As YouTube viewing time jumps 60 percent, advertisers line up to reach users

YouTubers are watching Google's (NASDAQ: GOOG) online video service more than they ever have: Watch time grew 60 percent compared to the same period last year, which YouTube noted is its fastest growth rate in two years. And brand advertisers are warming up to the OTT service as well, tripling commitments to Google Preferred and buying in to other programmatic ad schemes.

The accelerating shift toward programmatic has been good for Google, which credited the advertising trend as a key factor in its 31 percent growth in GAAP operating income in the second quarter of 2015.

Google saw total revenues for the quarter of $17.7 billion, 11 percent higher than the same period in 2014 and 3 percent higher than the first quarter of 2015. U.S. revenue was $8 billion, a 16 percent year-over-year jump. Revenue for Google sites alone was $12.4 billion, a 13 percent jump year-on-year. Network revenue reached $3.6 billion, a 3 percent rise over last year.

"YouTube again delivered substantial growth in user engagement globally, particularly on mobile, which translated into strong adoption of our TrueView ad format," Ruth Porat, Google's SVP and CFO noted on the company's earnings call, adding that costs per click (CPCs) declined 16 percent--a good thing for their end--as the "impact of YouTube TrueView" became more pronounced, holding a growing percentage of clicks on ads displayed on Google's sites. CPCs in fact are lower on YouTube than on the company's other platforms, with mobile CPCs approaching desktop CPCs in this area.

"As consumers continue to shift their content consumption from television to digital, brand dollars are following," Omid Kordestani, SVP and chief business officer, said on the call. Advertiser commitments to Google Preferred have tripled compared to last year.

That consumer shift has been driven by a number of factors, such as the unwavering popularity of music videos on YouTube as well as the burgeoning independent creators segment that gave rise to MCNs (multichannel networks) like AwesomenessTV, VEVO and Maker Studios. While some see the user-generated video element as one that is about to rise into the spotlight alongside mainstream television, others aren't so sure.

A Pixability study found that the top 100 brands, such as Disney, Sony, Google, Samsung and Coca-Cola, have grabbed 40 billion views combined across their channels, according to an AdWeek article. Those brands operate 2,434 channels across the site and have garnered 74 million total subscribers.

Advertisers have quickly found that YouTube--and its closest competitor, Facebook--presents a unique opportunity to get a brand right in front of a viewer, the AdWeek article points out.

For YouTube, the success of online video advertising has translated into greater commitments by brands to its planned paid subscription service, slated to launch at the end of 2015 according to unnamed sources cited by Bloomberg Business. Partners that account for more than 90 percent of views on YouTube have already signed up for the service--which will feature YouTube celebrities and music videos, among other elements such as original content. Major broadcast networks like NBC or Fox have not signed on to the service--not surprising, as they did not sign on to Dish Network's linear OTT service, Sling TV, at its spring launch.

Whether those traditional broadcasters' absence will make a difference isn't known. "TV networks barely register among the most-watched entertainers on YouTube," Bloomberg's Lucas Shaw and Brian Womack wrote. "They use the website to market programs rather than air original episodes, and have their own online services, including Hulu."

For more:
- see the earnings release
- and this Seeking Alpha transcript
- Bloomberg has this story
- AdWeek has this story

Special Report: Pay-TV earnings reports in Q2 2015

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