BREAKINGVIEWS-YouTube is a devil in disguise for traditional TV

By Jennifer Johnson

LONDON, Feb 5 (Reuters Breakingviews) - A good horror movie plays on the tension between anticipation and uncertainty. For the past few years, the dynamic has played out behind the scenes at major media companies. In this script, YouTube is both charmer and slasher.

The Alphabet-owned GOOGL.O platform is home to everything from Hollywood blockbusters to live news channels. This year, YouTube is expected to generate over $70 billion in revenue including subscriptions, according to estimates from Visible Alpha. Its success as an aggregator, not unlike traditional cable packages, has helped it take the top spot in share of U.S. TV-screen viewing for 11 consecutive months per Nielsen. That means Americans have spent more time watching YouTube in their living rooms than streaming services like Netflix NFLX.O.

The rise of YouTube's popularity is prompting U.S. media companies to strike agreements with the platform, allowing it to air content on its live YouTube TV service. Effectively a modern alternative to cable distribution, the arrangement sees the platform pay affiliate fees to the incumbents when it carries their channels.

Alphabet’s video juggernaut also lets users in select markets – including the U.S., Germany and the UK – subscribe to third-party streaming services in its app. In practice, this means someone in London can pay a fee to access a subset of Paramount+ shows without having to leave YouTube. Naturally, YouTube gets to keep a share of the subscription revenue – and it doesn’t have to bother with the costly production of TV shows or movies.

Because the exact terms of the networks’ deals with the platform aren’t publicly available, it’s tricky to assess just how mutually beneficial they are. Broadcasters must strike a balance between meeting viewers where they are – i.e. on YouTube – and luring them to their own streaming services and linear channels, where they get to keep subscription fees and advertising revenue. YouTube pockets 45% of revenue from the ads, under its standard partner program.

In what looks like a tacit acknowledgment of the site’s small-screen dominance, especially among younger viewers, the BBC recently announced a partnership with YouTube. As part of the deal, the UK public service broadcaster will commission and produce bespoke content to premiere on YouTube before it appears on its own channels and streaming platforms. The digital-first approach isn’t wholly new: Free-to-air network Channel 4 launched a youth-focused YouTube channel in 2024, but it does represent a new approach to content monetization.

According to the BBC, it will serve ads to viewers watching its YouTube content outside of the UK — thereby boosting its financial position amid an ongoing funding review. However, the resulting income would likely be incremental, as opposed to a material complement to the existing license fee model, which brought in 3.8 billion pounds ($5.3 billion) from UK households last year.

The BBC plans to up its number of YouTube channels to 50, including seven aimed at children. Because there are restrictions around advertising directed at kids, which limit targeting and data collection, such content can be harder to monetize. One media analyst told Breakingviews that they’re aware of a popular kids’ creator – with millions of views each month – who earns around $0.4 per 1,000 views. By contrast, analytics platform Social Blade estimates that YouTube’s global average revenue per 1,000 views (RPM) lies somewhere between $0.25 and $4.

However, professional broadcasters have their own deals with seemingly better terms than individual creators. They might, for instance, be able to sell some ad campaigns against their YouTube content directly, as UK network ITV does. This means the platform’s automated ad marketplace isn’t the one doing all of the selling and pricing – and broadcasters may get to keep more than the standard 55% of revenue. In turn, their average RPM figures could be higher.

Assume that one of the BBC’s seven new children’s channels attracts 1.5 million daily viewers outside of the UK. That’s around half the total viewers on the broadcaster’s existing main account, per Social Blade estimates. If they also fetch $2 per 1,000 views – which would be a premium price for kids’ content – the broadcaster could bring in around $90,000 per channel each month. That’s over $1 million a year. But to earn a significant sum, say $50 million, a channel would need around 28 million daily YouTube viewers monetized at an average RPM of $5, which could be a tall order.

Of course, the alternative is to keep content off YouTube entirely and fail to fully reach audiences. Disney DIS.N recently realized this risk firsthand. The entertainment giant’s sports segment took a $110 million hit to quarterly operating income following a 15-day contract dispute with YouTube TV, which ended in November. This meant ESPN, ABC and other networks were temporarily unavailable on the platform’s live television service.

The old guard gains nothing if it fails to embrace television’s new overlord. Yet, doing so could dilute their own streaming services and pricing power. The lopsided arrangement is the stuff of nightmares.

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