The Global Media Weekly for executives and entrepreneurs

How YouTube is a $45bn champion

Most of the conversations about online video revolve around two extremes: the short form of the addictive kind delivered by TikTok and Instagram, and high-end streaming TV from the likes of Netflix and Amazon Prime. Less discussed is YouTube, the original short-form web-video platform which now sits somewhere in between those two extremes. But it’s doing exceptionally well in that middle-ground.

One of the reasons YouTube doesn’t get the coverage of other video services is that it has pulled off something quite remarkable: Like Google search before it, YouTube has become part of the fabric of the internet. Not just another competing product, but something people barely think about, yet use day in day out. It is almost above the competitive fray and totally accepted by hundreds of millions of people around the world.

“It’s almost a victim of its own success,” says Enders Analysis senior media analyst Jamie MacEwan. “It’s always there in the background. And you don’t think, you just type in YouTube and you find whatever you need.”  

That ubiquity is obvious in the numbers. Upwards of 2.5bn people worldwide use YouTube each month, and US users spend around 45 minutes on the service on average every day. “When you’re looking at social media platforms, YouTube’s got that unparalleled reach and time spent viewing,” says MacEwan.

That reach also continues to pay off financially. Parent company Alphabet recently said that quarterly ad revenue for YouTube had risen 15.5% year-over-year to $9.2bn. Total ad revenue for the whole of 2023 was $31.5bn. Google’s total revenue from YouTube is now said to be $45bn, including almost $15bn from subscriptions. In comparison, TikTok revenues over a similar, year-long period are thought to be “only” $16bn.

TikTok, of course, is growing very fast but it’s some way behind in terms of users: in the UK, for instance, YouTube has more than twice as many as TikTok. But those users are spending around twice as long on its app. In response, YouTube launched Shorts, which are more similar in format to TikTok’s bite-sized videos, and pushed heavily on its apps and website. That in turn has begun to be felt by what is probably YouTube’s greatest asset, its 3mn or so partner channels. 

Google describes Shorts as “a long-term bet” that has really helped us respond to both creator and viewer demand for short-form video.” Shorts could, of course, benefit directly if TikTok were to banned in the US, as has been threatened by legislators.

Many of the most popular YouTube channels are, of course, simply sources of music. Of the top 50 most subscribed to channels (different from paid subscriptions) 20 are music channels, including those for big-name artists likeTaylor Swift and Ed Sheeran, as well as some big channels aimed at India including the region’s Sony Music channel. There isn’t much those channels can or should do to adapt. 

But for those actually creating new content for YouTube, the shift to shorts has been disruptive and often painful. “It’s been tough, as YouTube shorts are definitely less monetizable at the moment,” says MacEwan. “It’s got so many products, and with creators you’re trying to convince them to do many different formats.” 

But while competing in web-based, ultra-short form is clearly a priority for YouTube, it’s also doing pretty well going the other way. “A huge chunk of YouTube’s business and the revenue it is generating is from sitting on the TV screen alongside Netflix or broadcasters,” says MacEwan. “The latest figures from Nielsen show that YouTube was getting about 10% of US TV viewing, which is more than Netflix.” 

TV penetration doesn’t necessarily put YouTube in too much direct competition with the likes of Netflix, even with the rollout of cheaper ad-funded packages from the streamers. But what it does do is give YouTube a greater ability to pitch higher-impact advertising, while also cementing and underlining its centrality to people’s digital lives.

Even with a plethora of different formats to deal with, YouTube remains one of the more hospitable places for creators to make money. That’s in part because it has a very tolerant attitude towards channels being used to push audiences to other revenue-generating options, such as online stores. And when it’s a way of reaching 2.5bn people everywhere from their pockets to their TV screens, it’s going to remain the go-to outlet for most creators. 

Simon Owens’ Tech & Media Newsletter said this week that, while YouTube’s popularity as a platform hasn’t been a secret, traditional Hollywood has only recently begun to recognise how big a cultural force it has become. It quotes two separate Nielsen data points that prove YouTube’s dominance: “The first, revealed last week, showed that it’s the most-watched TV streaming app, ahead of Netflix and every major Hollywood studio. Then, this week, the Wall Street Journal reported on Nielsen data that shows YouTube only trails Disney when you zoom out to all TV viewing, including linear broadcast and cable channels. And to clarify, that only includes YouTube viewership on TVs; I’m guessing it would surpass the House of Mouse if you also incorporated desktop and mobile audiences.”

Owens says YouTube is “quickly becoming the most powerful media platform in the history of humanity”, propelled by its advantages over Hollywood studios: “…how it pays for content. It revealed recently that it paid out $70bn to content creators over a three-year period — so at least $23bn a year. That’s far north of the $17bn Netflix spends every year for its own content library. But nearly all of YouTube’s content budget is paid out as a revenue share based on the ads that run against individual videos. This not only has created a direct correlation between content success and remuneration, but it also generates a feedback loop in which the most successful creators are able to invest more and more resources into their content production, thereby further increasing their reach.”

Owens’ most powerful point about YouTube’s hidden strength, though, is its ‘frictionless discovery’: “Not only does it have a powerful recommendation engine on both its homepage and apps, but any consumer can easily embed and share YouTube videos across blogs, text messages, email, and social media, and they can be consumed on any web-connected interface, from your TV to your computer to your mobile phone. This makes it so much easier for content to reach its intended audiences. Hollywood content doesn’t have this level of discoverability, hence why even highly-rated shows still regularly get canceled after failing to find an audience. How many times have you heard big directors complain about poorly-executed marketing or that a show was canceled before it had a chance to find its audiences? Those are signals of inefficient discovery.”

The scale of challenge to Hollywood was reinforced this week by YouTube CEO Neal Mohan who has been arguing that the Emmy Awards should expand their eligibility to include YouTube videos:“Creators are the new Hollywood, defining a new era of entertainment. Recognising the work of creators is the best way for the Television Academy to continue its legacy of honoring modern culture, while also building a bridge to the next generation of viewers.”

The challenge is no simpler for traditional media.

Broadcasters with a wealth of archive video can certainly give older content a new lease of life by making it available on YouTube and, to some extent, they have to be on those platforms because it’s where the audiences of the future are. According to Enders, in 2022 for the first time 16-24 year olds were consuming the majority of their video content via social platforms, with YouTube taking by far the biggest share at 32%. However, even if they can get their content in front of audiences online, actually monetising it is generating only incremental revenue at best, with lower CPMs and handing a cut of anything they do make over to the platform. 

And, for news outlets, creating content for YouTube may help build reach. But it’s going to be even harder to make it pay-off in pure revenue terms. “If you really want to be a force on YouTube or another video platform you probably need people full-time, and the best way of having success is having a strong creative personality posting regularly, posting pretty professional stuff,” says MacEwan. “That’s going to be costly and it ends up being its own business that needs to be justified.”

As with so much of digital media, it’s either smaller operations with low costs or the platforms themselves with huge scale, that come out with a lucrative business model. The demise of Vice, which went all-in on YouTube with high quality news documentaries, is probably the lesson most news outlets should consider when thinking about YouTube.

“Creators are basically bearing the risk of creating the content in the first place,” adds Enders’ MacEwan. “That’s the story of all of these very successful and higher margin online platforms.”

It may not be a particularly appealing story for premium media brands, but, arguably, the 20-year-old YouTube – which was acquired by Google for $1.65bn in 2006 – has only just begun.