YouTube’s Loss Could Be Facebook’s Gain

YouTube’s Loss Could Be Facebook’s Gain

Turmoil at Alphabet‘s (NASDAQ:GOOG) (NASDAQ:GOOGL) YouTube is blood in the water for a shark like Facebook (NASDAQ:FB). CNBC is reporting that the social networking giant is talking to media buyers about expanding the Facebook Watch program, in which it places ads on videos created exclusively for the platform by its partners. Facebook shares a little more than half of the ad revenue with the content creators. 

Reports that Facebook is ramping up its efforts to broaden the amount of content it slaps revenue-sharing ads on comes when Google’s YouTube is going the other way. The popular streaming site announced two weeks ago that it will kick out members of its YouTube Partners monetization program who have fewer than 1,000 subscribers or are generating less than 4,000 hours of views over the past 12 months. The move comes after YouTube has suffered through scandals with a couple of its more popular content creators.

Image source: Alphabet’s YouTube.

Passing ships in different streams

If Facebook and Alphabet seem to be going in different directions here, it’s because each dot-com giant is in a different place. One of the surprises in Facebook’s quarterly report last week is that folks are spending less time on the site. Facebook argues that this is by design, as it’s emphasizing the quality of the connections. However, with on-demand video becoming such a part of the digital advertising landscape, it certainly wouldn’t hurt if it expanded its catalog of content.

Alphabet’s approaching things differently. It’s losing the trust of marketers by placing ads on popular channels that have hosted everything from suicide victims to staged child abuse. Booting the smaller content creators from its program is wrong, as by Alphabet’s own admission 99% of those being kicked out haven’t even met the minimum requirement for a check over the past year. However, the price of having to assign humans to monitor the content for its premium creators is that there’s no time to police the smaller partners.

There’s an understandable uproar among the YouTube Partners being purged from access to monetization. Social media’s ablaze with angry vloggers, sketch teams, and tutorial makers upset that Alphabet’s moving the goalposts, especially since YouTube is likely to slap ads on those clips anyway. There could be a migration to Facebook if Mark Zuckerberg turns on the monetization spigot to the masses, but that’s not likely to happen for a long time. Facebook will probably continue to appeal to established content creators with large built-in audiences.

The silver lining for displaced YouTubers is that the CNBC report claims that Facebook is talking to media buyers about tiered advertising, potentially opening up the floodgates for an entry level of low-paying ads that can at least get the process starting for small content creators. Despite YouTube’s percolating popularity with more than 1.5 billion users worldwide, a video-sharing site is only as potent as its content. If Facebook is about to turn its equally massive global audience into a bastion of cottage industries, there could be a real battle for supremacy here.

“This is going to open the door for other social media sites and video-sharing outlets to introduce monetization solutions for mainstream users,” I argued last month. The door isn’t open at Facebook just yet, but you can start to see the crack of light on the other side now.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Rick Munarriz has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Facebook. The Motley Fool has the following options: short March 2018 $200 calls on Facebook and long March 2018 $170 puts on Facebook. The Motley Fool has a disclosure policy.

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