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News Analysis 2 Mar 2022 - 5 min read

YouTube eyes $2bn in Australian ad revenues as its adloads surge; 'incremental reach' battle hots up

By Paul McIntyre - Executive Editor
YouTube revenue pic

YouTube is marching towards a $2bn revenue milestone in Australia if the latest figures from PwC and IAB are worth their salt. 

What you need to know:

  • YouTube’s reporting of local revenues is sublimely opaque but new figures suggest it’s closing in on $2 billion in revenues.
  • Media agencies don’t have consensus on the revenue milestone – some think it’s broadly correct, others estimate its $1.5bn or less.
  • There is solidarity, however, on ad loads: “YouTube ads are increasing massively in frequency,” says one industry exec. Broadcast TV and BVOD have their own ad load challenges but high demand at present is sidelining the issue.
  • Some say YouTube is frustrated that the TV networks' BVOD platforms have interrupted the previous flow of ad dollars out of free-to-air TV directly to YouTube.
  • Broadcasters are beginning a counteroffensive on the “incremental audience reach” argument from YouTube and Facebook as linear TV audiences decline via the growth in their BVOD platforms.
  • Some point to trend data showing BVOD is not replacing linear audience declines in entirety but media buyers privately want more leverage, or an alternative to what they say is YouTube’s inflexibility and arrogance from California. 
  • “Buyers and advertisers are happy to see broadcaster video get its act together – it allows us to push back,” says one.

Robust numbers?

The YouTube advertising machine is powering - but by how much? 

Media buying consortiums canvassed by Mi3 on the video platform’s local revenue take wildly diverged on their estimates and Google doesn’t break out its Australian YouTube revenues. 

Some put the range between $1.2-$1.5bn or lower, others circa $1.8bn-$2bn. Few would speculate publicly. 

But figures released yesterday from PwC and industry body, Interactive Advertising Bureau (IAB) delivered some clues, assuming the numbers are robust.

Globally, the rebadged Google holding company called Alphabet is exactly the animal everybody knows: An advertising cash cow. Just north of $US209bn in Alphabet’s total revenues of $257bn last year came from advertising, up 43 per cent on 2020. Worldwide, YouTube generated nearly $29bn of it. 

But Alphabet’s revenue breakout of individual markets is sublimely opaque. 

The closest the Australian market can get in publicly available numbers to derive YouTube’s performance were released yesterday and it is pin-the-tail-on-the-donkey stuff.

But online advertising and media agency executives think the maths on yesterday’s IAB-PwC data is broadly correct. Here goes:

  • Total online advertising in Australia hit $13bn for 2021 CY, up 35.8 per cent on 2020.
  • Video advertising reached $2.9bn, up 48 per cent.
  • ThinkTV figures put TV networks Broadcast Video On Demand (BVOD) revenues at $362.7m for 2021, Facebook video is estimated at circa $600m and longtail publisher video at perhaps $100m.
  • That leaves just under $2bn in video for YouTube.

“I could buy that,” says Mediabrands investment boss and Managing Director of Magna, Nick Durrant. “Would that number have any credibility? It doesn’t seem unreasonable.”

One of Durrant’s rivals is less convinced. “We think its much closer to $1.5bn and that’s still an enormous number –  4x BVOD,” the exec said.

Big brands v SMBs

The sticking point for most is how much YouTube generates directly from smaller advertisers versus big brands via media agency groups. The latter is worth $800m-$1bn and some agency execs think a similar chunk YouTube’s  revenue coming from small and medium sized businesses (SMBs) is too high. “Look at most of the ads you see on YouTube and they’re mostly big brands,” says one media buyer. “I can’t see SMBs spending that much.”

Durrant, the only industry exec Mi3 spoke to who would publicly comment, is not convinced. ‘If you look at radio, which has 50 per cent of its advertising coming direct, it doesn’t seem far fetched,” he says. “And it's subjective. YouTube is narrowcast in what ads a user sees.”

The argument here goes that while blue chip brands are active on YouTube, retail style ads looking to elicit a response from a user are prolific depending on the individual’s content consumption patterns across the open web.

There is one point industry is in consensus on: YouTube ad loads, or volumes, are surging. 

“YouTube ads are increasing massively in frequency,” said one social media exec. “They’re clearly monetising the platform way more than they have in the past. Very rarely does a piece of content come before an ad.”

Bait and switch

It's more than a touch ironic given YouTube has for years espoused its obsession with protecting the “user experience”. YouTube’s skippable ad formats were born from that user experience obsession but most media buyers for big brands say they are buying unskippable formats today. That does present challenges for YouTube as the sort of content it has that advertisers want for unskippable ads is a smaller pool.

YouTube’s about-turn on user experience is similar to the classic “bait and switch” tactic Facebook pulled off 10 years ago when it ditched its hitherto new world mantra of viral content being the future. Almost overnight it flicked off the viral switch and made brands pay for its booming audience via highly targeted ads. Few advertisers protested.

Adloads, fadloads

But back to YouTube. Part of the surge in digital video revenues last year is from the ongoing decline in broadcast TV audiences and the hunt for alternatives by large advertisers – broadcast TV has its own significant adload issues too - but that’s another debate. 

Linear TV ad demand is currently high moving out of Covid and those who sit on the lower end of YouTube’s Australian revenue band say the video platform is frustrated it hasn’t hoovered more of those shifting budgets from linear TV. Why? Because the broadcasters' move into BVOD is doing its job, intercepting what was a direct bleed from linear TV to YouTube. 

“Buyers and advertisers are happy to see broadcaster video get its act together – it allows us to push back.”

That reference is the frustration felt by many that YouTube is another US tech player remotely controlled from California with inflexibility and arrogance. It means media agencies can’t deal and that historically been their MO.

Incremental reach

There’s also an emerging counter argument from broadcasters that BVOD delivers the incremental audience reach that linear TV is losing. That’s been the sweet spot for Facebook and YouTube on video ads – the audiences leaving free-to-air could be picked up on their platforms, with better targeting.

Watch for broadcasters to prosecute this argument with more punch in the coming year – and the line that a platform’s audience reach doesn’t equate to its advertising reach. In other words, YouTube’s vast audience is much  bigger than its advertising audience. 

Plenty of hustle is coming in the next 12 months in video. A $2bn YouTube cash cow seems like a good place to start.               

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Paul McIntyre

Executive Editor

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