Netflix, HBO, Prime Video, Disney +.... The video-on-demand platform industry is red hot.
Competition is fierce and every day more and more streaming platforms are fighting to increase
their piece of the pie, gain new subscribers and take market share from the competition.
This phenomenon is driving investment in new content to stratospheric figures. It is estimated
that globally, investment in new video content could exceed $230 billion by the end of 2022.
And, naturally, video-on-demand platforms have a lot to do with all this.
Industry leader Netflix alone plans to invest $19
billion in new content this year. Yes, yes, that’s correct: $19 billion.
What’s more, this is a level of investment that cannot be
considered a one-off or extraordinary event.
And you see, given the enormous competition in the industry, streaming companies are
forced to spend more and more on new content in order to retain subscribers.
At present, virtually none of these platforms are achieving positive cash flows.
And that is precisely what explains recurring headlines like this one:
(Disney, Netflix, Apple: is anyone winning the streaming wars? Investors are terrified that the
prize may not be worth it. The Economist) However, on the sidelines of this fierce
battle there is another streaming platform that is quietly making its
way to the top of the industry. I am referring to none other than
this very platform, YouTube. Believe me, Alphabet's video
division keeps breaking new records. With a free consumption model and a few paid plans,
it is managing to beat the biggest platforms in terms of revenue. Check it out.
During just the fourth quarter of 2021, YouTube billed more than $8.6 billion in ads alone,
without taking into account the paid services it already offers, which Alphabet does not
provide cost break downs for the time being. Even so, the point is that advertising revenues
alone allowed YouTube to far surpass the approximately $7.7 billion billed during
the same period by the current No. 1 video-on-demand platform: Netflix.
In total, YouTube billed almost $30 billion in advertising during 2021, maintains annual growth
rates above 30% and what is even more important: YouTube achieved these huge figures without having
to make the huge investment in content that the rest of the platforms are forced to do.
So you can imagine that, in this case we are talking about much larger margins today,
even if we take into account the payments YouTube makes to creators.
For example, some analysts point out that the conversion of YouTube's revenues into cash flow,
into hard cash, would be well over 30%.
That’s not bad for a company that Alphabet, at that time Google, acquired in 2006 for
a mere $1.65 billion, isn’t it? Now, that said, the question is:
What plans does Alphabet have for YouTube? Well, let's take a look.
(A SERVICE EPICENTER) VisualPolitik viewers, YouTube has more than 2
billion active users. That is, almost a quarter of the entire global population uses this platform.
No other service comes even remotely close to these figures.
More than 5 billion videos are played every day and it is estimated that about 25% of all global
mobile traffic is consumed on this platform. Crazy.
In the United States, for example, the majority of the population uses this service at least
once a week. And this is true for all age groups. Even in the case of baby boomers. Take a look.
As you can imagine, this is obviously a huge advantage, offering enormous cross-selling
opportunities. A power that Alphabet now wants to exploit to boost paid subscriptions.
This is precisely what they have done with YouTube Premium,
YouTube Music and YouTube TV, which already have more than 53 million paying subscribers.
Three services with which YouTube could already be billing $2.3 billion dollars quarterly.
So if we add this figure to the ad revenue we saw earlier, YouTube could
be generating revenue of almost $11 billion per quarter: which is 40% more than Netflix.
Which means, plain and simple, that they are killing it.
In fact, the case of YouTube music is very representative. YouTube arrived late to what
seemed an already saturated market with Spotify, Apple Music and Amazon Music.
However, you can see that in spite of everything, things have been going quite well for them.
(YouTube music services hit 50m subscribers in race to catch Spotify. Google-owned platform
becomes a serious competitor while trying to repair relations with big music labels. FT)
To give you an idea, when this service was launched in 2018,
analysts were skeptical. Morgan Stanley, for example, estimated that an optimistic forecast
of this service could see it reaching 25 million subscribers by the end of 2022.
Well, as you have seen, the reality has been very different. By mid-2021 it had already
surpassed 50 million paying subscribers. Between September 2020 and September 2021
alone, the number of YouTube Music paid subscribers increased by more than 60%.
(YouTube Music is becoming to Generation Z what Spotify was to millennials half a decade
ago. Mark Mulligan, analyst at Midia Research) And take note, because according to data provided
by Lyor Cohen, one of the heads of the division, to the Financial Times, taking into account both
advertising and the percentage of subscription payments that music creators collect, they would
be receiving more than $4 billion dollars a year from YouTube compared to the approximately
$5 billion paid to them by Spotify, despite Spotify having three times as many subscribers.
This is, in fact, another of the great assets that YouTube's San Bruno headquarters wants
to exploit to continue gaining market share in the music streaming industry:
to be able to generate much more revenue for creators.
Another growth formula that San Bruno could be considering is to facilitate the purchase
of products directly on the platform while playing a video in exchange for a juicy commission.
This is a model that is becoming very popular in the Asian market
and could sooner or later reach this platform.
In other words, YouTube now wants to exploit its huge number of users
to develop new business models and become a major player in video and music streaming.
This, VisualPolitik fans, is the inner workings of the giant that is often
overlooked in the streaming war but that could nevertheless take the biggest slice of the pie.
But having said that, it's your turn: Did you imagine YouTube was so big?
Leave us your answers below in the comments. And if this video that we have made in collaboration
with our friends from Value School has been interesting, don't forget to like
and subscribe to VisualPolitik. All the best and see you next time.