YouTube is an $11B annual business, but can’t yet break into TV advertising market, MoffettNathanson says

Analyst firm MoffettNathanson offered a clear look at YouTube’s metrics, noting that consumption seems to be accelerating. Image: YouTube

Google’s YouTube remains the market’s leading provider of online video, and according to a new report from Wall Street research firm MoffettNathanson, Facebook, Twitter and other online video players likely won’t break into YouTube’s dominance anytime soon.

However, the firm noted in a report today, YouTube, Facebook and other providers of internet streaming video have a long way to go before they can overtake the traditional TV advertising market, as many have predicted.

In its report, MoffettNathanson offered a clear look at YouTube’s market-leading metrics, including estimates that Google’s video business currently generates $11 billion a year on a gross basis, assuming that the company retains roughly 45% of revenues while sending the remainder to content creators like PewDiePie and HolaSoyGerman (which stand as the site’s top two channels). The firm predicted that YouTube’s gross revenues will more than double to roughly $24 billion by 2021, when it will record $11 billion in net revenue.

“YouTube remains the dominant platform for evergreen video content and the most natural home for search-based video delivery. YouTube content originators—the underappreciated glue to their model—seem to be in no rush to jump ship because there isn't real money to be made on Facebook or Snapchat today,” the MoffettNathanson analysts wrote in the firm’s report, issued today.

Further, the firm pointed to new numbers from YouTube about its growth. YouTube last week said it now counts fully 1.5 billion logged in viewers on YouTube every single month. “That’s the equivalent of one in every five people around the world! And how much do those people watch? On average, our viewers spend over an hour a day watching YouTube on mobile devices alone,” Susan Wojcicki, YouTube’s CEO, wrote on the company’s site.

Stemming from those figures, MoffettNathanson added that consumption of YouTube’s content appears to be accelerating. The firm, citing data from comScore, said the site’s unique monthly U.S. viewers grew 12% to 216 million from May 2014 to May 2017, but that minutes on the site and engagement per user increased by 107% and 85%, respectively, during that period.

It’s exactly that growth that many point to in predicting that the online video advertising market will soon overtake the market for traditional TV advertising. However, MoffettNathanson’s analysts pushed against that notion, at least in the short term, explaining that much of YouTube’s momentum is due to younger users, thus limiting the site’s ability to fully overtake the traditional market for TV.

“For example, on our recent NYC Advertising Tour, we expected to hear predictions about the ‘death of TV,’ but were surprised to find that TV’s unique ability to deliver efficient reach and the lack of true digital substitution means that marketers continue to prioritize TV in their plans,” the firm wrote. “While digital is much better at targeting specific users leveraging data, the issue brand marketers have found is that it delivers too much frequency and not enough true reach. So while digital may seem to deliver the same number of impressions as TV for lower CPMs, often what digital delivers is a much smaller and more targeted set of consumers being hit with the same ad multiple times.”

The firm also cited data from MAGNA, a market research arm of IPG Mediabrands, showing that traditional TV advertising will capture 29% of all U.S. ad dollars in 2021, down from 40% in 2010. Meantime, the U.S. online video market will capture just 10% of all U.S. ad dollars by 2021.

MoffettNathanson said that the online video industryfrom YouTube to Facebook to Twitterwould need to improve in a number of areas, including reach, engagement and measurement, before it can truly overtake the traditional TV advertising market.