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[Author's Note: You are receiving today's essay one day later because yesterday was a school holiday. You will still receive the second weekly essay on Thursday.]
One of the weirdest dynamics about this magic (and weird) market moment is playing out within YouTube and legacy media free-ad-supported-TV services (FAST).
According to Nielsen’s The Gauge for February 2024, Fox’s FAST Tubi is outperforming subscription services Peacock, and Max and Paramount+ across U.S. TVs and connected TVs. The Roku Channel is also outperforming Paramount+. FASTs Tubi, Roku and PlutoTV are all outperforming Apple TV+.
YouTube is also a FAST (though with an ad-free subscription tier) and the dominant FAST in the U.S., according to The Gauge. It is increasingly relying on its TikTok competitor YouTube Shorts for growth: Views of YouTube Shorts on connected TVs grew by more than 100% from January to September 2023. It announced in a blog post last week that more than 25% of channels in the YouTube Partner Program (YPP) are earning revenue through Shorts.
There are more than 3,000,000 channels in YPP, so at least 750,000 channels are earning money and somewhere north of 2,000,000 channels are not. Moreover, the channels that *are* earning money only retain 45% of revenue, whereas they retain 55 percent of revenue for long-form videos.
Both FASTs and YouTube are telling the story of video inventory increasingly being discounted by media buyers and the companies themselves. That seems counterintuitive at a time when YouTube dominates and FASTs are growing in popularity over subscription streaming services, and demand for digital ad inventory is growing year-over-year in double digits.
Key Takeaway
YouTube and legacy FASTs seem to be sub-optimally monetizing their connected TV inventory—despite growing consumer and advertiser demand—in large part because their strategic priorities lie elsewhere.
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YouTube’s Dilemma
YouTube is up 1.4% year-over-year to 9.3% of total TV viewing time across U.S. households. It generated $31.5 billion in 2023. A spokesperson told The Verge that the number of Shorts uploaded on YouTube has grown by 50 percent year over year, now averaging over 70 billion daily views from over 2 billion creators per month.
Alphabet reports YouTube gross revenues but does not break out operating income. The Information reported yesterday:
Google’s revenue from YouTube is now approaching $45 billion—two-thirds of it from advertising and the rest from subscriptions. Despite that, multiple current and former YouTube executives question whether the platform makes a profit. It is difficult to quantify in part because YouTube’s advertising sales force is under Google, and it’s not known how Google allocates those costs on its ledgers.
As for creators, “most creators say [YouTube Shorts] is a dud in terms of their earnings from it”. This reflects a point I made in December 2022’s “Hollywood's Future & The Top 0.1% Earners on YouTube”: If 0.1% of YouTube influencers are the most successful, and we hear most about Jimmy Donaldson aka Mr. Beast, then who are the other 2,999 successful channels?
More importantly, what does success look like when an increasingly popular format on the platform is suboptimally monetized to the point of hurting creators?
The Information article cited an entertainment firm that generated only $41,000 in revenue from a billion views on YouTube Shorts last month, compared to roughly $1.1 million off two billion views on its regular YouTube videos. In pursuing competition with TikTok, YouTube seems to be financially and symbolically cutting off its nose to spite its face.
A Disconnect
A big—and seemingly forgotten—reason why FASTs have become favored business models of Fox (Tubi) Paramount (Pluto) is that digital video inventory has been fraught with delivery problems and fraud for the past two decades. Pluto TV co-founder and Paramount Streaming CEO Tom Ryan told Variety yesterday: “[W]e validated the thesis that if you can curate content into thematic channels that people enjoy watching that allow them to simply channel-surf, you can get them to watch for longer periods of time.”
The creation of TV-like advertising inventory in a TV-like viewing experience offered more brand safety than YouTube or standard digital video players. It was also more likely to be viewed by humans than bots, meaning it could generate engagement. Unlike short-form videos on websites, it did not require shorter, custom ad formats—TV ads could be easily repurposed within a familiar user interface (TV channels).
eMarketer projects Connected TV spend to grow over 22% in 2024 to $30.1 billion and 15% to $34.3 billion in 2025. In this sense, a juggernaut like YouTube and smaller legacy media FASTs like Pluto TV and Fox’s Tubi both share a similar strategic problem around video inventory on Connected TVs: The rationale for
Despite the growth of consumption of FAST services on connected TVs, YouTube and legacy FASTs seem less invested in optimizing the inventory for advertiser demand. It is getting harder to understand how and why both advertisers and consumers value the underlying video content. Samir Chaudry of the YouTube creator duo Colin & Samir shared an important insight into this when I interviewed him for my Medium Shift column “The Media Revolution Will Be Prompted”: “For media-first entrepreneurs, media then unlocks the business opportunities.”
On YouTube, creators monetize ads but their videos are better monetized by the creators’ own business initiatives. For example, Colin & Samir monetize audiences through an online class and merchandise. The information reported “some creators are using the format to direct as many viewers as possible to their longer content.” The implication is that advertising is not as effective for creators or advertisers in the FAST medium.
So, the FAST model may be proving that growing demand for the video advertising—a vestige of the broadcast and linear TV business —does not reflect how the format is valued by either the supply side or the demand side.