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They are getting their money from somewhere and I my bet is advertising 
But generally you're correct. From YouTube Fact Sheet:
Funding
YouTube announced its first round of funding in November 2005 for $3.5 million from venture-capital firm Sequoia Capital. In April 2006, YouTube received an additional $8 million in a second round of funding from Sequoia.
Business Model
YouTube is pursuing advertising as its business model, and is exploring a range of possibilities including promotions, sponsorships, contextual-based advertising, traditional banner advertising, etc. But more than anything else, we're committed to providing the best consumer experience to watch, upload, and share videos. When building a community, it is critical to get the model right.
Market Size
The online advertising market continues to grow and has increased by about 30% to an estimated $12.5 billion in 2005, according to the IAB/PricewaterhouseCoopers. With the explosion of Internet video in 2006, the increase in home broadband access (more than 60% of homes have broadband), and with consumers spending more time on the Web, companies are shifting their advertising budgets from traditional TV advertising to the online video market. This presents a significant market opportunity for YouTube.
YouTube announced its first round of funding in November 2005 for $3.5 million from venture-capital firm Sequoia Capital. In April 2006, YouTube received an additional $8 million in a second round of funding from Sequoia.
Business Model
YouTube is pursuing advertising as its business model, and is exploring a range of possibilities including promotions, sponsorships, contextual-based advertising, traditional banner advertising, etc. But more than anything else, we're committed to providing the best consumer experience to watch, upload, and share videos. When building a community, it is critical to get the model right.
Market Size
The online advertising market continues to grow and has increased by about 30% to an estimated $12.5 billion in 2005, according to the IAB/PricewaterhouseCoopers. With the explosion of Internet video in 2006, the increase in home broadband access (more than 60% of homes have broadband), and with consumers spending more time on the Web, companies are shifting their advertising budgets from traditional TV advertising to the online video market. This presents a significant market opportunity for YouTube.
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