Connected TV Advertising Summit - VIRTUAL EVENT - leaderboard 7-7-20
  • YouTube TV’s Latest Rate Hike Reflects Rising Importance of CTV Ads

    Yesterday YouTube TV raised its monthly rate by 30% from $50 to $65. It’s the fourth rate hike in just the past 2 years, as YouTube TV moved from its introductory rate of $35 to $40 to $50 to the new $65 per month. As recently as March, 2018 it was still possible to sign up for $35 per month and be grandfathered into that rate for a short period.

    I’ve been a mostly satisfied YouTube TV subscriber since the early days, and of course, the rate increases have been painful to absorb. The fundamentals of YouTube TV as a pay-TV alternative that were appealing from day one have changed little - strong cross-platform access, unlimited DVR, 6 concurrent users, etc. What has changed is the growth in number of TV networks carried; indeed yesterday’s rate hike was tied to the launch of a group of ViacomCBS networks, just as the previous hike was tied to the addition of Discovery networks.

    As a relatively light TV viewer, all these new networks haven’t increased the amount of time I’ve spent with YouTube TV. If anything - and like most people these days - a bigger chunk of my overall TV viewing has shifted to SVOD and AVOD services over the past couple of years. YouTube TV was attractive from early on because it decided to carry local broadcast stations as well as the most popular cable TV networks. For many people, it was a strong "skinny bundle."

    I always thought YouTube TV’s low pricing and aggressive promotion were smart moves by Google, mainly because they helped Google get into the TV advertising business. With its strong balance sheet Google could run YouTube TV at breakeven, or even a loss, in the long-term strategic interest of building relationships with TV ad buyers. This is a critical audience for Google, because TV’s $70 billion+ annual spending was a rich source of revenue growth.

    But several important things have happened since YouTube TV’s launch that have made TV ad budgets more accessible to Google. As this has happened, it’s become less important for YouTube TV to use low pricing to build an audience for its pay-TV service, and possibly lose money doing so. So it’s more willing to raise rates and risk a subscriber slowdown.

    The biggest change is the adoption of connected TVs which has helped drive OTT consumption on TV screens. 80% of U.S. TV households now have a CTV and smart TVs alone (not including streaming media players) are the primary viewing device for one-third of U.S. broadband users.

    Surging adoption and usage has helped drive up connected TV ad impressions, which has in turn motivated ad buyers to embrace CTV. According to IAB’s research, 59% of ad buyers plan to spend more on CTV in the second half of 2020, and over half of ad buyers are planning to shift ad spending from broadcast and cable TV to CTV.

    Like all OTT, YouTube has seen its viewership shift to CTV. At last week’s Brandcast NewFront, YouTube noted that over 100 million viewers watch on their TV screens monthly, and that watch time was up 80% year over year in the U.S. No surprise that YouTube expanded the range and quantity of brand safe content targeted to TV ad buyers under its new “YouTube Select” program. The pandemic’s stay at home guidelines have no doubt accelerated YouTube’s viewership on CTVs. The precipitous drop in linear TV viewing by younger viewers is both caused by and benefits YouTube.

    In short, whereas just a few years ago YouTube TV was Google’s primary way of tapping into TV ad budgets, now YouTube on CTVs is playing a far more important role. As that’s happened, Google is justifiably less willing to subsidize YouTube TV’s losses to build audiences so rates have continued to climb. YouTube TV will remain strategically important to Google, at a minimum because it keeps the company as a player in linear TV advertising, which will still be a big market for a long time. But YouTube, like so many others in OTT, is getting a big boost from CTV’s rise, positioning it as the primary way Google will tap into TV ad budgets.

     
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