It is now precisely three years since Google announced the acquisition of YouTube for $1.65 billion in stock and the debate has shifted from potential revenues to lack of profitability of the online video website. Google has publicly stated that YouTube will be become profitable in the near future without quantifying the timeframe. Based on my own projections for YouTube’s revenues and using every piece of reliable information I was able to put together on costs to deliver online videos and display ads, I am estimating that Google will become EBITDA positive in the first quarter of 2011.
The acquisition of On2 Technologies for $107 million in August 2009 is key to reducing Google’s bandwidth costs with its advanced video compression technologies. Note that I have not made assumptions for the fact that YouTube is layered on Google’s infrastructure. That would have the added effect of reducing its costs.
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