Youtube Transforms the Media Landscape

The first video posted on YouTube was a 19-second clip from 2005 of one of the company’s founders standing in front of the San Diego Zoo ele­phant cage. Who would have thought that the online video-sharing ser­vice would mushroom into the world’s second most popular website, with more than 1.8 billion monthly users? YouTube viewers worldwide now watch more than 5 billion YouTube videos per day. Three hundred hours of video are up­loaded to YouTube every minute.

YouTube allows users to view, rate, share, add to favorites, report, and com­ment on videos and subscribe to other users’ video channels. Although hundreds of millions of people love to post YouTube videos of their growing children, dogs, and cats, YouTube offers much more: clips from major motion pictures and TV shows, music videos, sports videos, videos from companies promot­ing their brands, and numerous “how-to” videos about home repair, gardening, and computer troubleshooting. Most YouTube content has been uploaded by individuals, but media corporations such as CBS, the BBC, Vevo, and Hulu offer some of their material via YouTube as part of a partner­ship program.

YouTube maintains very large databases for video content and tracking the behav­ior of its users. It carefully mines data to give each user personalized video recom­mendations that will entice that person to watch longer. There are so many eye­balls affixed to YouTube—it’s a gold mine for marketers, and YouTube content gets richer by the minute. More than half of YouTube views come from mobile devices.

YouTube was purchased by Google in 2006 and benefits from Google’s enormous reach, since Google handles about 80 percent of global Internet searches. YouTube revenue comes from ads ac­companying videos that are targeted to site content and audiences. YouTube also offers subscription-based premium channels, film rentals, and a subscrip­tion service called YouTube Red that provides ad-free access to the website and some exclusive content. It is unclear if YouTube is actually profitable at this point. Experts believe that annual costs for running and maintaining YouTube exceed $6 billion.

Once known as a magnet for pirated video, YouTube has been embraced by Hollywood and the entertainment world. Almost every movie trailer or music video is released onto YouTube; all major sports leagues upload highlights there; and networks supplement traditional programming with videos that can be shared, like the talk show host James Corden’s “Carpool Karaoke” series. YouTube has become a major destination entertainment site, and it is about to alter the media landscape even further.

YouTube has joined services targeting consumers who want to give up cable or satellite TV without losing access to live television. In early 2017, YouTube announced a subscription service called YouTube TV. For $40 per month, the service offers more than 60 channels, including the major networks, FX, ESPN, and the Disney Channel, as well as the ability to store an unlimited number of programs on a cloud-based digital video recorder for up to six accounts. YouTube TV subscribers will be able to watch content on any platform, including PCs, tablets, smartphones, and big-screen TVs.

After the cost of acquiring all this television content is considered, Google may not make much on YouTube TV subscription revenue. That’s fine right now, because Google is using YouTube TV to break into the television advertis­ing market, selling targeted advertising in ad slots that typically went to cable operators. In the long term, that could be significant: Roughly $70 billion is spent annually in the United States on TV ads.

Sources: David Pierce, “Why You Should Cut Cable —and What You’ll Miss,” Wall Street Journal, February 14, 2018; Douglas MacMillan, “Investors Want More Transparency about YouTube’s Sales, Profit,” Wall Street Journal, April 10, 2018; “37 Mind Blowing YouTube Facts, Figures and Statistics—2018,” MerchDope, August 4, 2018; www.tv.youtube.com, accessed July 30, 2018; Jack Nicas, “YouTube Tops 1 Billion Hours of Video a Day, on Pace to Eclipse TV” Wall Street Journal, February 27, 2017; Jack Nicas and Shalini Ramachandran, “Google’s YouTube to Launch $35-a-Month Web-TV Service,” Wall Street Journal, February 28, 2017; and Peter Kafka and Rani Molla, “2017 Was the Year Digital Ad Spending Finally Beat TV” Recode, December 4, 2017.

YouTube exemplifies some of the major trends in e-commerce today. It does not sell a product, it sells an innovative service, as e-commerce busi­nesses are increasingly trying to do. YouTube’s service delivers streaming video content either for free (supported by advertising) or by subscription, and also enables users to upload and store their own videos. YouTube makes use of advanced data mining and search technology to generate revenue from adver­tising. YouTube is “social,” linking people to each other through their shared interests and fascination with video. And it is mobile: YouTube can be viewed on smartphones and tablets as well as conventional computers and TV screens, and more than half of YouTube views are on mobile devices.

The chapter-opening diagram calls attention to important points raised by this case and this chapter. YouTube’s primary business challenge is how to take advantage of opportunities presented by the Internet and new developments in search and data mining technology to wring profits from the billions of videos it streams to viewers. Obviously YouTube had to make major investments in tech­nology to support video uploads and downloads, gigantic databases of videos and users, tagging images, and social networking tools. YouTube generates rev­enue from ads targeted to video viewers and from subscriptions to its streaming content services, including its new lineup of major TV channels. It is unclear whether YouTube has achieved long-term profitability, but it is very valuable to Google as another outlet for its advertising.

Here are some questions to think about: How does YouTube provide value? Why is YouTube an expensive business to operate? Is it a viable business model? Why or why not?

Source: Laudon Kenneth C., Laudon Jane Price (2020), Management Information Systems: Managing the Digital Firm, Pearson; 16^th edition.