Schmidt says it's imperative the site is transformed into a money-spinner, and this year.
"We're working but have not yet, in my view, gotten a breakthrough around monetisation," Schmidt told CNBC in an interview.
"So while we have lots and lots of traffic and we have lots and lots of interesting and creative people and all sorts of controversies - we're blocked in countries, so on and so on - I don't think we've quite figured out the perfect solution of how to make money, and we're working on that. That's our highest priority this year."
Google paid $1.65bn for YouTube in October 2006 but hasn't yet managed to turn the site’s popularity into cash.
Schmidt highlighted that a number of new products, which will be revealed later this year, may hold the key to YouTube's profit-earning potential.
"We believe the best products are coming out this year. And they're new products. They're not announced,” he added.
Looking to the future, Schmidt identified online-translation services as Google's next big project.
"I've always thought that the scariest piece of innovation is knowledge understanding and language translation," he said.
"The things that are most impressive to me are the things where the computer does something that nobody could do, literally translate things 100 languages in parallel, summarise something for me, take me to something which I didn't know I was interested in but knows that I cared about it. And we're right on the cusp of that."