Rivals Are Gaining on YouTube

YouTube Feels the Pressure From Netflix, HBO

It’s been a decade since YouTube became the first household name in Internet video. In 2008, at the first NewFronts, an annual marketing conference, Google Inc.-owned YouTube had the overwhelming majority of the viewership.

Hulu LLC launched and Facebook Inc. added videos just the year before. Now, things are different. At this year’s NewFronts, being held April 27-May 7 in New York, 34 companies are promoting online shows and vying for ad dollars.

While YouTube retains a healthy lead in the $7.8 billion U.S. market for online video ads, it’s not keeping pace with rivals’ growth. Google’s video service attracted 145 million U.S. personal-computer viewers in February, down slightly from 151 million two years ago, according to researcher ComScore. During that time, No. 2 Facebook’s PC audience grew about 50 percent, to 91 million. Third-place AOL Inc. (67 million) and fourth-place Yahoo! Inc. (52 million) have also gained ground. YouTube is still holding its own on mobile, which makes up about half of its global viewership.

“We are laser focused on audiences,” says Allie Kline, AOL’s chief marketing officer. Facebook and Yahoo declined to comment.

“Everybody is sort of gunning for YouTube,” says Paul Verna, an analyst at researcher EMarketer Inc. “A lot of companies are figuring out different ways to get in on that action.”

That includes the groups running many of YouTube’s top video networks. TYT Network, which produces popular news series “The Young Turks,” is increasingly uploading videos to Facebook to grab a bigger chunk of the social network’s 1.5 billion users. Collective Digital Studio, which works with YouTube celebrities Freddie Wong and Harley Morenstein, sells some of its biggest shows on IAC/InteractiveCorp-owned Vimeo before putting them on YouTube for free.

Premium Content

Over the past two years, many of the production companies that reliably crank out hit videos, some now owned by establishment media companies, have spread their wares to other services. A year ago Walt Disney Co. paid $950 million for Maker Studios, which runs YouTube’s third-largest network, and it’s now soliciting ad dollars for shows that may not premiere on YouTube.

In September, AT&T Inc. and media holding company the Chernin Group bought No. 2 YouTube network Fullscreen Inc., which recently produced a video series for Snapchat Inc.

“There are a lot of video platforms rising,” says Chad Gutstein, chief executive officer of Machinima, a video network focused on games and so-called nerd culture.

Loyal Creators

YouTube has created a number of initiatives to reward its creators, and ensure their loyalty. It said on April 8 that it planned to roll out an upscale, ad-free version later this year, and give video creators a piece of subscription fees based on their traffic from paid users.

CEO Susan Wojcicki has also pledged to fund series for popular creators, and YouTube announced on Tuesday the first four beneficiaries: the Fine Brothers, Prank versus Prank, Joey Graceffa and Smosh. All of those channels have more than 5 million subscribers. YouTube also unveiled plans to produce movies in collaboration with video network AwesomenessTV, a video maker owned by DreamWorks Animation SKG Inc. The movies will premiere on YouTube before anywhere else, which is not true for many videos these days.

“YouTube has really stepped up across the board in recognizing the value of its top creators,” says Max Benator, who manages Fine Brothers Entertainment, which runs a popular YouTube channel. He says YouTube stars appreciate the site as a home base, but given that some have TV shows and clothing lines, “the ecosystem YouTube catalyzed now extends way beyond the platform itself.”

Market Share

Wojcicki led development of the search engine’s ad model. After taking over YouTube last year, she introduced Google Preferred, which guarantees advertisers their spots will play during videos that are among the top 5 percent of YouTube’s most popular. EMarketer estimates that YouTube’s U.S. ad sales will grow 39 percent this year to about $1.6 billion.

“It’s not a finite pie that’s getting carved up,” says Jamie Byrne, director of content commercialization. Reza Izad, CEO of Collective Digital, says YouTube remains essential because the service has viewers ages 18-34 “coming out of their ears.”

YouTube says the total hours viewers spent watching the service via mobile devices rose 50 percent last year. But while Facebook and AOL are strengthening their share of video ad dollars, companies such as Netflix Inc. and HBO may be the bigger threat.

EMarketer estimates that U.S. adults will spend about 75 minutes a day watching online video this year. If they spend 53 of those minutes watching an episode of “House of Cards” or “Game of Thrones,” that could cut into time for YouTube.

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