Google parent Alphabet didn’t talk about its streaming TV service YouTube TV, or its escalating battle with streaming device maker Roku, on its Q1 conference call April 27. But what it did say about the YouTube internet video service should send shivers down every TV executive’s spine.
On the call yesterday, which was broadcast over YouTube, Google senior VP and chief business officer Philipp Schindler said that YouTube’s Brand business -- which offers content tied to a specific brand, meaning it also attracts higher ad revenue -- has more than 2 billion global monthly logged in users, watching over 1 billion hours of video every day. Think about that for a minute.
LightShed Partners’ senior analyst and partner Rich Greenfield did, tweeting shortly after the Tuesday call that at 1 billion hours, YouTube has 2.5 times more streamed viewing hours than Netflix, which he estimated streams 400 million hours per day.
“Linear TV’s future is grim at best,” Greenfield tweeted.
That alone should get some TV people nervous, but then Schindler got a little scarier, noting the ad reach that the service has. He first said that Taco Bell saw a 27% incremental reach for its limited time offer campaigns. Kellogg’s Special K campaign’s incremental reach was more than 30%, he said.
Then he got downright terrifying.
“Historical approaches to reaching audiences through, let’s just say, call it linear TV, don’t really work anymore,” Schindler said. “Advertisers are using YouTube now to reach the audience they can’t find anywhere else. And remember, more 18-to-49-year-olds are actually watching YouTube than all linear TV combined, and brands are also seeing more incremental reach on YouTube compared to TV.”
If there is one thing that will ensure the death of any business, is that the money it depends upon for survival finds another place to go. And Google, after already scarfing up most of the digital ad revenue and all of the search ad revenue in the world over the years, is getting ready to dominate the ad space in branded video content as well.
Because in the end, it doesn't matter if the kids are watching makeup videos on YouTube, Shadow & Bone on Netflix or the 17th season of Grey's Anatomy on ABC, ad money is going to flow to whatever they are watching. And now it looks like more kids are watching makeup videos.
Analysts that follow Google and usually concentrate on the Search engine ad growth, are beginning to take notice of the TV implications to YouTube’s success. In a note to clients, Evercore ISI Group analyst Mark Mahaney noted the “tipping over of linear TV ad budgets, some of which we believe are being shifted over to YouTube.”
YouTube, Mahaney added, is at an ad product inflection point with its Direct Response offering and what the analyst noted as a “massive ARPU ‘gap up’ opportunity” given that it monetizes at less than a 10% premium to Twitter.
Canaccord Genuity Capital Markets analyst Maria Ripps noted that ad revenue rose across the board for the internet giant -- up about 30% each for search and networks and 49% for YouTube.
“YouTube saw robust demand from DR and continued strength from brand spend, and the company remains focused on integrating shopping features given how often users go to YouTube to decide what to buy,” Ripps wrote. “During Q1 Google launched new capabilities for users to purchase items from their favorite creators along with the ability for merchants to place product feeds directly inside video action campaigns.”
What’s even more disheartening is that YouTube’s DR business didn’t even exist three years ago. On Alphabet’s Q4 earnings call, Schindler said it was “one of the largest and fastest growing ad offerings on YouTube.” Paired with TrueView for action, which provides in-stream video ads that enable advertisers to convert prospects from within the ad via lead generation forms, he claimed it makes it easier for advertisers to unlock opportunities through video campaigns.
On the Q4 call, Schindler said that 60% of TrueView for action customers were new to YouTube and that the company more than doubled the number of active advertisers using the service in the first six months of 2020.
On Tuesday’s conference call, Schindler said the DR business is “just getting started.”
He noted that Calvin Klein tested out the shopping capabilities of the BrandConnect program, and saw a 200% lift in brand search, selling out multiple products.
“For merchants, they can now bring their product feeds directly into their video campaigns and I think we are still scratching the surface on what’s possible really with commercial intent on YouTube,” Schindler said.
So I’m beginning to think that YouTube TV, which everybody thought was going to kill pay TV when it first started offering 70 channels for $35 per month, doesn’t mean that much to YouTube as a business. It’s had to raise its prices first to about $40 in 2018, then to $50 in 2019 and last June to about $65 per month, only has about 2 million subscribers, making it about the size of Sling TV, and maybe if it can’t get what it wants from Roku -- which according to reports is along the lines of giving special search privileges to and access to data for the separate YouTube app, that’s no skin off its back. Roku has accused Google of “anti-competitive practices,” which should rattle the internet giant a bit in the current political climate, but it seems that even if YouTube TV lost a million or so subscribers minus a Roku deal, it wouldn’t matter much. There are 2 billion people watching 1 billion hours of how-to videos and infomercials on YouTube each day, and the YouTube app is still available on the Roku lineup. So in the long run, Google will eventually get what it wants either way.
Mike Farrell is senior content producer, finance for Multichannel News/B+C, covering finance, operations and M&A at cable operators and networks across the industry. He joined Multichannel News in September 1998 and has written about major deals and top players in the business ever since. He also writes the On The Money blog, offering deeper dives into a wide variety of topics including, retransmission consent, regional sports networks,and streaming video. In 2015 he won the Jesse H. Neal Award for Best Profile, an in-depth look at the Syfy Network’s Sharknado franchise and its impact on the industry.
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