It’s become accepted wisdom in some circles that Netflix has “won” the streaming wars — a story that was validated by its best fourth-quarter report ever in terms of subscription growth.
Netflix added 13.1 million subscribers for a total of more than 260 million — leaving second-place Disney+, with 111 million global subscribers (excluding Hotstar), in its dust.
But focusing on Netflix’s dominance in Hollywood overlooks a bigger player in media: YouTube. And YouTube’s dominance could have dire consequences for Netflix’s competitors.
By view time and advertising, YouTube is winning hands down. In time watched on the big screen, the metric that matters to big-brand advertisers, YouTube led view time for almost all of 2023, according to Nielsen’s Gauge. Its advantage wasn’t lost on Netflix cofounder and former CEO Reed Hastings, who’s namechecked YouTube as a threat to Netflix. And it’s done so without traditional Hollywood content.
YouTube also has a giant ads business. It reported $9.2 billion in ad revenue in Q4. Netflix, which is just getting going in selling advertising, isn’t even close.
YouTube is winning in areas that matter to Gen Z
Long term, YouTube is positioned to win on the small screen, too. That’s because it’s winning in the areas important to younger people. Gen Z enjoys user-generated video almost as much as TV and movies, Forrester research shows. YouTube also isn’t a big player in live sports, an area that’s significantly less popular with Gen Z than the population overall. It’s possible those preferences will change as they age, but that would mean reversing not just what they watch, but their preferred device.
“They aren’t a significant player in premium entertainment content, where Hollywood has traditionally lived and Netflix is the runaway streaming leader,” New Street Research analyst Dan Salmon said of YouTube. “And they haven’t competed for in-market/nationally televised sports like Amazon Prime. Those are content areas that are losing share of young audiences’ viewing time. Netflix’s long-term risk is kids watch MrBeast on YouTube instead of ‘The Crown’ on Netflix.”
YouTube has become a media giant without Hollywood content
Many in media dismiss or overlook YouTube because it doesn’t look like a Hollywood player. YouTube funded original content for a while until it decided it would rather leave the content-making to creators and share the ad revenue with them. It paid out $70 billion this way over the past three years — but that money that went to the likes of MrBeast, not Martin Scorsese. Its TV business, YouTube TV, is a bundle of other people’s channels.
For some advertisers, YouTube’s lack of premium sheen is a reason to stay away. But funding content this way keeps YouTube’s gross profit margins nice and even, versus the Hollywood model with its fixed, upfront programming costs. And YouTube TV is now the fourth-largest pay-TV service in the country, with more than 8 million subscribers.
YouTube likes its model of funding creator content as it ensures a continual stream of hits, Brian Albert, Google’s managing director of US video deals and creative works, has said. “That’s a massive difference between the legacy studio-produced model where you hope you get enough hits to sustain viewerships,” he said.
And YouTube CEO Neal Mohan emphasized this week that he’s committed to supporting creators’ long-form storytelling and that he sees YouTube’s future in the living room.
“Creators are thinking about how to optimize their content for the living room, and it’s easy to see why – it’s where their audience is watching!” he announced.
YouTube’s continued success isn’t guaranteed
YouTube faces tough competition from other tech companies for creator loyalty and viewers. It’s getting beaten in short-form video by TikTok and Meta’s reels (though it has seen its version, YouTube shorts, climb to over 70 billion daily views). Parent Google also has a big lead in AI, which powers the recommendations that drive watch time. Part of Mohan’s announcement was that YouTube is also rolling out a suite of AI tools to help creators, which could help close the gap.
Being an open platform is another vulnerability. That opens it up to brand safety problems (though that’s mitigated somewhat by small-business advertisers that can’t quit it), regulatory threats, and high content moderation costs.
Hollywood people grumble a lot about Netflix these days. Netflix released fewer originals in 2023 while it takes everyone else’s licensed content. Netflix still has a huge sway over what gets made and seen, which opens it up to criticism. One of the biggest knocks is that it used to take chances on niche shows and give prestige filmmakers free rein, but lately, it just seems to want shows for the masses. (It’s not alone there, to be fair.) Its limited use of theatrical releases has some filmmakers worried about the future of movies.
But maybe Hollywood should be more worried about YouTube. The real threat is that Netflix and YouTube dominate and everyone else fights over a tiny slice of pie. Just take a look at the teen viewing stats. Netflix has lost a small bit of ground with teens in terms of video consumption in the past two years, but was still a close second to YouTube, according to Piper Sandler’s twice-annual teen survey. YouTube accounted for 29.1% of their video consumption in fall 2023, edging out Netflix at 28.7%. Hulu was a distant third at 7.7%. Those are some brutal stats for the rest of Hollywood.
Everyone in Hollywood is scared of Netflix. But YouTube — and the non-Hollywood video revolution it represents — is the far bigger long-term threat.
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