wasn’t adequately censoring videos about the recent, devastating earthquake in China’s Sichuan province from the site.

Both Youku and Tudou have assured me that they’re very careful about following government regulations, saying that because they are the largest sites in China, they face the most scrutiny from the government before getting approval. Both say they work closely with the government to ensure that content is compliant. The fact that Tudou only went down for a day or so in March, and that Youku went down for only an hour on June 4th (both incidents were also officially called technology problems) suggests that they are keeping the government satisfied.

In fact, even though all three sites are variably referred to as the “YouTube of China”, differences have emerged that may already have left 56.com worse off than its larger rivals, regardless of if or when it comes online. Differences that go beyond similarities, such as the presence of pirated content.

Tudou’s head start

Shanghai-based Tudou started first among the three, in the first half of 2005 — around when YouTube, France’s DailyMotion and a number of current worldwide market leaders also rose to prominence. In some sense, it is the most mature. It claims more than 100 million daily unique video views and more than 60 million visitors a month.

It has stopped focusing on growth, chief executive Gary Wang tells me, to focus on making money. “It comes to a point where there’s no point in ramping up traffic without coming up with something real on the revenue model,” as he puts it. But the company has yet to break even, he says — although he adds at the rate the company is going, it will at least break even relatively soon. The question is how it can increase its profit margins, as video hosting can cost millions per month for these larger sites.

In search of profit, it has spent the last nine months testing “everything you can think of” he says, learning about user behavior, as well as how to identify users based on sex, age, and other demographic information. Now, the company has put together months of data about users that it can show advertisers. But like any internet startup in China, Tudou still faces many issues. A big one is unreliable third party traffic data, as we’ve covered. Another is a morass of online ad formats developed individually by larger companies including Sohu, QQ and others, that make it difficult to impossible for large brands to buy across many sites, especially smaller independent sites. Both problems reflect the relatively early days of the internet in China and presumably will be sorted out as online traffic continues to grow.

Tudou says that it is no worse off than the many other large video sites trying to address monetization, and aside from questions around censorship and the current profitability of the Chinese online ad market, that seems to be true.

Youku’s rapid rise

Youku is approximately the same size as Tudou, at least according to most third party estimates I’ve heard (which are themselves questionable, remember). While Wang says Tudou is the biggest, Youku’s chief executive, Victor Koo, says that it’s Youku.

It is a younger company, as Koo actually left his job as president of Sohu, the online conglomerate, to start Youku around two years ago.

Koo’s connections could mean that he and his company have the relationships to counter both censors and ad-sales issues. Youku has distribution deals with television stations around the country. With millions of Chinese moving to work in booming urban areas, Youku has become another way for many to keep track of the news back home. Meanwhile, because these television stations are already self-censoring for the government, Youku doesn’t need to worry about repercussions for republishing their content.

A focus on syndicating professional content, along with its censorship efforts, are examples of what Koo says is his company’s effort to be a “socially responsible web site.”

On the money side, Sohu could also be a way for Youku to develop its advertising. The two companies became strategic partners last November, and Sohu’s existing relationships with advertisers could mean a faster path to more revenue for Youku.

Where does this leave 56.com?

While 56.com is said to be substantially smaller than its two rivals, it is also a the leading widget maker in the country, analogous to Slide and RockYou. As Chinese social networks start building platforms and giving third-party developers to their sites (like American rivals including Facebook and others have done), it would seem new opportunities await the company. But then again, social network application companies everywhere face the same question as video startups. These are questions that have led many investors to lose interest in either market segment anywhere in the world.

So, besides possible earthquake-related censorship, perhaps it is 56.com’s place at the intersection of video and social networking apps that could be behind its downtime. Could it be that 56.com has run out of money, or gotten close enough to running out of money that its investors have pulled the plug?

Read the rest of this entry »

MySpace nearing deals with music labels — Before long, MySpace may be offering streaming music and ad-supported downloads from Sony BMG and Warner Music Group, according to a report from the NY Post. A deal with the two music giants might challenge the dominance of Imeem, which has so far held the advantage in its deals with the four music majors.

Tudou.com raises another $53M, maybe — The Chinese video portal Tudou.com may have picked up $53 million, raising its lifetime total to $81 million, according to news site SinoCast. That wasn’t quite enough for peHUB, which made some calls and was “peppered” with “no comments” from previous investors. Primack suggests that the company may be nervous about an upcoming government penalty, but is likely just tardy in announcing the funding.

Mixx makes top users even more powerful — While the social news site Digg has moved to limit the power of its top users, newer, smaller competitor Mixx seems to have the opposite idea. The site, which calls its top users “Super Mixxers”, has given them the ability to tag news stories as “Breaking”, effectively forcing those stories to display on the front page. Giving the most devoted users more powers essentially makes them the editors of the site, a risky move that other sites have so far avoided.

Xerox begins offering carbon calculator for business — What kind of environmental footprint does the paper use of your office cause? What about using the printer? Xerox has unveiled a new “Sustainability Calculator” to let you know. Of course, nothing is free in life, and becoming sustainable might involve buying some of Xerox’s newest products or availing yourself of their “document outsourcing” service. In the long run, though, getting rid of that old ice-cream cart-sized printer might both help the environment and save money. Get an earful on why from some Xerox spokespeople, here.

Founder’s Co-op starts seeding Seattle-area companies — The co-founders of ill-fated local site Judy’s Book have learned from their lesson, and decided not to start a new company. Instead, the two have opened the Founder’s Co-op, a $2 million fund for seed-stage companies in the Seattle area. Investments will range from $10,000 to $250,000, no doubt served with a side of hard-earned wisdom. Read more at the Seattle PI.

Celebrities are the sign of the beast bubble — Taking a trip down memory lane, GigaOm recalls massive fundings of sites started by actors, musicians and sports stars in the dotcom era — then compares them with recent investments into IBeatYou (coverage here), which has received investment from sports stars, and Skispace, owned by a ski champion. “There might be more such celebrity social-something-video-whatever efforts lurking … when you read about them, well, you know the end is near,” says Om. Then again, we survived the launch three weeks ago of MC Hammer’s DanceJam, so maybe the internet is more resilient this time around.

Viewdle takes first investment from Dubai fund — Viewdle, a company that’s working on a video search technology based on facial recognition, has raised an undisclosed first funding from Dubai-based investment group KIT Capital, according to VentureWire (subscription required). We covered Viewdle during its TechCrunch40 launch.