YouTube's bid to grab TV dollars
imperiled by advertiser revolt
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[March 24, 2017]
By Julia Love, Jessica Toonkel and Tim Baysinger
(Reuters) - The decision by a handful of
high-profile consumer brands to pull advertising from Google’s YouTube
over offensive content could threaten the site’s long-term strategy of
stealing ad dollars from television, analysts and ad industry
professionals said Thursday.
The immediate financial impact of the controversy is likely to be
limited, in part because a big chunk of YouTube revenue comes from
smaller advertisers who lack the budget for TV campaigns and do not have
easy alternatives. Some analysts also believe that departing
advertisers, eager to reach YouTube's millennial audience, will quickly
But with "brand safety" emerging as a major concern for marketers amid a
surge in hate speech and other types of offensive content across the
internet, the widespread assumption that major advertisers are ready to
shift large chunks of their budgets from TV to digital now looks much
The timing may also favor television networks as they usually present
their fall line-ups and woo big advertisers starting in May, agency
YouTube, part of Alphabet Inc <GOOGL.O>, has spent years courting big
brands that spend hundreds of millions annually on air time. But over
the past week, companies including Verizon Communications Inc <VZ.N>,
AT&T Inc <T.N> and Johnson & Johnson <JNJ.N> have canceled their YouTube
“Video is actually a lot more fragile of an ecosystem than the Silicon
Valley, software-eats-everything crowd may want to think," said Joel
Espelien, a senior analyst at the Diffusion Group, which studies the
future of television. "The point is all content isn’t actually the same,
all advertising isn’t actually all the same. There is an element of
taste. And when you ruin that, the whole thing does kind of start to
Google offers little visibility into YouTube’s financial performance,
but analysts view it as a key driver for the company’s growth as its
traditional search advertising business matures. Analyst Mark Mahaney of
RBC Capital Markets estimates YouTube will bring in about $14 billion in
revenue this year.
Alphabet shares have fallen more than 3 percent since Monday, closing at
$839.65 on Thursday.
Whether the recent events are a mere blip on the radar for Google or a
harbinger of bigger problems to come may depend on whether the company
can quickly improve its technical tools to give advertisers more control
over where their ads appear.
YouTube has begun reviewing its advertising policies and will take steps
to give advertisers more control, Philipp Schindler, Google's chief
business officer, wrote in a blog post on Tuesday. Google also plans to
hire more people for its review team and refine its artificial
intelligence – a key step, since much of the ad-serving is handled by
Eric Schmidt, executive chairman of Alphabet, acknowledged in a Fox News
interview that ads appearing next to videos promoting hate speech or
advocating violence had slipped through the digital cracks in Google's
elaborate ad-serving systems.
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YouTube unveils their new paid subscription service at the YouTube
Space LA in Playa Del Rey, Los Angeles, California, United States
October 21, 2015. REUTERS/Lucy Nicholson
"We match ads and the content, but because we source the ads from
everywhere, every once in a while somebody gets underneath the
algorithm and they put in something that doesn’t match," Schmidt
said. "We’ve had to tighten our policies and actually increase our
manual review time and so I think we’re going to be OK.”
But Google's public statements have done little to assuage
advertisers’ fears, said David Cohen, president, North America, for
media buying firm Magna Global. Privately, Google has gone into more
detail about how it plans to combat the issue, including ratcheting
up its algorithms to better categorize content and being more
stringent about how content is labeled, Cohen said.
But such additional controls would reduce the percentage of content
that carries advertising and could disrupt the vibrant community of
independent creators on YouTube, who drive traffic to the site and
rely on revenue-sharing from advertising.
YouTube faces a special imperative to keep creators happy as rivals
such as Facebook Inc <FB.O> and Twitter Inc <TWTR.N> try to court
talent for their own platforms, said Hank Green, a prominent YouTube
creator who runs the VidCon conference.
“YouTube has a decade-long head start, but obviously everyone wants
a piece of the pie,” he said.
Even before the most recent revelations about YouTube, control over
online ad placement had become a hot button topic for advertisers.
Social networks and news aggregators came under fire during and
after the U.S. presidential election for spreading fake news
reports, and advertisers have also sought to avoid having their
brands appear beside content that they categorize as hate speech.
“Between non-human traffic and fraud, fake news and hate speech,
brands are more concerned than ever,” said Marc Goldberg, CEO of
Trust Metrics, a New York-based company that addresses ad fraud.
(Reporting by Julia Love in San Francisco and Jessica Toonkel and
Tim Baysinger in New York; Editing by Jonathan Weber and Lisa
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