YouTube Needs to Get with the Program

| About: Alphabet Inc. (GOOG)
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Last week, Tech Crunch published my article on The 12 Surprising Things Holding Back Online Video Advertising, in it, I mentioned that while YouTube has been closed to most technology and ad solutions, surprisingly, it was more open than some of their peers by allowing producer partners to sell ads.

YouTube has tried and experimented many things in the hope of boosting revenues, whether they are derived from advertising or subscriptions. Last week, they mentioned that they are trying to get people to pay $5 to watch a movie. Will it succeed? I don’t know.

On the ad front, we’ve always pushed YouTube to be aware and realistic of the market as they try to stay ahead of it.

When we first signed our deal, they didn’t allow us to sell ads. We lobbied them and earned that right.

But they didn’t go all the way. For example, the company was late in accepting pre-rolls. Back then, I argued that indeed, no one likes pre-roll ads, but by not even being able to tell an ad agency that we can offer pre-rolls, we were not even being asked to propose deal ideas. This year, they finally allow pre-roll ads, but they tell us that we cannot sell a companion 300×250 ad along with a pre-roll, which is industry standard. There are a few other things (details, really) that YouTube does not budge on, but I won’t share too many details as we are bound to a confidentiality agreement, though the companion ad is clear when you simply visit the site. I am not saying any of this to irritate the powers that be at YouTube, after all, I view monetizing YouTube as the single greatest opportunity in all of business in the 21st century, problem is, I am not sure Google/YouTube really recognizes this.

When I read Google (NASDAQ:GOOG) CFO Patrick Pichette talk about boosting revenues, I wonder, those small steps are great.

Nikesh Arora, president of global sales operations and business development, said that YouTube had several successful ad campaigns over the quarter, including a campaign for Avatar that took advantage of all the site’s display advertising capabilities. CFO Patrick Pichette noted that the home page of YouTube was sold out almost every day during the fourth quarter, with the site selling ads in more than 20 countries worldwide.

That’s because YouTube is becoming increasingly important to brands and agencies, according to Arora. “There’s been a big shift… [YouTube] has gone from being ‘nice to have’ to an essential part of the media mix,” he said.

But enable producers to include a companion banner to pre-rolls and you will see an immediate spike in revenues.

YouTube generates 40-50% of our total streams, but they generate less than 5% of our revenues. That is a travesty. If YouTube is to become both a commercial and promotional platform, it needs to move faster and reach to our (and producers’ in general) needs. Why?

Only if producers start to sell their own inventory will Google

  • Increase sell-through,
  • Increase CPMs.

The eCPM we get from YouTube is not what it should be. When we sell ad campaigns, we yield 10x higher rates than what we usually get. Since YouTube shares in those revenues, they have an incentive to align interests with ours.

You want numbers? Currently we generate 5-digits per year with YouTube, if they let us run companion ads with pre-rolls (and thus open us up to more pre-roll campaigns) then we would do 6, maybe 7-digits selling our YouTube channel. I view pre-rolls as pop-ps and post/mid-rolls as pop-unders, don’t get me wrong, but they could currently generate a much needed revenue stream which YouTube is basically cutting off. Let’s face it, the problem right now is a lack of premium content, which is expensive to make.

YouTube needs to take a cue from Google’s AdSense, which while maintaining a strict set of rules and guidelines did open up to empower everyone to leverage the massive audience it reached.