The growing boycott that advertisers are doing to YouTube may cost Google, its parent company, as much as 750 million USD in revenue, according to an investment firm in Wall Street.
Over the past weeks, major consumer brands pulled their ad subscriptions from the famous video sharing site including PepsiCo, McDonalds, and Johnson & Johnson. These companies are not happy by the fact that all of their carefully crafted ads are appearing before or after videos that contain offensive material, even those that are posted by groups affiliated with terrorism.
(GOOG) Google promised to take actions to solve the problem at hand and to do it in a timely manner. However, the controversy continues. As a matter of fact, one firm led to the downgrade of Google’s share price.
According to an analyst from Nomura Instinet, the boycott would still cost Google dearly even if its video service issue is addressed quickly. The brokerage firm put together a research note for its clients, and in the note, it was clear that YouTube’s annual revenues were cut significantly. For this year, YouTube’s annual revenue is estimated to be 10.2 billion USD and it will be cut by 7.5% because of the boycott. This is not even accounting for the costs that have to be settled to fix the problem.
“Ad buyers, these huge companies, are now demanding greater or even direct control over the placement of their ads. This may seem easy to do but it actually takes a lot of resources and time to implement,” said Nomura in its note.
The YouTube boycott started in Britain wherein myriads of brands, including the UK government itself, withdrew their advertising. This is after an investigation conducted by Times showed how ads were placed on posts made by terrorist organizations. The search giant was even asked by the UK parliament to address the issue and what it plans to do regarding the problem.
Unfortunately for YouTube and Google, the controversy erupted right when advertisers are ready for ‘upfronts,’ which is a process wherein TV networks entice major agencies and brands to sign long term contracts with them based on their capability to reach out to specific audiences.
Nomura said that a pitch from a major network may seem more appealing to companies due to the fact that YouTube is dealing with a problem that directly affects them. This can greatly shift the spending of these huge advertisers away from Google.
The boycott may be a problem, but it won’t cause a lasting damage to YouTube or Google according to experts. In a recent update of a research done by RBC Capital Markets, the effect of the controversy on Google’s business only accounts for 10% of its revenue. The firm thinks that the damage will only be minimal especially when Google is the most consistent and strongest fundamental story in tech.
“Companies and brands are upset and we understand why, but we are sure of the fact that Google and YouTube will recover the loss one way or another.”