When it comes to advertising, there's essentially a battle going on between the two largest formats. On one hand, you have the fast-growing digital medium that includes both desktop and mobile advertising, and on the other, you have the behemoth TV outlet. Together, these two outlets account for nearly 70% of U.S. total ad spend, according to advertising-research analytics firm eMarketer, with TV currently holding a 37.9% to 31.6% edge in the $184 billion market.
As a result of this oligarchical market, the two outlets must essentially steal market share from each other to grow above and beyond the growth rate of the total advertising market. More recently, this has been a decidedly one-way direction, with digital picking up market share on the back of a strong growth in mobile advertising.
Alphabet's YouTube (NASDAQ:GOOGL) (NASDAQ:GOOG) isn't resting on its laurels to trumpet its digital service as a more appealing option to TV advertising, and it's looking to divert ad spending to its top-line.
Alphabet to advertisers: YouTube is where the millennials are
During YouTube's advertising event in London (details from Business Insider), the company made a case for more YouTube ad-spend. This is not shocking on any level, of course. However, Alphabet's explicit pitch was a shot across the bow for television execs. Per Eileen Naughton, an Alphabet managing director: "Advertisers reach their target audiences far more efficiently by adding YouTube to their media plans ... especially the hard-to-reach 16- to 34-year-olds, where cost per reach is optimized when 24% of your TV budget is allocated to YouTube."
As far as marketing demographics go, the 16- to-34-year old millennial group is among the most desired, as they have a lifetime of purchasing ahead of them. By asking for an ad shift spend of 24% of TV-related ad-spend (37.9%), Alphabet is making a play for as much as $17 billion in new income. And because of demographics, the company will receive more ad-spend in the upcoming years, although probably not 24% of TV-related advertising. However, YouTube has competition of its own in online-video advertising.
Facebook is rapidly growing
When it comes to online video, Facebook (NASDAQ:FB) is quickly becoming a threat to YouTube. Recently, CEO Mark Zuckerberg took a victory lap after the company grew daily video views from 1 billion to 4 billion in less than a year. That's less than YouTube's 7 billion daily views, but the trend is clearly in Facebook's favor. Recently, the company announced a test of its Suggested Video, complete with in-line ads, in an attempt to tap into YouTube's lucrative online video marketing realm.
Facebook has problems it needs to iron out in regard to its video service: The company doesn't have a trusted, defined revenue-sharing arrangement with content creators, the site suffers from content theft, and many advertisers are wary about how Facebook counts those 4 billion views.
However, it seems Facebook is taking steps to address these concerns. As for the revenue is concerned, it seems the company is looking to match YouTube's revenue split percentages of 55%/45%, with the larger pot going to the content creators. In addition, the company stated it is working on ways to control content theft with new features. And, finally, Facebook has added an independent analytics firm Moat for reporting.
In the end, I predict continued ad-spend shift from television to digital outlets, but that doesn't mean Alphabet's going to be the dominant beneficiary of this shift. Look for further competition between Facebook's video plans and Alphabet's YouTube.