How YouTube Makes Money Off Videos? Explained!

What are the ways YouTube makes money off of your videos? Does it make any money-at least in terms of profit versus revenue? YouTube is struggling to make a profit if you factor in the increased payouts for content, the cost of hosting all those videos, and the fact that it gets paid based on how many ads are viewed.

Susan Wojcicki, YouTube’s CEO, stated at a Fortune magazine summit in October 2016 that the company was “still in the investment mode.” This implies that YouTube was trying to figure out how to be profitable at the time.

However, don’t think that the site is struggling. Based on the latest revenue figures released by YouTube parent Alphabet, YouTube generated $20.21 billion from advertising in just the first nine months of 2021.

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

How Does Google Make Money From AdWords and YouTube?

A large portion of Google’s revenue comes from AdWords, its proprietary advertising service. Google’s algorithm generates a list of search results when you use the search engine to find anything from financial information to local weather. You may also see related suggested pages from AdWords advertisers along with the most relevant results.

Almost every Google web property integrates AdWords advertisements. Whenever you log into Gmail, YouTube, Google Maps, or other Google sites, you will see recommended sites generated through the AdWords platform. Google advertising requires advertisers to outbid one another to get the top spot. The higher bids appear at the top, while the lowest bids may not be displayed at all.

Google is paid by advertisers each time a visitor clicks on an ad. Clicks can be worth anywhere from a few cents to over $50 for highly competitive search terms, like insurance, loans, and other financial services.

To reduce the risk of copyright infringement lawsuits, 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. 

The company also agreed to remove tens of thousands of copyrighted video files from YouTube. In November 2008, Google entered into an agreement with Metro-Goldwyn-Mayer, Inc. (MGM) to show some of the studio’s full-length movies and television shows, with free broadcasts and advertising alongside the programs.

Google’s Road To Monetization On YouTube

In 2006, when Alphabet Inc. (formerly Google) (GOOG) purchased YouTube, it was a long way from being profitable. Google didn’t purchase YouTube because of its revenue. Because YouTube’s traffic was through the roof and Google’s video offering was struggling, Google bought YouTube.

In the days after Google took over YouTube, there was an expectation that the copyright issues would be sorted out and advertisers would quickly join. Video creators’ rights to their work are protected by the way YouTube implements methods designed to protect their exclusivity. Despite numerous challenges in dealing with copyright, YouTube has attracted advertisers in the past.

As user-generated content flooded in daily, advertisers saw too many videos of the wrong type of content. Advertisers began focusing on search ads that reached consumers as they were researching a purchase instead of playing random videos.

Although YouTube’s profitability outlook was bleak, Google still invested in it. All that content needed to be delivered at speed required operational investments, and payments had to be made to the content creators in the partner network. The ad revenue from a video could be split among all video uploaders soon. YouTube videos make very little to no money due to low ad rates and people’s propensity to skip ads.

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

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

With its TrueView program, YouTube offers video advertising that is opt-in only. TrueView offers two types of ads: video discovery and in-stream. In-stream ads allow viewers to skip the remainder of the ad after watching the first few seconds.

Only if the user watches the ad for over 30 seconds or clicks on an entity on the screen related to the ad will the supplier pay. In video discovery ads, advertisements are displayed on the page along with other content and are only charged when the user clicks on them.

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

Recent Developments

YouTube can be expanded in a few different ways by Google. The first provides access to an ad-free version of YouTube with exclusive videos that non-paying users cannot view. The company released YouTube Red during the fall of 2015, a subscription service intended to compete with Netflix that allows users to watch ad-free videos and listen to music without interruptions for $9.99 a month.

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

YouTube Premium and YouTube Music Premium will offer a one-month free trial and then cost $11.99 per month in 2021.

In-video sponsorships will no longer be allowed on YouTube, as they do not generate revenue. Rather than have their YouTube stars work directly with brands, the company wants to force them into existing ad channels. Although this is a risky move, it closes a loophole in YouTube’s advertising offerings.

One of YouTube’s biggest challenges seems to be getting more people to use the site directly. The vast majority of viewers apparently watch embeds on other websites or drop in for the occasional video without exploring further. Trying to counter this, YouTube is building a destination site that people will visit, giving Google 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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