Guessing game: How much money is YouTube losing?

ByABC News
June 18, 2009, 1:36 AM

SAN FRANCISCO -- Internet video leader YouTube's losses have been overblown by some analysts, but corporate parent Google doesn't mind the misperception, according to a study to be released Wednesday.

Technology consultants RampRate projects YouTube's operating losses this year at $174.2 million far below the $470.6 million estimated by Credit Suisse analysts Spencer Wang and Kenneth Sena in an April research report that became a hot topic on Wall Street and the Internet.

The dueling forecasts are the latest twist in a guessing game that has intrigued investors since Google bought YouTube for $1.76 billion in late 2006.

Although YouTube has become an even more popular diversion since the Google deal, it still hasn't proven it can make money.

Mountain View-based Google has acknowledged YouTube isn't profitable, but has refused to provide any specifics, leaving it to outsiders to figure out.

And the number crunching usually leads to inaccurate conclusions, according to Google's chief financial officer, Patrick Pichette.

"Most people build outside views of what it costs us to do things, and often they exaggerate," Pichette said in an interview with the Canadian magazine Maclean's shortly after Credit Suisse released its YouTube report.

But Google has little incentive to set the record straight about YouTube's actual losses, according to RampRate, which specializes in managing technology costs.

San Francisco-based RampRate reasons the perception of large losses at YouTube helps Google negotiate more favorable contracts with movie, TV and music studios licensing their video. What's more, copyright owners also are less likely to go to court in pursuit of unpaid royalties and damages if they believe YouTube is a big money loser, according to RampRate's thesis.

"Google is no doubt thrilled to let YouTube be known as a financial folly," RampRate's report said.

YouTube spokesman Aaron Zamost wouldn't comment directly on RampRate's report because he hadn't seen it, but he stressed that Google has been running ads near or in millions of videos in an effort to curb YouTube's losses. He also said Google had little incentive to magnify its losses because YouTube shares revenue with its business partners anyway.