By Alexandra Berzon

YouTube’s $1.65 billion price tag wasn’t exactly chump change, even for a $141 billion company like Google. So five months after buying the upstart video-sharing site, the Internet search king is still grappling with questions from Wall Street.

They came up again this week after a Google regulatory filing revealed that YouTube reported about $15 million in sales last year—meaning the Mountain View, California-based company paid over 100 times the startup’s revenues.

That had some analysts cringing, but it didn’t surprise anyone. With Google raking in plenty of cash from its search-advertising technology, investors never expected immediate returns from side projects.

But so far, YouTube has been nothing but a source of headaches for Google executives. Their efforts to negotiate content deals with mainstream media groups have resulted in a rash of negative publicity, forcing CEO Eric Schmidt to spend an inordinate amount of time defending a subsidiary that accounts for a sliver of Google’s revenues.

Some observers are now worried that top executives are becoming increasingly distracted by YouTube, just as chief rival Yahoo appears to be regaining its footing by revving up its new “Panama” search-advertising system.

“YouTube has ended up being a management, operational, and legal overhead, and a drag,” said analyst Trip Chowdhry of Global Equities Research.

It wasn’t always so. YouTube seemingly came out of nowhere to establish itself as the edgy anything-goes video-sharing site of the moment. Then Google stepped in to snap up YouTube—moments after YouTube signed a handful of content distribution deals that seemed to suggest it could partner with big media.

Optimism about the YouTube acquisition pushed Google shares up from $401 to $476 by the end of October. Although grumblings about potential lawsuits and sticker shock reverberated, many praised Google for recognizing the potential of video advertising.

But now, with large media companies such as Viacom, CBS, and NBC angry about copyright violations and revenue-sharing issues, YouTube’s reputation has suffered. Microsoft eagerly stepped into the fray on Monday, with its copyright attorney singling out YouTube’s missteps as an example of Google’s “cavalier approach to copyright.” He argued that Google was a content owner’s enemy.

Wall Street analysts prefer to consider Google more of a “frienemy” to media companies, and they say the company’s increasingly dubious reputation is starting to hurt its efforts to work with media groups.

Posturing and Positioning

“This concern isn’t just about YouTube and the revenues and the legal issues,” said analyst Scott Kessler of Standard & Poor’s. “It’s a lot more about posturing and positioning for potential partnerships in the future. There’s already a fair amount of tension in terms of whether or not media companies are willing to buy into full-blown relationships with Google.”

Mr. Chowdhry says some institutional investors have told him they are growing dismayed over the fallout from the YouTube deal.

But Clark McKinley of CalPERS, the giant California state employee pension fund that is one of Google’s larger investors with 1.5 million shares, said he remains unconcerned.

“We don’t really care what they do in terms of specific deals,” said Mr. McKinley. “We look at how’s their stock performance, and if it’s really terrible within the industry sector, then the flag will go up for us.”

Meanwhile, Mr. Schmidt continues to insist that YouTube’s phenomenal traffic and video-advertising potential makes it worth any short-term troubles or hassles it might bring the company. “If you can build a sustainable eyeball business, you can always find clever ways to monetize it,” Mr. Schmidt told a group of investors Tuesday.

Many analysts agree that YouTube could make a significant impact on Google’s revenues in three to five years—as long as users don’t object to its efforts to commercialize the site. YouTube members have so far stuck by their site, but Internet audiences who used to flock to cool underground sites such as Napster, Kazaa, and Friendster have proven to be a fickle lot.

---Sunshine Mugrabi contributed to this article.