Comment by nl | Hacker News Reader

Comment by nl | Hacker News Reader

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It's very unclear why anyone thinks YouTube isn't highly profitable.

Google has only released revenue numbers: Roughly $15B in 2020[1]. Costs are difficult to judge, but in terms of infrastructure they are probably somewhat comparable to Netflix.

For 2020, Netflix had roughly $24B revenue and spent $1.8B on "technology and development" (which is where their infrastructure costs are)[2].

Unless you think Google is much less efficient than Netflix (which uses AWS for a lot of their tech[3]) then it's difficult to see how YouTube could not be profitable. Even if YouTube costs 3 times as much at Netflix to run (I don't see how) Google still has $10B revenue to pay creators for, and they control both how much they pay creators and how much they charge advertisers.

[1] https://www.theverge.com/2020/2/3/21121207/youtube-google-al...

[2] https://ir.netflix.net/financials/financial-statements/defau...

[3] https://s22.q4cdn.com/959853165/files/doc_financials/2021/q4...

Infrastructure costs must be much higher than Netflix.

YT has far higher storage costs, their content caches way worse and they have to pay for all the tech involved with Content ID, commenting, search over a much larger index, a slick upload/edit experience, ad handling, ad targeting, handling highly heterogenous content etc. This is an org that had to design their own ASICs to keep up with transcoding demand, it's just not in the same galaxy as Netflix in this regard.

That said, YouTube may still be profitable. I doubt even Google knows. When I worked there a long time ago execs were routinely asked about whether particular products were profitable and the answers made clear that they usually had no idea. Too much shared infrastructure that can't be clearly accounted to any one product, and many products justified with hard to measure things like making web search better.

They also pay creators and have much higher storage costs

Netflix pays for content too.

And until recently, Netflix has been borrowing billions - more than its net income to produce and acquire content.

Netflix pays once for content and it owns it. It’s a fixed cost. YouTube content creator costs scales with popularity

But Youtube controls how much they pay creators to a much greater extent than Netflix does.

Netflix commissions shows, and they have to have hits to drive subscriptions.

Youtube pays a percentage of the ads shown on each channel, which scales directly with the popularity. As the channel becomes more popular the creator gets paid more, but Google makes more money because the advertisers pay by views too.

Netflix doesn't have that property.

I have a better source now, estimating Google's gross profit margin for YouTube at 38%: https://mannhowie.com/youtube-valuation

Basically:

- 55% of Ad revenue goes to creators

- 7% of revenue on storage and data center costs (based on Google's 2019 annual report that reported how they depreciate their data center assets).

On top of that there are operating expenses, so operating profit margin is 3-18% (this is assuming their op-ex is much higher - almost twice - Netflix, but comparable to Facebook.)

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