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Alphabet Paid YouTube Creators $30 Billion Over 3 Years; What That Could Mean for Netflix and Disney

By Parkev Tatevosian, CFA – Aug 27, 2021 at 7:42AM

Key Points

  • YouTube boasts 2.3 billion users. Compared to 209 million for Netflix and 174 million for Disney.
  • YouTube offers its product for free, while you have to pay to access Netflix and Disney's content.

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YouTube has a different operating model than the other streaming giants. Still, it's competing for people's attention during leisure time.

Alphabet's (GOOG -0.94%) (GOOGL -0.94%) YouTube is sometimes forgotten as a formidable player in the streaming content category. Industry giants Netflix (NFLX 3.14%) and The Walt Disney Company (DIS 0.90%) are getting most of the spotlight. 

Nevertheless, YouTube maintains a large share of viewership hours. Its business model is different from Netflix and Disney, primarily because nearly all of the content on YouTube is created by users, otherwise known as creators. Let's look at how the services compare and what the growth of YouTube could mean for Netflix and Disney. 

Two adults sitting on a couch, eating popcorn, and watching television.

Image source: Getty Images.

Revenue 

In addition to the content being created by individuals, YouTube is different; the product is free. The company makes money by showing advertisements and selling a premium tier that removes advertisements. In its fiscal quarter that ended June 30, 2021, YouTube brought in $7.0 billion in advertising revenue for its parent Alphabet.

Compare that to Netflix, which generated $7.3 billion in revenue in its most recent quarter, and Disney, which generated $4.3 billion from its streaming services. From these results, it's clear YouTube deserves a spot among the leaders. Indeed, according to Nielsen, YouTube accounts for 6% of total TV time in the U.S. compared with 7% for Netflix and 5% for Disney's top two streaming services, Hulu and Disney+. 

Viewer totals 

According to Statista, YouTube boasts 2.3 billion users worldwide. That trumps the 209 million of Netflix and the 174 million of Disney's streaming services. Of course, when you offer a product for free, you are bound to get more takers. Still, that shouldn't take away from the remarkable achievement in reaching 2.3 billion users.  

The vast global reach and customer targeting capabilities make YouTube an attractive destination for marketers. 

Content spend

YouTube recently said it had paid creators $30 billion over the last three years. Evenly split, that's $10 billion per year. In contrast, Netflix has already spent $8 billion in the first half of fiscal 2021. Disney hasn't disclosed how much it is spending on streaming content, but it did inform investors that it intends to spend between $14 billion to $16 billion annually by 2024.

Interestingly, YouTube appears to be spending the least while attracting nearly the most viewership of the three. Moreover, parent Alphabet's powerful advertising engine allows it to capture nearly as much revenue as Netflix, despite offering its product for free to users. This is not a business model that either Netflix or Disney can duplicate because of the prerequisite advertising advantage held by Alphabet. 

Moreover, by boosting the sum paid to creators, YouTube could incentivize them to create more content and attract more content creators to its site. The trend could continue to attract the attention of viewers. Admittedly, content on YouTube is of substantially lower quality than content on Disney or Netflix, which regularly produce hit movies and TV shows. Still, viewers don't seem to mind. 

Disney and Netflix would be mistaken to ignore YouTube as a viable competitor. It's hard to compete with free. Therefore, Disney and Netflix must stay efficient in their content spending; making sure they create movies and shows people enjoy watching so much that they are happy to pay for.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Parkev Tatevosian owns shares of Alphabet (C shares) and Walt Disney. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Netflix, and Walt Disney. The Motley Fool has a disclosure policy.

Stocks Mentioned

Walt Disney Stock Quote
Walt Disney
DIS
$93.38 (0.90%) $0.83
Alphabet Stock Quote
Alphabet
GOOGL
$92.83 (-0.94%) $0.88
Netflix Stock Quote
Netflix
NFLX
$320.01 (3.14%) $9.75
Nielsen Plc Stock Quote
Nielsen Plc
NLSN
Alphabet Stock Quote
Alphabet
GOOG
$93.07 (-0.94%) $0.88

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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