YouTube’s ad business is booming but the company has been accused of predatory pricing — of pricing goods or services so low that other suppliers or the competition cannot compete and are forced to leave the market.
The Google-owned video giant has become so good at selling ad space through automated auctions that it is now massively underpricing creators and publishers who sell ad spots directly on their YouTube programs, The Information reported.
YouTube now charges as little as 25 percent of what publishers charge for spots they sell on their YouTube programs, an executive told The Information. He said his company sells 10-to-15 percent of its YouTube ad space directly compared to 40 percent three years ago.
YouTube is the smallest but fastest-growing of Google’s three main advertising revenue sources. It accounted for almost $20 billion in revenue in 2020 — about 13 percent of Google’s total ad revenues. YouTube brought in $6.01 billion in ad revenue in the first quarter of 2021, up from $4 billion a year earlier — a 49-percent growth rate. Growth accelerating to 84 percent in the second quarter, according to Alphabet’s quarterly earnings reports.
Although YouTube shares revenue with publishers from ad sales, publishers can earn far more from selling ad spots directly. This price undercutting trend is hurting midsize media firms such as Vice Media or BuzzFeed especially, which rely on video ads sold on programs that stream on YouTube.
“It’s the latest example of how big digital platforms sometimes compete with small firms that are using those platforms to reach audiences. And it also demonstrates why small media firms are struggling to compete for ad dollars with giants like Google and Facebook,” Sahil Patel wrote for The Information.
YouTube’s automated ad auctions offer cheaper ad spots that are easier to buy. The shift happened during the pandemic, according to Ken Blom, senior vice president of ad strategy and partnerships at BuzzFeed. Selling directly at high ad rates has become more difficult for premium publishers who make more high-quality content.
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YouTube sells these sell-direct deals, CNBC reported. For example, advertisers can buy on programs like YouTube Select, which allows them to buy on “brand-safe” videos and on certain audiences. Theoretically, creators and publishers producing content on YouTube should enjoy a similar growth in ad revenue, as they keep 55 percent of the revenue from spots sold, according to The Information. But companies that sell fewer spots directly are not growing as fast with cheaper ads making up an increasing share of the pie.
BuzzFeed’s ad revenue on YouTube has not grown at the same pace as YouTube’s, a person familiar with BuzzFeed told The Information. YouTube’s unparalleled audience reach makes it difficult for a single media company to compete.