YouTube is generating $32k every minute – but how much of that money is being driven by music?

Alphabet/Google has announced its Q1 2020 results, and there’s some points of intrigue for the music business to chew over.

The standout number for record labels and publishers is YouTube‘s advertising revenue, which in the three months to end of March hit $4.038bn – the equivalent of approximately $44.9m every day, or $32.0k every minute.

YouTube’s quarterly Q1 ad revenues ($4.038bn) were up 33%, or by over a billion dollars, on the equivalent number from the prior year ($3.025bn).

Obviously, Q1 2020 was not a normal period for YouTube, or Alphabet/Google itself (or any of us, in fact).

Google’s total advertising revenues (including YouTube) reached $33.763bn in the quarter, up by more than $3bn on $30.587bn in the prior year quarter.

However, this ad rev number hid a decline at Alphabet in the month of March, thanks to the economic impact of COVID-19 and related global quarantines.

Alphabet just noted in a shareholders letter: “Performance was strong during the first two months of the quarter, but then in March we experienced a significant slowdown in ad revenues.”

Alphabet CFO Ruth Porat later gave some more color on this to investors, noting that the company experienced a  “mid-teens percentage decline in year-on-year revenues” last month.

Obviously enough, in addition to consumers searching for less commercial stuff online, Porat partly blamed “reduced spending by our advertisers” for the decline.

She added that “significant YouTube revenue growth persisted until late in the first quarter”.

With all of that established, it’s worth digging into that giant YouTube Q1 ad revenue number ($4.038bn) and asking: how much of that money was generated by music?

Thanks to data recently supplied to MBW by analytics company Pex, combined with Alphabet’s own public disclosures, we have a fair idea.

Who are Pex? They’re the L.A-based firm that monitors social networks worldwide – as well as platforms which rely on UGC content (like YouTube) – to weed out music and film content that belongs to rightsholders.

MBW wrote about them last month when they acquired San Francisco-headquartered startup Dubset in a deal reportedly worth more than $25m.

According to analysis by Pex, provided to MBW, YouTube’s Music category accounted for just 5% of total content volume in 2019, with the same proportion holding true in 2018 (see below).

The company based this analysis on the self-reported categorization of videos when YouTube uploaders put their content on the platform.

In fact, compared to Entertainment 10%, People and Blogs (21%), Gaming (37%) , and Other (19%), last year, music accounted for the smallest category volume of YouTube content (alongside Film & Animation, also at 5%).

However, despite this relatively small volume, Music videos attracted 22% of all views on YouTube last year.

That was more than Entertainment at 21%, Gaming (8%) and Film & Animation (7%).

It was a similar story in 2018, when Music generated 20% of all views – a stat which suggests that Music, in basic terms, became more important, year-on-year, on YouTube in 2019.

Rasty Turek, Pex CEO, said: “When we look at the self-reported categorization of content on YouTube, both in 2018 and 2019, Music comes out as the most profitable category, with more than 20% of all views in 2019.”

Referencing further Pex data, he added: “Music [also] has the highest representation amongst the videos with the most views on YouTube, accounting for over 80% of the videos with over 1 billion views.

“Finally, if we count every video that contains at least 10 seconds of music, we get more than 84% of all [YouTube] videos total.

“Music continues to dominate as YouTube’s most essential form of content.”

We know that YouTube generated $15.15bn in annual advertising revenues in 2019.

The publication of this figure, in February, was a turning point of sorts in Alphabet’s external communications policy, because it marked the first time that YouTube’s ad revenues had ever actually been separately disclosed.

Meanwhile, Alphabet says that it paid out approximately $3bn to music rightsholders last year – a number which combines advertising and subscription money.

So how much of this $3bn figure came from YouTube Music subs, and how much was taken out of that $15.15bn in advertising?

Paid subscribers to Alphabet’s audio Spotify rival, YouTube Music (either direct or via a YouTube Premium account) officially topped 20m at the close of 2019.

Estimates suggest this subscriber figure actually landed somewhere around 21.5m globally at the close of last year.

Quick math: If the average (ARPU) YouTube Music subscriber was paying $6 per month last year – not inconceivable – then 21.5m subscribers would result in $1.55bn in annual subs revenue.

“Music continues to dominate as YouTube’s most essential form of content.”

Rasty Turek, Pex

From that money, judging by the models of Spotify et al, the majority (somewhere around 70%) would be paid to music rightsholders.

It’s appears likely, then, that YouTube Music paid out somewhere around $1bn (70% of $1.55bn = $1.08bn) to music rightsholders in subscription-related funds across 2019.

That would leave circa $2bn to be paid out from YouTube advertising (judging by YouTube’s announced $3bn annual payout figure) in the same 12 months.

Question: Can we find the remaining $2bn that YouTube paid the music industry in the data we have here?

Right, the last stretch.

YouTube famously pays out 55% of its YouTube advertising revenues to creators / rightsholders.

55% of YouTube’s annual $15.15bn annual ad revenues in 2019 would be $8.33bn.

If music, as suggested by Pex’s figures, managed to claim 22% of this $8.33bn figure, it would have resulted in an ad payout from YouTube to the music business last year of… approximately $1.83bn.

Close enough.

Additional reporting by Murray StassenMusic Business Worldwide

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