Photographer: Kiyoshi Ota/Bloomberg

YouTube's Better-Than-TV Pitch Undermined by Offensive Video

  • Memo obtained by Bloomberg details effort to curb hate content
  • Digital giant open to outside companies checking ad placement

Four years ago, Robert Kyncl, YouTube’s business lead, confessed a mistake. "I thought that YouTube was like TV. But it isn’t," he said at Google’s annual advertising show. "YouTube talks back. It’s interactive. And YouTube is everywhere."
 
Kyncl’s message resonated with advertisers. Gross ad revenue at YouTube soared from roughly $4 billion in 2013 to $11 billion last year, brokerage firm Monness Crespi Hardt & Co. estimates. At the same event in 2016, Chief Executive Officer Susan Wojcicki boasted about taking ad dollars from traditional TV networks.

Yet now the same traits Kyncl said made YouTube better than TV have plunged the video service into crisis. Some of the world’s largest advertisers, from Verizon Communications Inc. to Johnson & Johnson, stopped spending on YouTube because of concern their ads could appear next to offensive videos. More big companies pulled back on Friday, including PepsiCo Inc., Starbucks Corp. and Wal-Mart Stores Inc. This week, $26 billion was knocked off parent company Alphabet Inc.’s market value.

"I’ve always been suspect of advertising on YouTube. There’s not really great content in there," said Rob Griffin, chief innovation officer at marketing agency Almighty. "This will dent their long-term prospect of making YouTube an alternative to TV."

While the shift to online video viewing favors YouTube, it is scrambling to reassure companies and ad agencies they’ve made the right decision to spend money on the site, and convince them YouTube will protect their ads from offensive material in the future. 

Google attempted to curb the controversy Monday, pledging publicly to roll out new controls for marketers. In a memo sent to partners later in the week, Google described more detailed changes, including a new video verification process, long sought by advertisers, and a staff hotline dedicated to brand safety. Another feature Google promised will use machine learning, a type of artificial intelligence, to flag suspect videos. The new approach would now yank ads if offensive language appeared on a T-shirt in a video, for instance, something that didn’t happen before, according to the memo.

Google aims to implement most of the changes by Sunday, according to the memo, a copy of which was obtained by Bloomberg News. A Google spokeswoman declined to comment on Friday.

Even if the company meets that deadline, it may struggle to solve the issue. While TV companies have almost total control over what appears on a given channel, creating a safe space for brands, YouTube opens itself up to anyone who wants to post a video. Advertisers often buy ads across the whole site, or large groups of popular videos, instead of buying ads for a specific channel. The company has safeguards to block offensive content, but the volume of video being uploaded is too great to identify every infringing video.

YouTube warned as much in its memo. Forthcoming changes "should give [advertisers] confidence that their ads will not appear against inappropriate content," the memo read, "albeit with the volume of content involved this can never be 100% guaranteed." The company noted that four of the forty-eight videos highlighted by news outlets over the past month would, even under the new policies, not automatically disable ads. YouTube decided the four remaining videos, which had religious and political content, did not violate its policies. But it said new tools will help advertisers choose whether their ads run alongside such content.

"What they have done clearly is not enough," said Paul Verna, an analyst with EMarketer. "They must sit down with advertisers and literally show them how they are changing these algorithms."

The duration and magnitude of the uproar surprised most media partners and some agency executives given that YouTube has never been able to guarantee against ads appearing next to inflammatory videos. Yet brands are acutely sensitive at a moment of political upheaval in the U.S., and Europe. They’re opportunistic too.

Advertisers are now urging Google to let outside companies track issues like safe content, measurement and fraudulent ads on YouTube, according to David Cohen, North American president for Magna Global.

Google mostly handles this in-house currently. With traditional TV, Nielsen Holdings Plc surveys households’ TV viewing habits and extrapolates this to tell advertisers and TV networks how many people watched shows.

In its memo to advertisers this week, Google said it will offer detailed reporting at the level of specific videos and YouTube channels. That includes "Google Preferred," a premium service that lets advertisers pair their ads with top-performing videos. One industry executive said this is an important change giving more advertisers more insight into where their ads run. The person didn’t want to be identified talking about a private memo.

Google also said in the memo that YouTube customers will able to hire "vendors to verify the safety" of ad placements.

Advertisers think they have more leverage now because they are negotiating new deals with Google ahead of an annual ad industry sales process known as Upfronts, which usually happen in late May. One of the biggest concerns among YouTube executives right now is how the video site will be perceived and treated at this year’s event, according to a person familiar with their thinking.

Advertisers have long bemoaned the lack of information they get from YouTube and are seizing an opportunity to extract a bit more, said James Cakmak, an analyst with Monness Crespi Hardt & Co. "It’s a power struggle. If you see an opening against Google, you take it," he added.

However, it’s a struggle that YouTube may ultimately win, because the power in digital advertising ultimately rests with who controls the most viewers. And people are watching more online and less on traditional TV.

"The stakes have never been higher in the competition between legacy TV players and digital," Magna’s Cohen said. "But linear television is an eroding asset."

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