In a sign of just how little success Google has had at monetizing YouTube, a research firm is predicting that Hulu will surpass it in US revenue next year.

Screen Digest estimates that YouTube will make $100 million in US revenue this year compared to Hulu's $70 million. Next year, the firm estimates, both will make about $180 million. (See article in FT)

Before moving on, it's worth noting that Screen Digest is presumably talking about gross revenue. Hulu passes a far larger percentage of revenue through to its content providers (70%-80%) than YouTube does, so with $70 million of gross revenue, Hulu's net revenue would be a paltry $14-$21 million. YouTube also shares some revenue with some content providers, but a far smaller percentage, which is why News Corp and NBC built Hulu in the first place.

Also, as we noted last week, Google will be adding search-placement ads to YouTube, in which producers can pay to have their videos appear on search results. This should help boost YouTube's revenue and takes advantage of YouTube's enormous traffic (83 million monthly users to Hulu's 6 million).

But all that said: The fact that a research firm can make this prediction when YouTube has more than 10-times Hulu's US traffic illustrates the challenges Google faces in making YouTube into a real business. This is why YouTube is, intelligently, increasingly working with premium content providers. To get MGM et al as partners, we suspect YouTube is having to give up, if not a Hulu-like share of revenue, at least close.

YouTube still has the ability to squash Hulu: To do so, it has to match (or come close to matching) Hulu's revenue sharing terms and make its display, embedding, and editing tools as good as Hulu's. If it does this, it will erase the advantage Hulu has had over the past year, and its vastly greater size will make it a must-partner for every major video producer.

YouTube will also be able to make other revenue around the videos, so this wouldn't mean surrendering completely: Its position as the leading global video aggregator and search engine is still immensely valuable. Matching Hulu would, however, mean that YouTube would continue to be a vastly lower-margin business than Google's main business--which is why Google has fought like hell against going that route. But it sounds as though it may be time to throw in the towel.

See Also:

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