YouTube's bid to grab TV dollars imperiled

A picture illustration shows a YouTube logo reflected in a person's eye

A picture illustration shows a YouTube logo reflected in a person's eye

Published Mar 24, 2017

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New York - 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 dollars from television,

analysts and ad industry professionals said Thursday.

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 timing may also favor television networks as they

usually present their fall line-ups and woo big advertisers

starting in May, agency executives said.

YouTube, part of Alphabet Inc, has spent years

courting big brands that spend hundreds of millions annually on

air time. But over the past week, companies including Verizon

Communications, AT&T and Johnson & Johnson

have canceled 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.”

Read also:  Google ad crisis spreads

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 $14 billion in revenue this year.

Alphabet shares have fallen more than 3 percent since

Monday, closing at $839.65 on Thursday.

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.

Eric Schmidt, executive chairman of Alphabet, acknowledged

in a Fox News interview that ads appearing next to videos

promoting hate speech or advocating violence had slipped through

the digital cracks in Google's elaborate ad-serving systems.

"We match ads and the content, but because we source the ads

from everywhere, every once in a while somebody gets underneath

the algorithm and they put in something that doesn’t match,"

Schmidt said. "We’ve had to tighten our policies and actually

increase our manual review time and so I think we’re going to be

OK.”

But Google's public statements have done little to assuage

advertisers’ fears, said David Cohen, president, North America,

for media buying firm Magna Global. Privately, Google has gone

into more detail about how it plans to combat the issue,

including ratcheting up its algorithms to better categorize

content and being more stringent about how content is labeled,

Cohen said.

But such additional controls would reduce the percentage of

content that carries advertising and could disrupt the vibrant

community of independent creators on YouTube, who drive traffic

to the site and rely on revenue-sharing from advertising.

YouTube faces a special imperative to keep creators happy as

rivals such as Facebook Inc and Twitter Inc 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.

Even before the most recent revelations about YouTube,

control over online ad placement had become a hot button topic

for advertisers. Social networks and news aggregators came under

fire during and after the U.S. presidential election for

spreading fake news reports, and advertisers have also sought to

avoid having their brands appear beside content that they

categorize as hate speech.

“Between non-human traffic and fraud, fake news and hate

speech, brands are more concerned than ever,” said Marc

Goldberg, CEO of Trust Metrics, a New York-based company that

addresses ad fraud.

REUTERS

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