If Comcast ends up buying ad-supported streaming company Xumo, as has been reported, it could signal upcoming negative impacts for YouTube’s ad revenues.
Barclays analyst Kannan Venkateshwar said Comcast’s potential deal, along with similar transactions like Viacom’s 2019 acquisition of Pluto TV, could have long-term effects for YouTube and traditional cable networks.
“While Xumo and Pluto had premium content relative to what was available on YouTube, acquiring the content scale of NBCU or ViacomCBS not only turbo charges the content base but also provides access to a scaled advertising sales effort to optimize monetization of advertising inventory,” wrote Venkateshwar in a research note.
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Barclays said that the growth of ad-supported streaming services with premium content could provide a real alternative to YouTube for the first time, and that the international aspirations of services like Pluto TV could further impact YouTube.
“There is of course a whole lot of work flow issues that first need to be sorted out such as currency, ad formats, data, fungibility of inventory with television and ad sales and delivery technology before these services can really start scaling from an advertising perspective,” wrote Venkateshwar. “These issues are not easy to deal with as shown by the fact that despite years of streaming, ad revenues from services such as Sling for Dish and CBS All Access still haven’t moved the needle for their parents.”
Barclays said those issues are likely still leading to unfilled inventory for AVOD services but overtime as the problems are resolved, and the quality of the content on AVOD services remains steady or improves, it will likely eat into advertising revenues for YouTube and cable networks.
For Comcast, though, the focus of a potential Xumo acquisition might be filling holes in the streaming and ad tech stacks ahead of Peacock’s launch in April. Venkateshwar said that’s somewhat surprising considering how much the company has invested in FreeWheel and Canoe, and the fact that Comcast sells streaming backend services to third parties and that FreeWheel is used by many third-party OTT services.
“Despite these efforts, it appears that Comcast’s capabilities had some shortfalls which it is now trying to backfill,” he wrote.