Google (GOOG, GOOGL) made headlines in August by reorganizing and changing its name to Alphabet Inc., a diversified technology and media holding company.
Thankfully, this doesn’t mean much has changed for Google stock holders, who now simply own the same number of shares of a company with a different name.
What is rapidly changing though, and in a manner rather fortunate for investors bullish on GOOG and GOOGL, is the advertising landscape, where marketers are increasingly turning to Google’s YouTube instead of TV.
And GOOG is certainly doing what it can to redirect those marketing dollars. At its annual advertising industry convention in London Tuesday night, the company told attendees that nearly one quarter of traditional TV advertising budgets — 24%, to be exact — should instead be directed towards YouTube.
Given that the claim is entirely reasonable, now would be an appropriate time for execs at the likes of Walt Disney Co (DIS), Twenty-First Century Fox (FOXA) and Time Warner Inc (TWX) to officially freak out.
GOOG Will Continue to Leverage YouTube
YouTube has long been a well-known part of Alphabet’s vast array of holdings, but it has only been in recent years that its potentially disruptive force in the advertising industry has gained widespread acknowledgement.
Sure, videos have been racking up billions of views for years now, but GOOG’s increasing efforts to monetize the site more effectively are finally starting to land with advertisers, and GOOG stock is up 24% so far this year.
Google UK and Ireland managing director Eileen Naughton cites two studies that show including YouTube ads as a meaningful slice of your TV ad budget does wonders for advertisers:
“…we’re looking at 24% of the TV budget if you want to reach a young cohort … it’s about economies of reach. Sometimes the data regression will show that for 65% of your audience, you should start layering in online video. Sometimes it’s 15% [of the TV budget.] But we are very comfortable with somewhere about 24% [of your budget] to reach that young audience.”
An eye-opening New York Times article in May revealed just how big this market is — and by extension, how much GOOG has to gain through its YouTube presence:
“Magna Global predicts that total TV ad revenues will be flat over the whole year, even as spending on digital media increases 19.1 percent. The group forecasts that digital media ad revenues will match television ad revenues by the end of 2016, each accounting for about $67.5 billion in spending and about 38 percent of the total ad market.”
I don’t expect the trend towards digital advertising at the expense of TV advertising growth will end anytime soon. And I don’t expect GOOG to come to next year’s advertising extravaganza and say, “Hey, you know what? Maybe only dedicate 15% of your TV ad budget to YouTube.”
No. Both digital spending and, most likely, YouTube’s slice of that pie, should increase with time, until some other unforeseen platform or medium usurps it.
In the meantime, Disney, FOXA and TWX should all be worried about the new age of digital consumption. And if they have a compelling argument for why they should command more than 76% of TV ad budgets … well, now would be the time to present it.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
