Google’s Next $20B Revenue Business: YouTube

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YouTube can contribute gross revenue of $20 billion and operating income of $5 billion to Google Inc (NASDAQ:GOOG), says a report from Morgan Stanley (NYSE:MS). Google has been actively drawing revenues from its advertising and at present YouTube contributes 1.5 percent of WW TV Ad spending. And if YouTube captures an amount equivalent 6 percent by 2020, then it could contribute $20 billion to revenues.

Google's Next $20B Revenue Business: YouTube

Google Inc (GOOG)’s YouTube a Dominant Player

YouTube holds the dominating position user generated and semi professional content, including instructional and entertainment videos made for generating revenue.  Google Inc (NASDAQ:GOOG)’s YouTube captures more than 80 percent of U.S. online video-viewing consumers and has one third of the total time being spent online across all video properties (in browsers, not on connected devices such as smart TV’s).

Content consumption Chart

As per data from ComScore, United States consumers watched approximately 200b minutes of YouTube content in the first quarter of 2013 compared to 600b minutes of total browser-based video viewing around the world.

 New Target Audience

Subscribers aged 18-29 are the least interested in the traditional pay TV services. There is a strong correlation between age and willingness to disconnect compared to other factors, which also includes income. The television watching behavior of younger consumers varies from the mature ones, and they watch less traditional TV on an average. These young consumers prefer to watch video content on non-TV devices.

content consumption by hours

According to Morgan Stanley’s report, the disintegration of video viewing among younger consumers is a significant opportunity for online video service providers, particularly for YouTube. Soon TV ad budgets will be taken over by digital video services.  The hardest to measure category, print media, will also soon start losing dollars now flowing to digital video.

What’s Ahead?

Video service provider YouTube is looking forward to dividing its content by interest channel, and then selling these channels to advertisersGoogle Inc (NASDAQ:GOOG) has an edge over others in measuring video viewing behavior along with search and web activity, which will allow it to extract the data more efficiently and measure ROI compared to its online/offline peers.

worldwide advertising

Chief Business Officer of Google Inc (NASDAQ:GOOG) Nikesh Arora and Google’s VP of Display Ad Product said that they are expecting that an additional $200 billion-$300 billion of advertising dollars may be absorbed by online media over next five years. According to a report produced by IDC, the print, direct mail, and “other” segments of the global advertising market is already at $300 billion today. The TV ad market accounts for $240 billion and online ad market is slightly over $100 billion.

There are more inputs expected from the Google’s annual I/O developer conference this week.

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