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YouTube Struggling with Declining A

Revenue

Case Study

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 YouTube Struggling with Decini

st
DI th the idea of launching a website for uploading and sharing videos for the
PPOSe Or dating. On February 14th 2005, Valentine's Day, Hurley registered ne au ark
E0ana domain for YouTube. To encourage and attract women to this dating platrorm,
e
y rolled out a campaign offering $20 for each video upload. However, the venture did
K e oft and the company withdrew the campaign. An interesting development occurred
I n s t e a d of videos aimed at attracting dating prospects, users began uploading all sorts
OS laking a cue from this development, by April 2005 the founder trio transfore
o e i n t o a free video-hosting and sharing platform where each clip had a uniqu
NOtaby, during this time, YouTube was available to beta viewarship only and the first videe
d d e d was from Karim. The 18 seconds video titled 'Me athe Zoc showed Karim ing
n Tront of elephants at San Diego zoo and talking abcut heir trunks! (Exhibit ). In 2005,
YouTube's beta version was made available to public. "
Exhibit
YouTube: First Video Uploaded

Source: Leskin
PaigeouTade is 15 years ca ' s timeline of how YouTube was founded, its rise
a

tovideoehemoth, oiggest controversies along way",

https:/www.businecsinsiier.in/tech
outube
youtube-is-15-years-old-hereaposs-a-timeline-of-how
as ourided-its-rise
eo-behemoth-and-its-biggest-controversies-along-
ay/slidelist/7173.cms#slideid=76112223, May 30th 2020
Fundinglowed thereafter.' ember 2005, YouTube received its Series A
($3.5 millionfrom invest round of funding
its first success when
tirm Sequoia Capital. In October 2005, the platform received
c ts videos hit 1 million views. The video was a Nike ad
Brazilian soccer pla showing
December 2005, Y naldinho receiving and wearing his pair of 'Golden Boots'.
came out of beta version and was available to all. At 1In
platform had views a day. In April this point the
corporate timelnA video with two Chinese 2006, major turning point came in YouTube's
a

boys lip-synching to a song from Backstreet

was
uploaden the platform which drew attention of Susan Boys
acquisitr oogle. Wojcicki, convinced about YouTube WNojcicki (Wojcicki), in charge of
acquire itnis time, YouTube had received its future potential, made a bid
to
Series B round of
firmsguoia Capital and Artis Capital Management. The funding from venture capital
e total investment to close to $12 million. investment was worth $8 million
In October
i n 2005, Google had launched a video 2006, Google
service, Google Video which acquired for YouTube
failed-) $1.65
Hosch L.
William, "YouTube Web site",
https://www.britannica.com/topic/YouTube
 322-0224-1
YouTube Struggling with Declining Ad Revenue

in profits. In addition,
Don thus making co-founders rich with nearly $400 million for each
YouTube moved to its headquarters in San Bruno, California.

For
GoOgle strategic decisions which added value to the video sharing platform.
took certain
instance, the company struck deals with media and entertainment houses (including Metro
Goldwyn-Mayer MGM) to avoid any copyright infringements during video uploads. YouTube
rolled out ads on the platform (August 2007) using new in-video format, rolled out its'Cor
Verification Program' (0ctober 2007), extended a 'Partner Program' (December 20
select creators thus permitting them to earn revenues thiogh content creation, oe
sponsored videos and pre-roll ads to advertisers, teamed up with media company V
April 2009) to launch a new music video service called Vevo, introduced ski da
(December 2010) with a format called TrueView, eritered live broadcast space 2011
with YouTube Live, partnered with celebrities and merdia personalities (Octglco11) and
invested $100 million to launch original channels in a niajot push to create o content on
the platform. YouTube, on its part, launched renkal servicesin May 2011 i d to counter
OTT players). In March 2013, the platform registered 1 biion pionthly use unched Tamily-
friendly' version of the video platform caitea YouTube Kius in Feb 1 5 and in August
2015 unveiled YouTube Gaming wherein gmers could livestre g a m i n g sessions.
YouTube continued adding new features and eventualy became oteo the most used social
media platforms. (Annexure 1 ieanwhile, in 2015, Gocg restructured to become
Alphabet." (Annexure 11).
In years to come, YouTuke ternea out to be a revenu e r for Alphabet." Its business
model fetched revenues from advertising and paid S i p . In 2020, YouTube grossed
close to $20 billion in 4evenues. a 2017, was littlothan $8 billion. (Exhibit IIA). While
Alphabet grossed clos to $i37 bilicnin 2017, th king YouTube's contribution nearly 6%
in the total revenues. In 2020, AIphayet fetched t o $182 billion in revenues with YouTube
contributing 11%ofit Itwarciear that You share in Alphabet's revenues was increasing
rapidly.10 (Exnibit lIP

3Leskir Faige, "Youtuie is 15 years oldergsa timeline of how YouTube was founded, its rise to video
behomott,anc. its biggest controversog way", https://www.businessinsider.in/tech/news/youtube-is-15
years-oit-hersaposs-a-timeline-u utube-was-founded-its-rise-to-video-behemoth-and-its-biggest
controversis-aleng-way/slidelisto673.cmsslideid=76112223, May 30th 2020
4
"YouTube Wels site", op.cit.
5 "YouTube is 15 years old. Heimeline of how YouTube was founded, its rise to video behemoth, and its
biggest controversies alon op.cit.
Mohsin Maryam, "10 Yo Stats Every Marketer Should Know In 2022 [Infographic",
https://www.oberlg ir eutube-
statistics#:text 20to%20the%20latest?%20YouTube, users%20than%20YouTube%20is%20Facebook.,
May 17th 2022
Zenger Todd, hy Google Became Alphabet", https://hbr.org/2015/08/why-google-became-alphabet, August
11th 2015
Downey i0ogle's Incredible YouTube Purchase 15 Years Later", https://www.investopedia.com/google-
S-incredible-yytube-purchase-15-years-later-
52002text=Nearly%2015%20years%20ago%2
Serber 2nd 2021
C%20Alphabet,behemoth%20that%20YouTube%20is%20today
n Gennaro, "How Does YouTube Make Money? YouTube Business Model In A Nutshell",

medium.com/business-models-magazine/how-does-youtube-make-money-youtube-business-model-in-a-
nutsell-1107fbad31f, september 1* 2018
10
Google's Incredible YouTube Purchase 15 Years Later, op.cit.
 322-0224-1
YouTube Struggling with Declining Ad Revenue

Exhibit l1A
YouTube Revenues: 2017-2020
worldwide advertising revenues of YouTubefrom 2017 to 2020
(in million U.S. dollars)

ANNSHgMHNAHEU HRN

&1s0

2019 2020
2017

Stes:e 2021
Source: Downey Lucas, "Cooges incredible YouTut ghase 15 Years Later",
https://www.investopeda.com/googie-s-incredikle purchase-15-years-later-
5200225#::text=Nearly2015%20years%20ayo%2C%20 et,behemoth%20that%20YouTube%20
is20todzy, Septem 2021

Exis
"YouTube: A Revenearosser for Alphabet
YouTube's contribution to
YouTube's contrihution to Alphabet
Alphabet's Revenue in % 2017-2021
Revenue 2017-2019

YouTube: Surging Ad
Revenve Figures Revealed 10
112

Annual Aiyhahet even ue from JTube ads

YouTube"
$11.16b
$8.150

017 018 2019 217 3013 2020 2027

Source Alphabet
&Sa sa 022a

statista
Compiled by the Author from - a) Armstrong Martin, "YouTube at 15: Surging Ad Revenue",
https://www.statista.com/chart/20698/youtube-ads-revenue/, April 23d 2020 and
b) Ceci L, "YouTube's advertising revenues as percentage of Google's global revenues from 2017 to 2021",
https://www.statista.com/statistics/289659/youtube-share-of-google-total-ad-revenues/, February 2022

Page-4
 322-0224-1
YouTube Struggling with Declining Ad Revenue

Analysts dissected the acquisition. Victor Luckerson (Luckerson), a Staff Writer with The Ringer1,
emphasised the importance of YouTube's acquisition by Alphabet, "A decade later, though, the
YouTube buy is widely considered to be one of the best consumer tech acquisitions ever. But is
it the best acquisition of all time? There's certainly an argument for a couple of tiny investments
that paid off incredibly, like Yahoo scooping up Flickr and Google's $50 million acquisition of
Android in 2005. The difference is that at that time, no one outside Silicon knewValley
Android was. YouTube was already world famous when Google
what
snapped it up, and its prict
was ridiculous by conventional standards. It was one of the
first wild bets a tech giantat
following the dot-com crash." Luckerson made this
staterrent 2016. Alphabet's stocks î
spiraled up after the acquisition. Luckerson contended iat YouTube had strersteped
Alphabet's core business. He said quoting from eMarketer Googie.cares about s ads,
and it especially cares about selling ads against search results. YouTube has evolyento the
world's biggest video search engine, with a sprawling
database of clips madenoigable by
Google's smart algorithms. Google can sell display and video ads against all thag clips, to the
tune of more than $5.2 billion in estimated revenue this year." Luckerson eped ad revenue
sharing model adopted by Alphabet and stater, Splitiing ad revenue video creators
spurred the creation of higher-quality content That content has beerx0ely popular among
kids and young adults, whose clicks are the precious mar ping thousands of
media/tech/advertising professionals enmployed. And YeuTube has essively reinvested its
money into the formats of the futre such as livestreaming andtual reality."3

However, as market reports emergec Aprit 2022, it appearehat Alphabet's ad revenues

witnessed a slump which arigihated romnslump in YouT&6 ad revenues. What were the
possible reasons? Could YouTuue reverse iis iump inge

Dwindling Ad Revenues at Yourube: A e of Concern?

While YouTube'scontiibituto Alphabet's r g e s continued inflating till 2021, it was observed

that in Q1of 2022 there was awerrying slump. (hibit llIA). Todd Spangler, a Reporter covering
digital media and techiology for Varietygceted in April 2022, "YouTube advertising sales for
the firsthree rmonthsof 2027 grew 14% ach $6.87 billion -missing Wall Street expectations
by more then `eca miopand repadg a major cooling off from the torrid pace the video
giarchadseendingthe COVID p a c . By comparison, YouTube's ad revenue was up 499% in
theyea age period and increase for the full year 2021. Alphabet, the parent company of
Google and YouTube, reportadrevenue for Q1 of $68.01 billion, up 23%, and net income of
$16.44 Btonlor $24.62 per down 8%. That fell shy of Wall Street expectations on the top
and bottom ncs." Howev gures were not discouraging. Revenues from Google Search and
Cloud jumped 24% ($39 n) and 44% ($5.8 billion) respectively, thus narrowing its operating
loss to $931 million (ve$974 million in Q1 2021).5 Overal,picture was a mixed bag for Google
with some
encoura ures; some not so.15 (Exhibit llIB).
A sports and popr e website and podcast network founded by sportswriter Bill Simmons in 2016 and
owned by Spotsince 2020.
A Subscript ed market research company that provides insights and trends related to digital marketing.
media, ar erce.
Luckerson t o r , "A Decade Ago, Google Bought YouTube - and It Was the Best Tech Deal Ever",

https:/y.theringer.com/2016/10/10/16042354/google-youtube-acquisition-10-years-tech-deals-
69fd' av6, October 10th 2016
r i c a n media company owned by Penske Media Corporation.
e r Todd, "YouTube Ad Revenue Growth Slows Dramaticaly in Q1, Alphabet Misses Expectations",
http7/variety.com/2022/digital/news/youtube-q1-2022-ad-revenue-slows-alphabet-earnings-1235241508/, April 26th 2022
Elias Jennifer, "Alphabet reports weak earnings and revenue on big YouTube miss",
https://www.cnbc.com/2022/04/26/alphabet-to-report-ql-earnings-after-the-bell-tuesday.html, April 26th 2022

Page-5
 vYY
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uioz

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6omom UsUsee
date 6-Sep-2023
Sharma, Himachal Pradesh National Law University. Expiry
info@thecasecentre.org9
Authorised for by Esha contact
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Authorised for educator review use only by Esha Sharma, HimachalPradesh National Law University. Expiry date 6-Sep-2023
Usage permitted only within these parameters otherwise contact info@thecasecentre.org
 322-0224-1
YouTube Struggling with Declining Ad Revenue

RCOrain8 to a
section of analysts,
YouTube's decline was a slow and
revenue
phenomenon
Manager with
which occurred over a period. Adam Bullas (Bullas), a Socialgraaudly
Media
Opace, a
family-run internet
marketing agency based in Birmingndiy
ouuoe S incoherent and forever changing copyright policies for both content
Didne
davertisers disappointment.
TOulube decided to
Bullas reasoned, "Towards the end of 2016 intocreators and
focus on promoting early 201/,
Over some family-friendly content following backlash from critics a
of the content that ads were
appearing alongside. This naturally generated a
ovErage and caused a
huge number of advertisers to flee
fron the network or at very
Trom huge amount of content creators. Advertisers didn't
a leca
or videos
that YouTube was want to he associated with the typ
putting their advertisements alongside and instead
YOulube to create an
immediate fix, many simply saw YouTube
ofa
2s an unviable S O
advertising at least for the
-

immediate future while all of this was happening." still

the topic of
adverting and video monetisation, thi,gs continued to get worse for " on
in tne
atter part of 2017. This be
triggered what many refer to as The Second Adpoçgse th, yet
again, advertisers fleeing from YouTube
and not wanting to be associated
while it was receiving bad publicity due to instances of questionable co
the platform
hosted on the
platform. This time, it was largely due to niche channcis tinat providegi0 for children being
considered to violate YouTube's child endangerment Fiolicy by shogentially harmful and
'gross-out' content. It's understandable that advertisers wanted to nce themselves albeit
temporarily...," Bullas elaboratec in 2019, Bullas reasoned fuher that due to increasing
incidences of 'hate speeches' on the pttormend socially andcally sensitive stuff (in the
comments section too), many advertise s were pt:t off with he pratform.2"
Meanwhile Porat, dilutirg tihe pessirnism regarding s ed, "The deceleration primarily
reflects tough comparisons toa strosg first quarter 2Similar views were held by Brian
Wieser, Global President for Susines: intelligence a ency GroupM, "Google is a third of the
industry by itself Theyre stili growing north . The issue is expectations, not the
company."" O the other hend, in a rer esearch firm Insider Intelligence, it was
forecasted that TkTok was set to triple its reveyes in 2022 to over $11 billion, surpassing the
combined salesof isrivals Twitter Incand Snag Inc. As Debra Aho Williamson, Analyst at Insider
Intelligence, reportea,ikTek's user ba s exploded in the past couple of years, and the
amourtof rime users spend on the »p xtraordinary."30 There was competition from Meta's
Facebook too. Chris Lingahl (Linda Angeles-based film business reporter at Indie Wire3,
w:ote in at,article "As short-forrgogmes the form for social video, what was once the only
celi phere game ntown also f a f f competition from Meta's Instagram and Facebook, both
of which boest a solid track f successfully monetizing new features." Lindahl continued,
"YouTube and Meta are rced to think as much about viewership as they are about
penetration." Media anaat MoffettNathanson wrote in a report, "The pain Meta and
YouTube are experien oday largely mirrors the pain the former experienced several years
ago as it transitione ories. It took time for advertisers and advertising demand to adjust,
but those few S ofturbulence have since paid many returns." Lindahl summed up the
competitive sc thus, "Analysts expect short-form ad-load to ramp up over time on

7 Bullas Adag Decline of YouTube - An Uncertain Future for this Popular Video Platform (Update",

https://w e.co.uk/blog/the-decline-of-youtube-an-uncertain-future,
"Alhabet orts weak earnings and revenue on big YouTube miss", op.cit.
May 26h 2022

Alp Revenue Misses Estimates on YouTube, Europe Ads", op.cit.

T ád revenue to surpass Twitter and Snapchat combined in 2022 - report",

April 11th 2022

w.reuters.com/technology/tiktoks-ad-revenue-surpass-twitter-snapchat-combined-2022-report-2022-
"R anonline publication covering film, TV, and digital news, reviews, and interviews for passionate fans and
industry insiders.
32
It is an independent research boutique.

Page -8
 322-0224-1
YouTube Struggling with Declining Ad Revenue

YouTube, Facebook, and Instagram. But they note that Meta has a key advantage: Meta Ads
Manager allows advertisers to turn their existing News Feed or Stories ads into a Reels ad at the
Click of a button. Your move, YouTube."33 Indeed, it was time for YouTube's move. What should
It do to
reverse the slump in ad
revenues
Annexurel
YouTube's Impressive Statistics (2021/22)

Remackable YouTube Statistics Financesonline

You Probably Didnt Know EVIEWS FOR BUSINESE

YouTube impact on the Internet landscape isimoressive

1.9 914 1
BILLION PEOPLE BILLIOIE
COUNTRIES
You Tube users are almost a third Number of count ies with local Daily time spewa be
of the internet.
versions of ouab. 2017.

2 YouTube is actually helning iis to be smarter dr G

86% 41%

viewers who use YrTureta lear

peco,whe foe' more prepared for people who say they feel smarter
new thin' is 2117
after v/atching YouTube vider watching videos on You Tube

3 Yo. Fube iets people make massive anin of money

2
LUON
50%
/EAR-ON-YEAR
75%
YEAR-ON-YEAR
hean ount pai tepartue s for YouTube r o r a t e of channels earning The growth rate of channels
nentintast 5 )a¥s. J n You lube.
with 1 million+ subscribers.

Moghly Active OBERLO Youlube Statistics

YoUTube Uses Social Media Peneuation

ouTube has

2.6 BILION
Ssers worldwide.
G27
or global

consumers
Use Youlube.

33
"TikTok Is Making YouTube Change Its Game and It's Costing Alphabet a Fortune", op.cit.

Page -9
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