News

YouTube's $300 Million Bandwidth Tab

9/12/2009 2:00 AM Eastern

YouTube, the Internet's most-popular video site, will spend approximately $300 million on bandwidth in 2009 — meaning it won't be profitable for the year, according to a revised analysis by Credit Suisse.

In a previous report, in April, Credit Suisse analysts Spencer Wang and Kenneth Sena pegged YouTube's bandwidth costs at about $360 million for the year. However, that original estimate was criticized for not accounting for “peering,” the voluntary interconnection among large Internet networks to more efficiently exchange traffic in which no money changes hands.

In an updated analysis issued last week, Wang and Sena included the assumed benefits of peering agreements on YouTube's bandwidth costs but said the difference was not enough to change their original conclusions.

“Even with the benefit of peering, we estimate that YouTube's total bandwidth costs in 2009 will be close to $300 million, or within 17% of our original projection,” they wrote.

According to Wang and Sena, that means YouTube still would not be profitable this year, given their original 2009 revenue estimate of $240 million (a top-line increase of about 20% year over year).

At the same time, the analysts emphasized that YouTube could potentially become a very attractive business down the line.

“As we wrote in our original analysis of YouTube, our work suggests that unit economics for video streams that are being monetized by YouTube carry attractive 35%-plus margins, implying that YouTube's profitability should improve if the percent of videos monetized increases,” they said.

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