The parent company of YouTube and Google, Alphabet, has reportedly lost about $70 billion in market capital after stocks plummeted around 8%. This is despite the fact that revenue for the quarter actually grew 15%. However, while revenue did grow, it did so at a lower clip compared to the previous year, which was 24% during the same period. What was to blame for the decelerated revenue growth? YouTube.
According to a detailed report from CNBC that was published on April 30th, 2019, YouTube’s engagement is apparently down, and in turn, ad revenue is down, so in turn the valuation is down.
This isn’t coming from presumption or analytical guesswork, this is coming straight from Google’s chief financial officer Ruth Porat, whose prolixity still contained a nugget of key information that explained the downturn in revenue. During the conference call, Porat stated…
“While YouTube clicks continue to grow at a substantial pace in the first quarter, the rate of YouTube click growth rate decelerated versus a strong Q1 last year, reflecting changes that we made in early 2018, which we believe are overall additive to the user and advertiser experience,”
In simple terms, ad revenue, clicks, and user engagement growth was down compared to 2018.
Also, one key part of that quote that helps explain a lot – and it’s something CNBC picked up on – is that Porat mentions that this is in result to “changes that” they “made in early 2018”. If you go back to early January, 2018, the company did make some significant changes to monetization and content cultivation. They changed the rules on how many subscribers were required and how many hours of content had to be watched before videos could be monetized. This dis-incentivized smaller channels from attempting to use YouTube as a core revenue source until they became larger, thus incentivizing larger corporations and media platforms to pursue monetization through the platform.
They also began cracking down conspiracy videos, content they deemed to be “fake news”, and channels they labeled as “problematic”, such as Infowars, which was banned from YouTube back in August of 2018.
A YouTube spokesperson told CNBC that those “bad actors” that they removed didn’t generate any kind of “meaningful money”, saying…
“There’s a misconception that YouTube makes money off of recommending ‘radical’ content, but the truth is that very little of this content makes any kind of meaningful money. In fact, when we cleaned up our partner program to remove bad actors last year, we made it clear that 99% of those impacted creators were making less than $100 a year,”
The key to the quote is in the wording.
Take note that the spokesperson states that the “impacted creators” were making less than $100 a year.
While YouTube’s demonetization does limit what content creators make from ad revenue, YouTube still pockets money from ads that run on said content. So in plain terms the content creator is demonetized, but YouTube isn’t.
Nevertheless, the ban was all part of YouTube’s plan to cut back on promoting certain kinds of content on the platform, something that was detailed in a report on Bloomberg, where – since 2017 – the company had been focusing on promoting “authoritative” sources. That basically translates to mainstream media.
YouTuber Tim Pool did a breakdown of how YouTube changed the algorithm to promote more mainstream news media and suppress custom content from YouTubers.
We saw how this exact kind of algorithmic change affected content propagation through the recommendations and search filters during the fallout of the Christchurch, New Zealand shooting. In an attempt to suppress news, information, conspiracies, and content delivered from average YouTubers, the company filtered out all of those results, censoring anything that wasn’t from mainstream news media sources.
Basically, engagement had no choice but to be down because YouTube purposefully wouldn’t allow people to search up the content they wanted.
The company has also been increasing the age restrictions on videos, making lots of entertainment content inaccessible for people who cannot log into the service. This has affected a wide number of properties, especially certain video games, which have been hit both with demonetization and reduced discovery.
And, of course, we can’t forget all the channels that were demonetized, deleted, terminated, or comments forcibly disabled during the latest childpocalypse that occurred on YouTube. All of this plays a huge role in affecting content engagement.
Essentially, they’re driving people away from the platform by censoring content, removing channels, and demonetizing creators while chasing after the fake news media that propagates mainstream. It’s all coming to a swell, even while the company continues to grow. It’s just growing now at a slower clip, hence nearly a 10% drop in user growth for the last quarter compared to the same quarter the year prior.
(Thanks for the news tip Animatic)
(Main image courtesy of CalyaP1)