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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