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updated 7/25/2013 12:17:30 PM ET 2013-07-25T16:17:30

The key to YouTube's success? "It’s not so much if you’re watching YouTube, it’s how much and what you’re watching,” Fortune’s Andy Serwer said on Thursday’s Morning Joe.

What do Justin Bieber, Psy, and the keyboard cat have in common? They all got their start on YouTube.

“Google bought YouTube roughly six years ago for $1.6 billion. It’s worth easily 10 times that much right now. It’s not so much if you’re watching YouTube, it’s how much and what you’re watching,” Fortune’s Andy Serwer explained on Thursday’s Morning Joe.

The site averages one billion unique viewers a month, making Google $3.6 billion, mostly from YouTube’s advertising. YouTube takes a 45% cut of the profit from each ad on a video, Serwer said.

Since ad rates are far cheaper online than on TV, companies see it as a cost-efficient way to reach a larger audience. Advertisers can also target specific demographics on YouTube—something the Mitch McConnell campaign had utilized successfully.

“Marketing people started seeing there was a real value to get millions of people and hundreds of millions to watch on a consistent basis,” Serwer said.

Though it may have its roots in amateur cat videos, original programming, such as Awesomeness TV, has also found success on YouTube. “I will tell you that the stars of YouTube want to be on real TV still,” Serwer said. “So it’s not like they’re killing real TV, it’s complimentary, but it’s starting to change the landscape dramatically.”

For more about how YouTube is changing the media industry, watch the discussion. 

Video: How YouTube is making huge profits

  1. Closed captioning of: How YouTube is making huge profits

    >>> 1.7 billion times. most watched video on youtube . joining us now with the next youtube sensation managing editor of "fortune" magazine. let's talk about the business of tube. that gets watched 1.7 billion times. he makes some money off of that.

    >> youtube is minting money here and they make about 45% of the advertising that goes up against these videos. they are making billions and billions of dollars. google bought youtube about five or six years ago. six years ago for $1.6 billion. it's worth easily ten times that now. it's not so much if you're watching youtube , it's how much and what are you watching. if you're watching dwight evans highlights, ronald reagan 's speeches, everybody is watching youtube . they get a billion unique viewers a month, a billion around the globe.

    >> you make the point they bought it for 1.6 billion. at the time they bought it a lot of us wondered if they were overpaying. there was noticing. there was no revenues. no one imagined that you could turn it into this thing where it's a series of channels and of tv programs and has the potential to replace a lot of tv viewership .

    >> that's right. when i was talking about the old youtube , those videos. but you're right the new channels.

    >> my son catches " curious george " every morning. the first few times die this how is this possible? how so watching " curious george " for free?

    >> you know it is starting to chew into the tv business. people watch 34 hours of tv a week and one hour of video except younger people watch 22 hours a week and 2 1/2 hours a week of video.

    >> what are the differential in ad rates between youtube shows and shows on regular tv?

    >> ad rates are much higher. cpms as they call it, the jargon for video is much, much lower and that's because the demographics for a show like this are much higher, much more desirable than the youtube crowd and it's starting to change.

    >> the same thing happened with cable tv in its early days.

    >> how do we get from cat videos which is how youtube started or squirrels to this massive business where people are creating original content just for youtube .

    >> it's unclear. it's the younger generation. it's viral. it's word-of-mouth. everything from the old spice commercials and marking people saw there was real value could get hundreds of millions of people to watch. there's these new channels like awesomeness tv. there's all these new stars and then the new stars kind of morph on to tv. the stars of youtube want to be on real tv still. it's not like they are killing real tv it's complimentary but starting to to change the landscape.

    >> you can be a huge star with just one youtube video . justin bieber started that way.

    >> you got your own channel?

    >> thanks so much. we'll look at the new issue for "fortune" magazine "how youtube changes everything."

    >> george bush 41 showing solidarity with a young cancer patient . you got to see this. keep it on " morning joe ."

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