Why YouTube’s Ad Revenue Decline Is a Bad Sign for All of Hollywood | Analysis
Tucked inside technology behemoth Alphabet’s quarterly earnings was a line item that its YouTube video platform suffered a 2% decline in advertising sales — the first decline for the unit since the Google owner began reporting the platform’s revenues in 2019. That’s a harbinger for cable and broadcast networks reporting quarterly results in the next few weeks, as well as streamers hoping to cash in on ad dollars as well as subscription fees.
Think of it this way: People with short attention spans are worth slightly less in advertising dollars than they were a year ago. These are viewers conditioned to watching content that seldom goes beyond a minute. Now, what does that mean for broadcast and cable’s media dinosaurs that bank on the big ad spend for three commercials every 15 minutes? And what does it mean for streamers like Netflix and Disney+ that are preparing to launch cheaper ad-based options in hopes of generating income from commercials as well as subscription fees?
It’s not great. This means the attention span for “The Island Boys” singing in a hot tub is sinking. And, if the attention spans of short-form video users are shrinking, the ad dollars for hit series like “Law and Order: Special Victims Unit” will follow suit.
“Despite being seen as one of the most insulated companies in the advertising space relative to peers, Google’s poor quarter is the latest sign that worsening fundamentals and a tough macroeconomic environment are prompting advertisers to cut back on spending,” said Jesse Cohen, senior analyst at Investing.com.
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Digital Remedy’s Chief Strategy Officer Matt Sotebeer noted that advertisers are in a bind as consumer spending confidence has waned amid rising inflation and interest rates.
“What we are seeing with YouTube advertising revenue is indicative of a larger trend around tightening media budgets,” he said. “Simultaneously, we are seeing an increase in advertisers looking to tie spend more directly to lower funnel outcomes like online sales.”
Overall, YouTube revenues — which came in at $7.07 billion, below analysts’ projections of $7.42 billion — are just a drop in the bucket for the tech giant. The wider company reported a revenue drop of 41% from the year-ago period, to nearly $69.1 billion — just under the $70.6 billion forecast for the period.
Still, Alphabet chief financial officer Ruth Porat didn’t mince words: “The drop in revenue primarily reflects further pullbacks in advertising.” The digital advertising market has been struck by a slowdown in spending in the past few quarters, as companies pull back their budgets amid rising inflation and interest rates.
Porat put the blame squarely on the financial services firm that were advertising like gangbusters during the pandemic, taking advantage of a captive audience for the “five ways to put your financial house in order.” Think about the mortgage rate ads that permeated the world before the Federal Reserve began nudging them higher, the easy loan terms and the explosion of crypto scams.
And Alphabet boasted that YouTube’s short programing and CTV placements had the best advertising-to-dollar ratio, keeping it competitive amid heavy competition from rivals like TikTok.
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Snap said the same thing last week. The social media giant posted revenue of $1.13 billion, missing projections. Even Microsoft, not exactly the most advertising savvy of the bunch, came just under revenue projects at $50.12 billion.
Snap CEO Evan Spiegel admitted the challenges of navigating “this difficult macro environment that has impacted our advertising business over the past few quarters.” As media industry analyst Richard Greenfield noted, it was “not a good start to earnings for anyone in the broadcast or cable TV network biz” and shows a “pullback in brand ad spend in Q4 as recession fears build.”
Broadcast and cable networks are still huge earnings drivers for Hollywood studios, earning billions of dollars a year from monthly subscription fees from pay TV providers. Those providers, such as Comcast or Charter Communications, could be financially squeezed if companies begin pulling back even more on ad spending as they brace for a recession.
Even streamers may feel the effects of the ad crunch, particularly as Netflix launches an ad-supported tier next week (for $6.99 per month) and Disney+ follows with its own commercial-interrupted service in December (for $7.99 per month).
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