YouTube Shows Little Sign of Old Age

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The grandfather of the digital video space is still looking pretty youthful. Despite an increasingly competitive digital video space that is packed with new (and successful) properties, usage of YouTube remains strong and the unit continues to be an important part of parent company Alphabet’s portfolio.

On Thursday, Alphabet reported that its fourth-quarter revenue was up 22% year over year, and cited YouTube, as well as mobile search, for the performance.

eMarketer estimates that YouTube had 180.1 million US users in 2016. The US user base isn’t expected to grow much—growth will be just 3.2% this year, eMarketer estimates—but that reflects the fact that it is at near saturation levels: eMarketer estimates that nearly 85% of digital video viewers are YouTube viewers. And among users of OTT services, YouTube is essentially at true saturation—over 95%.

YouTube ad revenues are on a strong growth trajectory. eMarketer estimates that ad revenues for the unit rose roughly 30% in 2016. New initiatives, such allowing ad buyers to layer in search data for more robust targeting, are likely to keep growth high. eMarketer currently projects 20% ad revenue growth for YouTube in 2017.

But Google faces a different challenge in another area of the video business: developing strong, subscription-based businesses to rival Netflix and paid music streaming services.

In its earnings call, the company said it is investing “a lot” in two premium channels, YouTube Red and YouTube Music. “You’ll see us invest more—more [availability in] countries, more original content,” said Sundar Pichai, Google’s CEO. But he was typically close-mouthed about performance at specific units. “We are seeing traction with the rate of sign-ups for YouTube Red, but we’re not disclosing specific numbers.”

—Rimma Kats

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