Is YouTube a flash in the pan?

Video-sharing site may be riding popularity wave, but where's the money? IDC report says it won't likely appear.

Greg Sandoval Former Staff writer
Greg Sandoval covers media and digital entertainment for CNET News. Based in New York, Sandoval is a former reporter for The Washington Post and the Los Angeles Times. E-mail Greg, or follow him on Twitter at @sandoCNET.
Greg Sandoval
3 min read
As video-sharing site YouTube rides an enormous wave of popularity, a research firm has expressed doubts about the company's business prospects.

Josh Martin, an IDC research analyst, issued a report Thursday asserting that YouTube will struggle to squeeze profits from its video-sharing business, primarily because its audience has grown accustomed to paying nothing for the service. Fans of San Mateo, Calif.-based YouTube are even likely to buck attempts to post ads on the site because YouTube has largely been ad free since its official launch last December, according to the report.

"In order to begin addressing its issues, YouTube must implement myriad changes," Martin wrote in his report. "The truly difficult task for YouTube is to change the entire culture of the viewers that propelled it to overnight success."

YouTube spokeswoman Julie Supan declined to comment on the report but did say that company executives have offered Martin "no insight into our business."

YouTube owns more than 40 percent of the burgeoning video-sharing market, and more than 13 million people log on to watch homemade movies that are uploaded by fans of the site every month. But even while the company's profile mushrooms, and more than a year since YouTube was founded, executives have yet to roll out a business model.

YouTube representatives have said the company will sell ads, which will be introduced slowly in coming months.

According to Martin, YouTube has little choice but to take the advertising route. The site's audience is likely to be unwilling to pay for subscriptions or downloads of premium content. He adds that the advertising model is no sure bet.

Introducing ads may alienate viewers. In such a case, "how long until a (YouTube competitor), without advertising, emerges to siphon the YouTube defectors?" Martin asked in his report.

There's also the question of whether YouTube can persuade blue chip companies to advertise on the site. There's been much speculation in the media on whether some of the content on YouTube is too unseemly to attract big advertisers.

YouTube doesn't prescreen any content. The majority of the video clips involve budding musicians, comedians, filmmakers or just people clamoring for attention. Other clips are grittier. A viewer can often find clips of violent accidents and bloody shark attacks. Sometimes users post clips that include nudity and sexually graphic images.

And then there's the question of users uploading content that's owned by someone else.

In February, NBC requested that YouTube remove a clip from "Saturday Night Live" called "Lazy Sunday," that was widely viewed on YouTube, and the company complied. Since then, YouTube's relationship with NBC has vastly improved. This week, the two companies announced a cross-marketing deal that calls for NBC to post promotional clips from shows, such as "Saturday Night Live" and "The Tonight Show with Jay Leno," on YouTube.

But this isn't what YouTube fans want, says Martin. They don't want promotional clips that the network chooses, writes Martin, they want the funniest, edgiest skits SNL has to offer, or at least some of them. The problem, said John Miller, NBC's chief marketing officer, is that such SNL snippets are already offered on iTunes for a fee. Cable station E Entertainment also owns the broadcast rights to SNL segments. Making them available for free on YouTube isn't in anyone's best interest, said Miller.

Martin said in his report that he expects copyright issues to plague YouTube and its rivals well into the future.

He compares the challenges ahead of YouTube to those faced by Napster as it tried to transform itself from a free file-sharing system into a paid-subscription service.

"In the late 1990s Napster...achieved similar cult status (as YouTube) but was quickly abandoned when it attempted to become a legitimate business," Martin wrote.

For some entertainment sites, going mainstream has meant losing their core audience, who are attracted to more rebellious sites.

"Eventually, the paradigm will shift, where viewers accept watching advertisements to support their free video," said Martin in his report, "but not likely quickly enough for YouTube to reinvent itself in the short term."