YouTube banking on premium subs to raise revenue

26 Sep 2018

Research firm emarketer forecasts that video ad spend will reach $20 billion by 2020. Unfortunately for YouTube, rival video advertisement platforms (media types) are expanding.

YouTube’s competition is increasingly coming from specialist platforms, such as Twitch and Instagram. Apple iTunes is also drawing from the population of music-video viewers who have traditionally helped differentiate YouTube from its ad-supported competitors.

To address rising competition in the advertising market, Google-owned YouTube is diversifying its business model by rebranding and expanding its YouTube Premium subscription service and other measures to raise revenue, while maintaining the company’s position as the world’s leading online video platform.

The current markets for YouTube Premium, excluding the music-only tier, are expected to generate revenue of nearly $2 billion in 2022, according to research firm IHS Markit.

“To date, online video advertising growth has been fueled by the movement of advertising budgets, particularly from traditional TV – a rising tide that has lifted all the major platforms,” said Dan Cryan, the company's executive director of digital media.

“At some point, this budget migration will slow, however, and the battle for audiences will be intensified as a battle for ad spending.”

Revenue generated by YouTube Premium in 2022 equates to 7% of the $27 billion the company is expected to make worldwide from advertising. Nearly three-quarters (73%) of YouTube Premium subscription revenue will come from the United States, followed by Europe with 13%, Asia-Pacific with 6%, and Mexico and Canada making up the remaining 9%.

Content monetization methods outside of advertising will help to deliver higher revenues to its content producers, keeping them loyal to the platform and by extension, their audiences. Examples of these methods include paid individual channel subscriptions, an integrated merchandise store and the recently expanded and rebranded YouTube Premium subscription.

“The YouTube Premium subscription leans into its position as a music platform, to drive uptake and expand its offer,” said Max Signorelli, home entertainment research analyst for IHS Markit.

“[This is] a well justified move considering the exceptional growth of Spotify and Apple Music subscriptions, which between them gained 3.5 million subscribers per month in the first quarter of this year.”

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