Why Google’s Preferred Video program is driving YouTube’s growth

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Google’s Preferred Video program driving YouTube’s business

In the prior articles in the series, we have been discussing Google’s (GOOGL) 2Q14 earnings and how its mobile advertising market share could decline due to the threat from Facebook (FB). However, Google’s YouTube business has been doing well in the last few years. It could emerge as a growth business for Google.

During the conference call to announce 2Q14 earnings, Google’s management mentioned that Google Preferred Video is driving YouTube’s business. Google Preferred Video is the top 5% of the content on YouTube in areas like food, music, and entertainment. Google launched it at the BrandCast event in April this year.

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The management mentioned that advertising agencies like Digitas and Omnicom Group (OMC) are supporting Google Preferred Video program and brands like General Motors (GM), Coca Cola (or KO), and Universal Pictures have had success using this product. Adidas (or ADDYY) was YouTube’s major client during the recent World Cup.

YouTube’s importance increasing for Google

Although Google doesn’t disclose YouTube’s revenues separately, according to a report from eMarketer and as the previous chart shows, YouTube’s net advertising revenue was estimated to be ~$2 billion in 2013. Its contribution towards Google’s net ad revenues has increased from 2.2% in 2011 to 5.1% in 2013. According to the same report, YouTube’s share of global digital advertising revenues is 1.7%. This seems like a small market share. However, it’s higher than the market shares of Twitter (TWTR), AOL (or AOL), and LinkedIn (or LNKD).

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