Google has successfully created a cultural phenomenon since it acquired YouTube in November 2006. With video contents shared on a social networking platform, the website has become popular for online entertainment and information acquisition. It has also been credited for further promoting online and citizen journalism, introducing independent content creators, and launching the careers of Internet celebrities.
For several years, YouTube has dominated the market for online video sharing. But the competition heats up. With Facebook and Twitter promoting the sharing of video contents and Amazon venturing into video distribution and production, coupled with the increasing popularity of video streaming services from Netflix, the entire landscape for online video content consumption is changing.
Facebook is the real threat. The social networking giant has over a billion of users that it can easily commandeer through policy revisions and a little business remodelling. Case in point is the revamped News Feed algorithm announced in June 2014. Accordingly, Facebook now encourages users to upload videos instead of sharing them as links, particularly by prioritising those contents with high production and message value as determined by metrics to include likes, shares, comments, and length of user engagement. This algorithm essentially compels users, especially owners and administrators of Pages or publishers, to create video contents that are highly engaging and relevant to their target audience.
Videos are collectively receiving more than a billion of views a day according to Facebook. To further encourage publishers, the social networking site now features video view counts, related videos display, and a video-specific analytics tool for determining view and reach performance. It is undeniably clear that Facebook wants publishers or content producers such as media organisations or entertainment companies to use its social networking platform to distribute online video contents.
Twitter has also launched its native video hosting platform in January 2015. Before, users of the microblogging social networking site relied on third-party hosts to include Vine and YouTube to create or share video contents. Now, with the new service from Twitter, users can create and upload a 30-second video directly via the mobile app. While this is not comparable to the full video hosting and sharing service of YouTube and Facebook, it could still be a viable venue for producing and distributing video contents to include short advertisements and news clippings, among others.
The success of Facebook and Twitter could mean attracting content creators that traditionally used YouTube as their preferred venue, especially media organisations, independent producers, and established or upcoming online celebrities. Internet news media company BuzzFeed has been sharing their video contents directly on Facebook.
Streaming and on-demand video services from Amazon and Netflix are also challenging the dominance of YouTube, especially by creating a segment for the entire market for online video content consumption. Amazon, in fact, has also ventured into film production following the success of Transparent, a web series that won two Golden Globes. Netflix has also been licensing Hollywood-produced contents.
Take note that YouTube has hosted several television series, web series, documentaries, movies, and music videos. There was also an attempt to launch a subscription-based service. However, streaming and on-demand video service providers have an advantage because their contents are more targeted and specific whereas YouTube is essentially a hodgepodge for different video content genres and categories.
The problems of YouTube are staggering. According to a report by Rolfe Winkler of The Wall Street Journal, the popular video-sharing website has over a billion of users but profit remains zilch. One of the pressing problems include the struggle to expand the audience beyond teens and young adults, as well as the prevalence of poor video contents or “junk” over high quality contents. In other words, YouTube has billions of users and contents but these two are not bringing in substantial revenues enough to register a profit.
Cost is a problem too. According to the 2014 10-K SEC filing of Google, licensing of video contents for distribution is part of the entire Google cost of revenues—or the cost of revenues minus traffic acquisition costs. Furthermore, an increased usage activity from users also drives content acquisition costs and data centre costs. Hence, these costs are increasing along with expanding user activity but profit remains problematic.
YouTube certainly needs to step up its game not by attracting random users but by targeting users that can bring in revenues. Targeted users are also helpful for advertisers. After all, the video-sharing website derives most of its revenues from online advertisements.
More details of the cited Facebook news are in the article “Showing better videos” and “The latest on Facebook Video” that appeared on Facebook Newsroom. Further details of the report of Winkler are in the article “YouTube: 1 billion viewers, no profit” published in The Wall Street Journal. SEC filings from Google are public accessible on a dedicated webpage for investor relations.