The Astronomical Rise of YouTube
Ishfaque is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google's (NASDAQ: GOOG) video sharing site, YouTube boasts of 800+ million unique users each month, and ranks consistently amongst the most valuable Internet properties in the world. On a monthly basis, more than 4 billion hours of video are watched on YouTube. In other words, YouTube has more than 4x the viewership of Netflix's (NASDAQ: NFLX) 1 billion hours of video streaming each month. It is a huge asset, that has substantial upside in the future, but unfortunately Google doesn't disclose revenues from YouTube. However, one thing is for sure, it is very likely a large portion of Google's display advertising revenues, and commands a valuation of at least 10-15 times the $1.65 billion Google paid for it. YouTube quietly sits on the sidelines of Google's search business, and is an asset that is often overlooked by many.
Staggering numbers of YouTube
YouTube entertains users for hours on end with user-generated content and an ever increasing collection of pay-per-view & free movies and TV Shows. YouTube’s usage is increasing at a tremendous rate as more and more artists are building innovative videos, encouraged by YouTube's ~50% ad revenue split with the owner of the video. Strong monetization on YouTube encourages the 1+ million partners of YouTube spanning 27 countries to upload more content and monetize a global audience. A staggering 70% of all YouTube traffic comes from outside the U.S. YouTube has a huge social presence, as much as 500 years of YouTube videos are watched every day on Facebook alone.
YouTube is increasingly becoming more and more ubiquitous and is already integrated on a huge number of devices from DVD players to Gaming Consoles. And Google is currently working to get distribution for YouTube and Chrome on television screens as well as a number of Google’s own products. Surprisingly, 25% of all YouTube videos are watched on mobile devices, and this huge mobile traffic is monetized through mobile ads. Almost certainly, a decent chunk of Google's ~$8 billion mobile run rate can be attributed to YouTube. According to comScore, YouTube dominates time spent online by U.S. internet viewers by a huge margin, as the top online video content property.
Source: comScore (January 2013)
Getting into TV by building channels
YouTube is working its way into the ballpark of broadcast and cable television by building channels and dividing them by segments of music, TV, movies, news, etc. The astronomical rise of YouTube is forcing TV companies to build a strong presence on YouTube, or lose out in the battle for user eyeballs. The company keeps ~50% of advertising revenue generated from these ads. As a result, TV channels are now being forced to share the revenue that they previously kept for themselves through the viewership on TV only.
It has done a phenomenal job by the initiation of live streaming of major events, which received strong user response. For example, YouTube streamed the Olympic Games in 64 countries and also YouTube was the official provider of the Election Conventions in late 2012. Google intends to grow YouTube further, and is going to keep track of the kind of things users are interested in and recommends users similar videos, which stimulates user engagement and total views. The channel strategy is a great face-lift for YouTube, and will significantly aid in building out an Internet TV platform.
Diving into professional content
The addition of quality professional content on YouTube, besides the huge library of older movies can hurt the online media providers such as Netflix, Amazon (NASDAQ: AMZN), Apple's (NASDAQ: AAPL) iTunes, Hulu, and Wal-Mart's VUDU. The video-on-demand industry is heavily dominated by cable TV channels, as it is very convenient to order a rental via TV, as opposed to going to a store or switching to the Internet. However, as people spend more time on the Internet, consumers will start to make Video purchases on Demand via YouTube as Internet users in the U.S. already spend a considerable amount of time watching free videos on YouTube. Google is investing heavily to commission professional content, and as a result, YouTube is slowly becoming a high quality entertainment alternative to paid subscriptions offered by the likes of Amazon, Netflix and Hulu.
YouTube coupled with Google Play can take a material stab at Apple's market share of ~8% in the pay-per-view market, as the number of Android devices significantly outnumber the number of iOS based devices. Not only that, YouTube can take its professional content library and jump start a subscription based streaming model, which will completely disrupt the Internet TV space, as it will eat away the market share of Netflix and Amazon. YouTube is already competing with Amazon Instant Video for subscribers to pick up movies and shows online, and can potentially impact Amazon's Prime service subscription significantly.
A disruptive force in the making
YouTube is using the TrueView format, in which advertisers only pay for ads that users watch, it has been a huge success. Based on 92 different ad campaigns, spending on YouTube was approximately 2.4 times better than the equivalent television spend. YouTube has 200 times more video advertisers than the average US television network and can eat away the lunch of many television networks over time. With more than 800 million users tuning in every month, who spend a considerable amount of time consuming videos, and a lot of cash to play with, it is a disruptive force to reckon with over the coming years. YouTube can take away large amounts of revenues from a number of other TV and Media businesses over time, and take away a large chunk of their advertisers and user eyeballs.
ishfaque has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Apple, Google, and Netflix. The Motley Fool owns shares of Amazon.com, Apple, Google, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!