YouTube is facing a reckoning as rivals offer TV streaming scale for the first time

  • YouTube is facing another big challenge in its bid to crack the $70 billion TV ad market.
  • Top agencies say the rise of ad-supported streaming threatens YouTube’s recent gains.
  • Advertisers are also motivated to spend elsewhere because of brand safety concerns on YouTube.

YouTube, the most popular digital video platform in terms of time spent, has long attempted to compete for TV budgets.

However, agencies report that after heavily investing in YouTube during the pandemic, their spending has slowed or remained flat as new ad-supported streaming services such as Disney+ and Max provide them with more options.

One executive from a holding company stated that for the first time in years, their clients’ YouTube spending has not increased this year. A second stated that their spending on YouTube has slowed after recent aggressive increases.

According to a third, YouTube is losing market share to Disney+, Peacock, and Paramount. “Is YouTube taking its fair share?” inquired the third executive. “I’d say probably not, given all the different places we can now shift our dollars.” We no longer need to purchase YouTube for scale.”

When Amazon begins selling ads on Prime Video next year, an estimated 115 million viewers will be added to the ad supply.

Executives also mentioned the suitability of YouTube content as a continuing factor in their budget allocations. Big brands continue to be concerned about the quality of user-generated content on YouTube, while other streamers claim to provide a low-risk environment for advertisers.

In June, advertising analytics firm Adalytics released research indicating that Google violated its standards when it ran advertisers’ video ads on other websites. At the time, Google stated that many of Adalytics’ claims were incorrect. A subsequent Adalytics report claimed that YouTube served ads that may have resulted in improper tracking of children online; Google also denied this claim.

Finally, ad buyers say advertisers have grown tired of Google’s ad ecosystem dominance (which is now under antitrust scrutiny), and those looking for alternatives to park their dollars can find them.

According to internet analyst Dan Salmon, partner at New Street Research, YouTube benefited when the Hollywood strikes shut down TV productions, leading advertisers to look for alternatives to network TV, and streamers were still building their ad supported viewership. However, he believes that, at least in the short term, YouTube will face industry-wide pricing pressure due to an increase in TV-like ad inventory.

According to Brian Albert, managing director of US Video for Google//YouTube, the ad marketplace has always been competitive, but YouTube dominates in terms of viewership and audience reach. He also cited a study conducted by Google and the eye-tracking research firm Eye Square, which discovered that ads featured in creator-produced content improve brand perception on par with broadcast-produced content on YouTube.

“It’s not to say it’s 100% green, but most buyers and clients have acknowledged that quality is in the eye of the beholder and what matters most is where you and I choose to spend our time versus any legacy definition of what premium means based on a daypart or premium actors in a show,” he said.

YouTube has had TV growing pains despite its dominance with young viewers

True, YouTube still has massive advantages over other streamers in terms of size, cost, and dominance with young viewers.

According to Nielsen, it had the most hours viewed: 9% of streaming viewing in September, followed by Netflix (7.8%), Amazon (3.6%), and Hulu (3.6% each). After three quarters of decline, YouTube’s revenue increased year over year in the last two quarters.

For years, YouTube has used this audience to compete for big brands’ TV ad budgets, as well as to launch products that promise a more premium viewing experience. YouTube TV, which debuted in 2017, offers both linear and on-demand programming, and parent company Alphabet has described it as a bright spot for subscriber growth. YouTube Select, which allows advertisers to run ads on the top 5% of its most popular programming, also pitches TV advertisers. Last year, YouTube struck a deal to make NFL Sunday Ticket games available as an add-on for YouTube TV subscribers.

Some advertisers complain that YouTube is including creator-made video in their Sunday Ticket purchases, which they believe is inferior to actual live game footage. In one report for a near-completion campaign seen by Insider, user-generated video and clips from accounts like JayWillySilly, budleewiser, and MLB Hot highlights 2023, rather than live NFL games, accounted for roughly 40% of impressions delivered on a Sunday Ticket purchase.

While YouTube Select may be less expensive than other streaming ad options, MrBeast and other creator-led fare lack the luster that premium streamers such as Disney+ and Max have. To some advertisers, right or wrong, this is yet another reason to avoid them.

Albert stated that YouTube made no guarantees about the Sunday Ticket inventory mix and that advertisers knew they would be buying across both types. Despite this, he claims that more than 80 advertisers have purchased Sunday Ticket from YouTube and that “our clients are very, very happy” with it.

In terms of creator content in general, he stated that YouTube is committed to its model of funding creator content, which he claims ensures that hits are consistently produced. “That’s a massive difference between the legacy studio-produced model where you hope you get enough hits to sustain viewerships,” he went on to say. “When the streaming story is told in the future, this is going to be the pivotal issue that gets explored.”

Ad buyers have noticed indications that YouTube is aggressively attempting to boost TV revenue. It attempted to charge advertisers based on how many people reported watching YouTube on connected TV at the end of the 2023 upfronts season, a departure from having YouTube’s audience independently verified by Nielsen. Ad agencies successfully resisted. Albert stated that YouTube was debating when to charge advertisers based on co-viewing, adding that “it’s always been a bit fluid based on market feedback.”

“The scramble made me feel like, ‘Oh God, we’re not growing like we should.’ “It told me there was some desperation going on,” one of the agency executives explained. Agencies are accustomed to hearing from ad sellers in advance of the spring upfront selling season, but YouTube sales executives have been reaching out to agencies even earlier than usual.

While YouTube’s TV revenue isn’t where it wants it to be, adding Sunday Ticket and prestige content like it will go a long way, according to advertising industry analyst Brian Wieser of Madison and Wall, who consults to clients across the ad industry.

“In the eyes of many advertisers, it’s just not comparable because it’s all cats on skateboards,” Wieser told me. “The more programming that’s like that, the more they can have a conversation with advertisers.”

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