In 2006, YouTube’s then-CEO Chad Hurley wowed the crowd at Allen & Co.’s annual media conference by pointing out that YouTube had 60% of the online video market.
Eight years later, in 2014, the figure was comparable at 56% —on desktop — according to comScore. Back in 2006, the nearest competitor had just 17%, but now Facebook has 33% of the market. At 10, YouTube is still dominant, but at this particular moment it’s facing a raft of tough competitors.
Those rivals include Facebook, AOL and Yahoo. All of whom have made real inroads in recent years. YouTube is still the default for amateur videos and the Google unit has done a decent job creating a stockpile of slick, professional inventory, but in that business, YouTube isn’t nearly the dominant player it is in video overall.
An eMarketer study from 2014 portrayed YouTube as sort of a public access channel for the Internet, loaded with videos that advertisers want no part of. eMarketer pegged YouTube’s 2014 U.S. ad revenues at $1.13 billion, about 18.9% of the market. The researcher was looking at ads specifically on the videos themselves and ignored revenues from banners, search and other as on the site, so that figure is likely less than Google’s. Still, eMarketer projected “that the site won’t increase its market share significantly in the coming years.”
That’s not for lack of trying. “They’ve worked very hard over the past few years to make their content more advertiser-friendly and have had a lot of success,’ said Paul Verna, an eMarketer analyst. “But at the same time, the perception does linger that it’s a free-for-all and it’s junk.” That said, “I don’t see that YouTube has an existential threat,” Verna said. “I don’t see anything that’s a YouTube killer.”
YouTube’s big challenges these days are establishing a reputation for premium content, retaining homegrown talent and Facebook.
Premium content
Digital video ad spending hit $6 billion in the U.S. last year, eMarketer estimates. That figure is a 56% jump from 2013. “We do believe this is an ever-expanding pie,” says Jamie Byrne, director of content strategy at YouTube. Byrne says YouTube’s strength lies in the fact that it’s the world’s second-largest search engine, the default vehicle for finding videos.
The search model isn’t as well suited for premium content, especially on Internet-connected TVs. A March 2014 study from Qwilt found that Netflix — which carries no advertising — represented 57.5% of the video-streaming market. Comparatively, YouTube’s share was 16.9%, down from 28.2% the year before. “If YouTube wants to change its trajectory in video, they will need to change their strategy,” said Mark Fisher, VP of marketing and business development for Qwilt. Fisher said YouTube will continue to fade as Netflix, Amazon and HBO pour more money into content. “When one simply imagines the transition of the billions of hours of linear TV to Internet TV, the weight of that additional streaming traffic may nearly overwhelm YouTube’s content if it continues to be centered around UGC, ad-based sponsored video and short form original content.”
Verna says YouTube has done a good job getting its app on Internet-connected TVs — it’s on Apple TV and available for Roku (though you have to go out of your way to download it) and of course you can access it via Google’s Chromecast. Compared to rivals like Netflix and Hulu, though, YouTube is clunkier and requires more work on the part of the viewer, Verna says. Search works well on desktop and mobile, but in a more lean-back type of experience, viewers are more amenable to suggested content.
On mobile and desktop, YouTube may be the default video search engine, but if you’re looking for professional content, increasingly you have to go somewhere else. In a bid to snag some of those high-end video ad dollars, Yahoo acquired the rights to Saturday Night LIve‘s back catalog in 2013 and picked up Community‘s sixth season.
Meanwhile, AOL has become a major player in online video by creating its own programming, sometimes featuring A-list stars like James Franco and sometimes with unknowns. The emphasis on video has helped AOL remain viable in an environment in which mobile is driving the average cost-per-click ever downward. In its most-recent quarter, AOL’s display revenuesrose 1% excluding the impacts of shutting down Patch and other properties during the quarter.
YouTube has attempted to offset such competition for premium content with Google Preferred, a program it launched last year that rounds up the top 5% of quality videos on the site and presents it to advertisers.
Homegrown talent
Another way to counter the perception that YouTube traffics in junky content is to make stars out of people on the network. That was the thinking behind YouTube’s unprecedented TV, print and outdoor campaign featuring Michelle Phan, Bethany Mota, and Rosanna Pansino, all stars with more than 1 million subscribers and part of Google Preferred.
The thinking, as YouTube CEO Susan Wojcicki told Ad Age, is to try to match the marketing support CBS, ABC and Fox put behind launching new shows.
The problem is that YouTube has found that its stars are frequently getting poached by others. For instance, Disney picked up Maker Studios last March for $500 million with incentive fees that could add another $450 million. Maker markets some 55,000 channels, including Epic Rap Battles, one of the properties YouTube highlighted in its ad campaign. That deal came after DreamWorks Animation acquired teen-skewing YouTube multichannel network Awesomeness TV for $33 million with an additional $100 million potential performance incentive payout.
Jason Kilar, the cofounder of Hulu, has also launched Vessel, which will provide exclusive access to stars — some from YouTube — for a $2.99 subscription fee.
In December, The Wall Street Journal reported that YouTube is looking to hold its stars to exclusivity contracts. The company denies this. YouTube used to push for exclusivity, but no longer takes that approach. Bryne says YouTube now believes that it’s important for YouTube creators to have access to other social media levers to build a fan base.
YouTubers also point out that although artists are making deals with studios, they are still putting their videos up on YouTube. That may be, but YouTube creators have complained that they don’t make enough money on the platform, because YouTube’s ads don’t pay well enough and YouTube takes too big a cut of their profits. Both factors have prompted Maker to explore other avenues of distribution, like Xbox.
Verna says he thinks YouTube should figure out a way to retain more of it’s talent. “That’s definitely a problem,” he says. “One piece of good news is there’s so much more of where it came from. There are so many new creators coming out of the woodwork.”
Part of the reason that YouTube took off was that it made it easy for people to share videos. In particular, the creators put the URL copy function in a prominent place on the site and made its videos embeddable, which gave it traction on MySpace, the predominant social media site at the time.
As MySpace faded, Facebook took up the slack. But last year, Facebook began killing off YouTube links by emphasizing its native video player. Savvy marketers and creators soon discovered that videos using Facebook’s native player got greater traction on the site so they stopped putting YouTube links in the News Feed.
YouTube claims that the move hasn’t hurt it. In the last quarter, YouTube got just 5% of its traffic from Facebook. YouTube didn’t provide a comparable figure from the time before Facebook introduced its video player, but despite the pullback, YouTube’s viewership and revenue from partners grew 50% last year.
With such creators Facebook versus YouTube isn’t likely to be an either/or situation, but if Facebook becomes a reliable, curated source of viral videos, then there will be less of a reason to go to YouTube, which is another potential headache. YouTube bats that suggestion away, though, arguing that the two services are complimentary. A YouTube creator can use Facebook to whet would-be fans’ appetites enough to sign up for their YouTube channel.
Gideon Yu, who was YouTube’s first CFO and later worked at Facebook, told Mashable that he think YouTube and Facebook are different use cases. “If you look at the overall demand [for online videos] it’s only starting to grow,” Yu said. “There will be plenty of room for both companies.”
Source: mashable.com