BUSINESS BLOGS
BUSINESS BLOGS
category: business
18 Jul 2008

During the Great Depression, farmers would destroy crops in order to create some kind of floor price for their fruits and vegetables, even though many of their fellow citizens were starving to death. John Steinbeck chronicles this plight in Grapes of Wrath, a book I will pretend to have read (I actually read some of it, but man that book was thick).

Today, despite homelessness being as rampant as ever, some are considering actually demolishing homes in order to create some kind of defense against sliding home prices. As foreclosures skyrocket and empty houses proliferate the marketplace, the specter of unsold, empty homes keeps a lid on recovering real estate prices (in a best case scenario) and accelerates plummeting home values in a worst case scenario. Indeed, according to a recent piece in The Economist:

Of the 129m housing units in America, 18.6m stand empty. At 2.9%, the home-owner vacancy rate, which measures the share of vacant homes for sale, has reached its highest point since measurement began in 1956. At the end of the first quarter there were 2.3m empty homes on the market, an increase of more than 160,000 from the end of 2007.

As horrific as the prospect might be, construction cranes might very well be replaced by bulldozers in a neighborhood near you. While sociologists cringe at the mere thought thereof, economists would be quick to argue the merits of such a strategy when there is endless supply on one side but weak - or non-existent - demand on the other.

Last week, the Wall Street Journal reported that of YouTube’s vast inventory of content, only 4% was monetizable. The remaining 96% consisted either of pirated videos or user-generated content (or crap, as I like to call it). The net effect of this, on a site which generates 70% of the streams online and commands 35% market share of eyeballs, was simple: YouTube cannot really exert any pricing power… especially in a battleground such as display, which gets by even less on mathematical logic and economic determinism and more so on gut feeling and perception.

Allow me to add a quick disclaimer: our company, WatchMojo.com, provides professional content (to which we own the rights) to YouTube, amongst a myriad of other players.

So connecting all of these variables, I wondered, would Google ever consider going nuclear and simply scrub YouTube of all of the crap found on the site? Sure, traffic would take a beating… but if one thing is clear, it’s that online, and with online video in particular, traffic does not (at least not presently) equal revenues.

“There will be new monetization forms. That is what we are seeking. That is the holy grail,” Eric Schmidt said on a conference call after Google reported disappointing second-quarter earnings. “When we find it, it (monetization) is likely to be very large because of the scope and scale of YouTube.”

The idea sounds crazy, but if YouTube gets rid of 96% of the seedier and undesirable content on the site, no doubt you very well might see a proportionate loss of streams, maybe not a drop of 96%, but probably something in the 50-85%.

But what about users? I don’t think YouTube would lose 96%, 69% or even 50% of its users in the short-term.

Initially, people would find something to watch on YouTube… and in fact, they would suddenly find something of higher quality to watch, something that YouTube owns the rights to, in fact.

As such, if YouTube loses even 75% of its streams, it would be left with a leadership position in streams, and it would still remain in a leadership position in terms of eyeballs and market share.

Most importantly, if the site were devoid of the crap that scares away traditional content owners - let alone marketers - many more companies would partner with Google (hint: Viacom) and give YouTube more monetizable content that would in turn open the floodgates with marketers.

But, of course, here’s the problem:

Google might as well launch a new site, called YouTube Prime (or YouTube Light) because what made YouTube YouTube is the UGC, or as I call it, the crap. As a content owner with nearly 2,000 high quality clips on YouTube, I want to see nothing else but Google and YouTube printing money… but when I think of what your typical marketer looks for… I have to say… I’m just not sure if YouTube is the holy grail, it’s an important part of the ecosystem, no doubt… but the holy grail?  Je ne sais pas.

In case you are wondering: no, I don’t actually think Google will press the red button and flush YouTube clean, but then again, with mounting bandwidth and legal costs, and no real revenue to match YouTube’s awesome stream count… you have to wonder: what is more likely,

- a publicly traded company burning UGC videos in order to maintain its profit margins and make Wall Street happy,

or

- a government approving the burning of food crops and the destruction of homes which affects the many, in order to protect the investment of a few.

Yeah, welcome to crazy times people… I’m heading for the bunker.