Consumer & Entertainment Services
By Ed Barton 21 Feb 2020
Rights holders are beginning to contemplate at what point will it become more profitable to stream live coverage directly to the audience rather than to collect licensing revenue.
Straight Talk Media & Entertainment
Google has been quick to respond – and offer a rare apology – to a significant number of high-profile advertisers in the UK in the wake of revelations that brands had unwittingly been aligned with questionable and offensive content on its platforms, particularly YouTube. However, although Google has announced steps to rectify the situation, the furor is far from over. How this episode plays out will not just impact Google, but also players across the entire digital media and ad ecosystem, and not just in the UK.
The impact will be felt far beyond the UK
The UK is an important market for Google and its parent Alphabet, accounting for 8.6% of revenues in 2016. This translates to almost $8bn in annual revenue, the vast majority of which will be from digital advertising. Globally, Ovum ranks the UK as the third-largest video internet advertising market by revenue, a position that it will hold through to the end of our forecast period in 2021, when Ovum forecasts that the global market will be worth almost $50bn. YouTube – a major player in the global video internet advertising market and at the center of this latest controversy – represents a lot of revenue that Google needs to protect on an ongoing basis.
This latest controversy has focused on several prominent UK-based advertisers – such as the UK government, Marks & Spencer, and Tesco – who are taking part in the boycott. But the list of companies removing their ads from YouTube in the UK includes blue-chip brands, such as McDonald's and Volkswagen, with a strong global presence, which could mean that the impact of the boycott will be felt further afield. Indeed, the fallout has already reached the US, where the likes of AT&T and Verizon have pulled their ads from YouTube and Google's other non-search platforms. Additionally, the UK's role as a regional leader means that the impact and dynamics of the UK media industry are often felt across the globe, particularly in other key Western European markets. As it stands, legacy media players suffering at the hands of the company will not think twice about undermining Google's – and Facebook's – dominant position in the digital ecosystem across the region. Advertisers who fear a duopoly will also be keen to turn the situation to their advantage in their negotiations with Google (and, in turn, Facebook).
Google needs to act decisively, and quickly, to stop the rot and ensure that it adheres to differing local regulations, policies, and cultural sensitivities regarding the distribution, and monetization, of offensive and questionable content.
Google and Facebook are media companies – they must now act like it
Google and Facebook have long positioned themselves as "neutral" tech companies and content aggregators, as opposed to media companies. However, such positions have become untenable in this era of "fake news" and of an apparent surge in the volume of hateful and offensive content being shared on social platforms. Furthermore, with both players – along with the likes of Twitter and Snap – spending millions of dollars to acquire rights to, and create, premium content for distribution on their platforms, they can no longer deny their responsibilities as media companies – a new breed of media company, perhaps, but media companies nonetheless.
For too long, Google's YouTube and Facebook have been focused on growing their user bases – and user engagement – to achieve the scale necessary for significant monetization. In this environment, the ability to monetize the platform seems to have been prioritized over regulating the type of content hosted. But, now that YouTube wants to compete with TV operators and broadcasters, and foster a similar premium content and advertising environment, it must hold itself to the same high editorial and regulatory standards. Google has rightly announced a review of the content that will be allowed on its platform, but it may well be too little, too late for those critics who believe moderation should have come before monetization of content.
User-generated content is great for scale, dangerous for monetization
In his blog post serving as an apology to advertisers, Google's Chief Business Officer Philipp Schindler wasted no time in mentioning the "more than 400 hours of video" uploaded to YouTube "every minute." This amount of content – the vast majority of it user-generated by consumers – gives YouTube tremendous, and ever-increasing, scale both in terms of content and audiences. Yet, YouTube's biggest strength is also its greatest challenge – policing this mass of crowdsourced content is an extremely daunting prospect. Further recent controversies surrounding PewDiePie – whose original content was part of YouTube's premium YouTube Red SVoD offering and has the largest subscriber base on the platform – serve to emphasize the lack of control YouTube holds over even its biggest and most monetizable creators. If Google is to assuage advertisers to the degree necessary to earn back their trust, greater regulation of at the very least monetizable content, if not all content, on the platform will be crucial.
But, to paraphrase Schindler, Google also champions itself as a protector of the creative environment fostered on its platforms. Indeed, taking too hard a stance on the content deemed acceptable on YouTube risks removing much of its appeal – both for creators and viewers – and could drive both types of users to other platforms. In essence, Google needs to make a very important decision on whether to prioritize the interests of advertisers or users, both of which are core to its monetization strategy. This same challenge is sure to be faced by all digital service providers that rely on serving ads against largely uncensored user-generated content. But from now on, policing the content that is uploaded by users can no longer be an afterthought or something done grudgingly as a concession: It must be a strategic priority.
A human touch remains key in an increasingly programmatic industry
As a tech giant, Google relies on automated – or, as they are known in the industry, programmatic – transactions when selling its ads. This has allowed Google to scale its ad operations, and revenue, alongside the rapid expansion of its digital audiences. But this has led to instances where brands' advertisements have been aligned with unsuitable or indeed highly offensive content. Current programmatic mechanisms need greater human input if they hope to compete with the reliability and ad-pricing levels of a human-curated TV channel, for example.
To be fair, Schindler has committed to "hiring significant numbers of people" in a bid to review questionable content available for advertising on its platforms. But this also comes as part of a commitment to "developing new tools powered by [Google's] latest advancements in AI and machine learning" for the same purpose. Automated platforms and AI are growing in complexity and scope, and will undoubtedly be the more cost-effective option for Google, but, given the company's predicament, human-led monitoring will also need to be integrated to assure advertisers that their brand messages will appear in a safe environment. A human-led operation of YouTube's scale is likely to be financially crippling – even for one of the largest companies in the world. But reliance on technology alone may not be enough to appease advertisers in the short term, so a hybrid solution seems the best response. As it stands, the situation will suit those traditional media companies that still rely on humans to operate their content and advertising business, many of whom feel they have been bullied out of the market by Google in recent years. Such players now have a key opportunity to steal some of that advertising business back, and will likely relish the opportunity to kick Google while it's down.
Straight Talk is a weekly briefing from the desk of the Chief Research Officer. To receive this newsletter by email, please contact us.
Consumer & Entertainment Services
By Simon Dyson 21 Feb 2020
Time for record companies to push the music and gaming space convergence.
Consumer & Entertainment Services
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Vivendi set to cash in on UMG as recorded and music publishing revenue keeps on rising.
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