How YouTube Makes Money Off Videos? Explained!

What are the different ways YouTube makes money from your videos? Is it profitable, at least in terms of profit versus revenue? When you consider the increased payouts for content, the cost of hosting all those videos, and the fact that it is paid based on how many ads are viewed, YouTube is struggling to make a profit.

YouTube CEO Susan Wojcicki stated in October 2016 at a Fortune magazine summit that the company was “still in the investment mode.” This implies that YouTube was attempting to figure out how to make money at the time.

However, don’t think the site is in trouble. According to Alphabet, YouTube’s parent company, YouTube generated $20.21 billion in advertising revenue in just the first nine months of 2021.

In this article, we will look at how YouTube currently captures revenue and how it plans to profit in the future.

How Does Google Make Money From AdWords and YouTube?

AdWords, Google’s proprietary advertising service, accounts for a sizable portion of the company’s revenue. When you use Google to find anything from financial information to local weather, the search engine’s algorithm generates a list of search results. Along with the most relevant results, you may see related suggested pages from AdWords advertisers.

AdWords advertisements are integrated into almost every Google web property. You will see recommended sites generated by the AdWords platform whenever you log into Gmail, YouTube, Google Maps, or other Google sites. To get the top spot in Google advertising, advertisers must outbid one another. The highest bids are displayed first, while the lowest bids may not be displayed at all.

Advertisers pay Google every time a visitor clicks on an ad. For highly competitive search terms such as insurance, loans, and other financial services, clicks can range from a few cents to more than $50.

Google has negotiated agreements with a number of entertainment companies to allow copyrighted video material to be posted on YouTube and to give YouTube users the right to embed certain copyrighted songs in their videos in order to reduce the risk of copyright infringement lawsuits.

In addition, the company agreed to take down tens of thousands of copyrighted video files from YouTube. In November 2008, Google agreed with Metro-Goldwyn-Mayer, Inc. (MGM) to show some of the studio’s full-length movies and television shows, along with free broadcasts and advertising.

Google’s Road To Monetization On YouTube

When Alphabet Inc. (formerly Google) (GOOG) purchased YouTube in 2006, it was far from profitable. Google did not buy YouTube to increase its revenue. Google purchased YouTube because its traffic was skyrocketing and Google’s video offering was struggling.

In the days following Google’s acquisition of YouTube, it was expected that the copyright issues would be resolved and advertisers would quickly join. The methods used by YouTube to protect video creators’ exclusivity protect their rights to their work. Despite numerous challenges in dealing with copyright, YouTube has previously attracted advertisers.

As user-generated content poured in on a daily basis, advertisers saw far too many videos of the wrong kind. Instead of playing random videos, advertisers began to focus on search ads that reached consumers while they were researching a purchase.

Despite the fact that YouTube’s profitability outlook was bleak, Google continued to invest in it. All of the content that needed to be delivered quickly necessitated operational investments, as well as payments to the content creators in the partner network. Soon, ad revenue from a video could be divided among all video uploaders. Because of low ad rates and people’s proclivity to skip ads, YouTube videos make little to no money.

Google benefited from user-generated content because its infrastructure costs were low. According to this theory, as technology improved and more video content could be monetized through ads and market pricing, YouTube’s costs would fall.

As a result of advertising innovation, the market for advertisements has improved. Overlay ads allowed ads to be displayed at various points during the viewing process and followed the embedded video around the web as an alternative to just having a pre-roll ad for YouTube videos. Even with better advertisements, the site did not generate enough revenue to cover its costs by May 2015.

YouTube’s TrueView program provides only opt-in video advertising. TrueView advertises in two ways: video discovery and in-stream. After watching the first few seconds of an in-stream ad, viewers can skip the rest of the ad.

The supplier will only pay if the user watches the ad for more than 30 seconds or clicks on an entity on the screen related to the ad. Advertisements are displayed on the page alongside other content in video discovery ads and are only charged when the user clicks on them.

TrueView ads on YouTube and Google Preferred ads on Google are two of the company’s revenue growth drivers. Advertisers can pay for placement on high-performing videos on the site in nine different categories: Beauty, Fashion & Lifestyle, Sports, Music, Gaming, Comedy, Parenting, Science, and News.

Recent Developments

Google has several options for expanding YouTube. The first gives you access to an ad-free version of YouTube that contains exclusive videos that non-paying users cannot see. In the fall of 2015, the company launched YouTube Red, a subscription service aimed at competing with Netflix that allows users to watch ad-free videos and listen to music without interruptions for $9.99 per month.

YouTube Premium was rebranded as YouTube Music on May 17, 2018, along with a separate subscription service. You can listen to music for free with ads on YouTube Music, but you can also pay for ad-free music playback, exclusive background music, and the ability to download songs for offline listening.

YouTube Premium and YouTube Music Premium will be free for one month before charging $11.99 per month in 2021.

In-video sponsorships will no longer be permitted on YouTube because they generate no revenue. Instead of allowing their YouTube stars to work directly with brands, the company wants to force them into existing ad channels. While this is a risky move, it does close a gap in YouTube’s advertising offerings.

One of the most difficult challenges for YouTube appears to be getting more people to use the site directly. The vast majority of viewers appear to watch embedded videos on other websites or pop in for a quick video without exploring further. To combat this, YouTube is constructing a destination site that people will visit, providing Google with more opportunities to monetize the video’s page.

Final Words

YouTube is not in trouble because of all this. Even if profits aren’t increasing at the same rate, revenue is still increasing, which is better than nothing. Google also reaps some secondary benefits from YouTube.

Users who stay longer in the Googleverse, which includes YouTube, provide more data to the company, which helps it market more effectively. Meanwhile, YouTube is figuring out how to make a profit, so Google can be patient.

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