YouTube is profitable, says YouTube and Google founding investor

Out-Law News | 18 Nov 2009 | 3:18 pm | 2 min. read

YouTube is profitable and has been for 18 months according to the venture capitalist who made the first major investments in both YouTube and its parent company, Google. Google has said that the video sharing site has yet to make money.

Michael Moritz said that YouTube has been "very profitable" for the last 18 months.

When it announced its most recent financial results in October, Google's chief financial officer Patrick Pichette said that "YouTube is on its path to profitability in the not-too-distant future", a comment which suggests that the company is not yet making profit.

Google chief executive Eric Schmidt told the New York Times in an interview in July of this year that YouTube's revenues were growing. "If this continues, eventually we could have a profitable business,” he told the paper . “This is the first time that I have seen a real improvement, one that I think is possibly sustainable.”

Moritz, though, is in a position to know about both YouTube's and Google's finances. Moritz is a partner in Sequoia Capital, one of Silicon Valley's most respected venture capital companies. He was the lead investor in its investment in Google in 1999, less than a year after it was founded, and in YouTube.

His investment of $11.5 million in YouTube was that company's founding investment. The $12.5m he invested in Google was its first major investment and is a stake that was said in 2006 to be work $12 billion.

Moritz made the assertion about YouTube on BBC Radio 4's The Bottom Line. In a discussion with Channel Five chief executive Dawn Airey he questioned why no major broadcaster had had the same idea as YouTube.

"But YouTube loses loads of money," said Airey.

"No they don't, it's a very profitable business," said Moritz.

"Since when?" asked Airey.

"For the last 18 months," said Moritz.

A Google spokesman said the company "can't go into details about YouTube earnings". The subsidiary's financial details have always been opaque.

Industry analysts have this year produced scaled-down estimates of YouTube's cost. It had previously been assumed that the venture cost Google massive sums in video hosting and streaming costs, but some have this year suggested that the company is much less expensive to run than previously thought because it is likely to use Google's existing massive internet infrastructure.

Bank Credit Suisse had estimated that YouTube's technical infrastructure costs this year would be $711m, but IT infrastructure advisor RampRate said it was likely to be just over half that, $415m. It said that the difference in estimates was the difference between YouTube making a profit this year and it making a loss.

YouTube's costs and earnings are closely watched by all sorts of companies keen to see whether its free-to-use media business model can ever make enough from advertising to cover its costs.

Others suspect that Google can derive benefit from underplaying the financial viability of YouTube. Keith McMahon, an analyst for digital business model consultancy STL Partners, told the Independent newspaper earlier this year that Google can gain from YouTube appearing to lose more money than it does.

He told the paper that seeming unprofitable would help YouTube negotiate cheaper copyright licences with rights holders, and that if the division was publicly profitable, more rights holders would demand to be paid.

Moritz did not respond to a request for comment about his remarks.

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