YouTube row threatens Google's plan to become major force in television
The decision by a handful of high-profile consumer brands to pull advertising from Google's YouTube over offensive content could threaten the site's long-term strategy of stealing ad revenue from television, analysts and ad industry professionals say.
The immediate financial impact of the controversy is likely to be limited, in part because a big chunk of YouTube revenue comes from smaller advertisers who lack the budget for TV campaigns and do not have easy alternatives.
Some analysts also believe that departing advertisers, eager to reach YouTube's millennial audience, will quickly return.
But with "brand safety" emerging as a major concern for marketers amid a surge in hate speech and other types of offensive content across the internet, the widespread assumption that major advertisers are ready to shift large chunks of their budgets from TV to digital now looks much more dubious.
"The challenge with this is that you have algorithms vetting content and inventory," said Justin Cullen, chief digital and data officer for Core Media, one of Ireland's largest ad agencies. "It's impossible to vet everything manually, so they need to improve and make their processes more robust. They need to open their platforms up to third party measurement and verification."
Core Media suspended advertising campaigns on YouTube and Google Display Network on behalf of clients such as Heineken, AIB and the National Lottery.
"If Google wants the revenue back they have to do something," said Mr Cullen. "There has to be an extra amount of rigour to ensure brand safety for clients. If there isn't sufficient confidence, brand owners aren't going to take the risk."
YouTube, part of Alphabet, has spent years courting big brands that spend hundreds of millions annually on air time. But over the past week, giant US companies including Verizon Communications, AT&T and Johnson & Johnson have cancelled their YouTube ad deals.
"Video is actually a lot more fragile of an ecosystem than the Silicon Valley, software-eats-everything crowd may want to think," said Joel Espelien, a senior analyst at the Diffusion Group, which studies the future of television.
"The point is all content isn't actually the same, all advertising isn't actually all the same. There is an element of taste. And when you ruin that, the whole thing does kind of start to fall apart."
Google offers little visibility into YouTube's financial performance, but analysts view it as a key driver for the company's growth as its traditional search advertising business matures. Analyst Mark Mahaney of RBC Capital Markets estimates YouTube will bring in about €12 billion in revenue this year.
Whether the recent events are a mere blip on the radar for Google or a harbinger of bigger problems to come may depend on whether the company can quickly improve its technical tools to give advertisers more control over where their ads appear.
YouTube has begun reviewing its advertising policies and will take steps to give advertisers more control, Philipp Schindler, Google's chief business officer, wrote in a blog post on Tuesday. Google also plans to hire more people for its review team and refine its artificial intelligence - a key step, since much of the ad-serving is handled by automation.
YouTube faces a special imperative to keep creators happy as rivals such as Facebook and Twitter try to court talent for their own platforms, said Hank Green, a prominent YouTube creator who runs the VidCon conference. "YouTube has a decade-long head start, but obviously everyone wants a piece of the pie," he said. (Additional reporting Reuters)