Alphabet Inc. (NASDAQ:GOOGB) Google could lose “hundreds of millions of dollars” according to the Wall Street Journal after AT&T Inc. (NYSE:TC) and Verizon Communications Inc. (NYSE:VZC) have elected to pull ads after those brands were shown alongside ‘hate’ videos placed by terrorist groups on YouTube.
To make matters worse, those companies are building their own online video and ad services. Brian Wieser, Pivotal Research Group analyst says, "This probably gets worse before it gets better for Google."
Others Follow Suit
Another reason the losses could mount is that other big advertisers may decide to pull their YouTube ads as well. After removing the ads an AT&T representative said, "We are deeply concerned that our ads may have appeared alongside YouTube content promoting terrorism and hate." The representative added, "Until Google can ensure this won’t happen again, we are removing our ads from Google’s non-search platforms.”
In addition to Verizon and AT&T, other companies expressing concern and suspending ads on YouTube include Volkswagen, Audi, HSBC Holdings plc (NYSE:HSBCF), the Royal Bank of Scotland Group plc (NYSE:RBSC) and L'Oreal.
YouTube’s Diversity Breeds Controversy
YouTube is popular for its massive and wide-ranging library of video. In addition to clever, funny amateur clips, the service hosts everything from polished entertainment to raw diatribes including some from terrorist sympathizers.
Google attempts to use automated programs to place ads appropriately. Automation is needed because with 400 hours of video posting to YouTube per minute, screening and ad placement by humans is virtually impossible. The company has said to planned to step up efforts to block ads on "hateful, offensive and derogatory" videos.
Search Not Affected
So far Google’s search segment, which represents the lion’s share of advertising revenue, has not been affected by the YouTube controversy. Search related advertising totaled almost $80 billion last year.
Google’s network business, which presents display ads on other websites, generated $4.4 billion in Q4, about 20% of the company’s total ad sales. If Google doesn’t calm the waters soon, some analysts believe search related ad revenue could be affected. Many advertisers are waiting for Google’s reaction to play out.
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Digital To Surpass TV
This is important because corporate spending on digital ads should reach $83 billion in 2017 and surpass TV ad spending for the first time ever. The two biggest beneficiaries of this development will be Alphabet Inc. and Facebook Inc. (NASDAQ:FBC).
In fact, a new report from Adobe Digital Insights indicated that the average digital ad currently costs 12% more than it did two years ago and now costs more than 70% of what ads cost on television. Adobe believes mobile, video and search ads will be the primary growth drivers moving forward.