YouTube and the joys of Freeconomic success

From the Times comes more ammunition for the view that we have held for some time, ie that making money from YouTube won't be easy, and the ROI is hard especially given (i) what Google paid and (ii) that there was no ability to claw it back with performance based earnouts:

Google has said that it is still unsure how to make money from YouTube, the enormously popular video-sharing website it owns, but hopes to be able to do so soon.

Eric Schmidt, the search giant's chief executive, said it "seemed obvious" that Google should be able to generate "significant amounts of money" from YouTube, on which hundreds of millions of videos are watched every day, but that as yet it hadn't figured out how to go about it

Unlike much of the rest of Google's operations (and unlike many other Web 2.0 companies), YouTube has to ship a lot of bandwidth, and that costs real money. A Google search costs pennies, but a Youtube video serve probably costs not much shy of dollars (if not more), and there are 130 million odd per month. Adsense rates of recovery just won't cover that sort of cost per user, they are going to have to get CPM levels from a YouTube play.

Google has very deep pockets, so its not a financial problem, but every month that YouTube succeeds in growing increases the drain on the Googlepockets.

Ah, the penalties of FreeConomics - it eventually bites the *rse of the hand that feeds

Update - interesting take here by Mark Cuban on how services such as Hulu hitch a free ride on YouTube.