YouTube Expected to Channel $5.6 Billion in Revenue This Year

EMarketer Projects Google's Video Service to Net $1.96 Billion

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Earlier this year YouTube crossed the billion-user mark, and now it's poised to surpass the five-billion-dollar mark.

The Google-owned video service is expected to record $5.6 billion in gross revenue this year, according to estimates from eMarketer. That's up 51% from last year and would equate to 11% of Google's total ad revenues.

That figure does not include money YouTube passes on to advertising partners and content creators. This year Google will keep 35% of that total or $1.96 billion, according to eMarketer's estimate. Google generally takes a 45% cut of advertising sold into its content partners, and Google's take is exected to rise in the coming years as it phases out less-favorable revenue-sharing deals with TV networks.

After revenue sharing, YouTube will take $850 million this year from video ads served in the U.S., which is up 50% from last year. Including display ads, YouTube will will net $1.08 billion this year in U.S. ad revenues.

For context, that's still just 6.3% of all of Google's net U.S. ad revenues for the year, but 20.5% of the $4.15 billion U.S. online video ad market.

Google doesn't release YouTube's revenue figures or break them out in public filings, so take eMarketer's numbers for what they are, an estimate based on studies conducted by other research firms, investment banks, its own analysis and interviews with marketers. Having said that, YouTube is the biggest proxy for digital video, and the projections offer a peek at where that market stands.

YouTube has made a point in recent years of improving content quality in order to boost ad rates to TV levels. But for all the investments it has made in raising the volume of premium content to attract a bigger share of advertising budgets, the service seems most reliant on rising audience numbers for its revenue growth.

"Growth in impressions and viewership, particularly across devices, is probably the major growth driver [behind YouTube's ad revenues]," said eMarketer VP-communications Clark Fredricksen.

EMarketer isn't breaking out YouTube's mobile ad revenue, but Google's chief business officer Nikesh Arora said in July that the service's mobile-ad sales had grown by 300% between January and June of this year. More than 1 billion people tune in to YouTube each month, and roughly 40% of views occur on phones and tablets.

YouTube's gross ad revenue estimates
YouTube's gross ad revenue estimates

Considering that YouTube's mobile apps and sites -- not to mention its connected TV apps -- are almost devoid of display advertising, it's no surprise that video ads account for the overwhelming majority of YouTube's net U.S. ad revenues.

YouTube's skippable TrueView video ads play a big role in the service's rising video ad revenues, Mr. Fredricksen said. People can choose to skip the ads after 5 seconds, but advertisers only pay if someone watches at least 30 seconds or the whole ad if shorter than 30 seconds. "Our research suggests advertisers are largely satisfied with TrueView," he said.

Revenue-hungry content creators may be less satisfied in seeing eMarketer's revenue projections.

YouTube has drawn criticism this year for keeping a big chunk -- typically 45% -- of creators' advertising revenues. The topic was a focal point at an event YouTube hosted last month for creators at its production facility in Los Angeles.

During the Tune In summit on November 12, creators reiterated their frustrations that YouTube's revenue split is inhibiting their ability to reinvest the money generated by their videos into building and supporting a sustainable business. However many online video executives have acknowledged that YouTube unburdens these businesses of significant overhead by assuming content hosting and distribution costs. It remains to be seen whether those costs -- and their presumed increases as more people watch videos on YouTube globally -- explains the expanding divide between the growth of YouTube's net ad revenue and that of creators'.

Two years ago, YouTube banked $600 million, or 30% of its gross revenue, and paid out the remaining $1.4 billion to advertising partners and content creators.

From 2011 to 2012, YouTube's share of ad revenue increased by 96% while creators' share increased by 80%. The growth gap widened this year: a 66% rise in YouTube's take compared to a 44% rise in creators' split.

Mr. Fredricksen said ad revenue should continue to grow in YouTube's favor, as renewals are negotiated and plans to keep 45% of all content partners' ad revenues. Tied to that shift, YouTube is freeing up content partners to keep any excess money from ads sold above YouTube's set prices. So while the new deal structure should solidify the upward trajectory of YouTube's net revenue, it could catalyze the service's gross revenue if content partners are able to talk advertisers into paying more.

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