Google’s Mountain View, Calif., headquarters(Photo: Marcio Jose Sanchez, Associated Press)
SAN FRANCISCO — An advertising boycott of Google’s video service YouTube has slashed billions from parent company Alphabet’s market cap.
Shares of GOOGL have fallen 4% since Friday after major advertisers began pulling marketing campaigns from YouTube and Google after learning their brands may have appeared alongside videos promoting terrorism and other offensive content.
Advertisers including AT&T, Verizon, Johnson & Johnson, GSK and Enterprise Holdings said this week they would halt all ad spending on Google except for search ads. That means those ads will no longer run on YouTube or the two million websites that take part in Google’s ad network.
In all, more than 250 organizations including the British government, Toyota and McDonald’s have stopped advertising on YouTube in the U.K., according to The Times, whose investigation triggered the boycott.
The growing boycott could cost Google hundreds of millions in ad sales.
Alphabet executive chairman Eric Schmidt tried to tamp down on the controversy Thursday, telling FOX Business Network’s Maria Bartiromo that Google had tightened its policies and increased oversight of ads.
Asked whether Google can ensure that ads won’t be placed next to “hate” content, Schmidt said: “We can’t guarantee it but we can get pretty close.”
An investigation by The Times in the U.K. found that companies, university and nonprofits had their ads appear on hate websites and YouTube videos created by supporters of terror groups such as the Islamic State. The ads on popular videos likely generated significant income for extremists, according to the newspaper. The decision by major U.S. brands to withdraw spending suggests that boycott is quickly spreading.
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That presents a significant challenge for YouTube, one of the fastest growing segments of Google’s advertising system, which generated $79 billion in revenue last year.
Google does not disclose how much of that revenue came from YouTube ads. Research firm eMarketer estimates that YouTube generated $5.6 billion of it and, before this controversy, projected that advertising on the video service would account for $7 billion this year.
Analysts say the advertiser boycott is unlikely to ding near-term earnings. Untouched by the boycott is Google’s lucrative search advertising business.
Mizuho Securities analyst Neil Doshi estimates that YouTube could generate about $12 billion in gross revenue this year. Even if the boycott cuts YouTube’s revenue by 10% this year, that would result in Alphabet earnings declining by less than 1%.
However, says Doshi, “if Google does not nip this issue in the bud, we think there could be broader repercussions around YouTube’s brand, if consumers, creators and advertisers stop coming to the site.”
Part of YouTube’s appeal is its vast selection of videos. Because Google uses automated programs to place ads on the service, ads sometimes appear next to videos that marketers find offensive.Google says it’s a considerable challenge to police the content with 400 hours of video uploaded every minute to YouTube. Some 98% of content flagged on YouTube is reviewed within 24 hours.
The Internet giant pledged earlier this week to step up efforts to keep brands away from “hateful, offensive and derogatory” videos.
Advances in artificial intelligence will be instrumental in addressing the problem, Google says. It also plans to hire “significant numbers” of employees to review YouTube videos and flag them as inappropriate for ads.
CFRA Research analyst Scott Kessler reiterated his strong buy rating on Alphabet, noting that Google has made a public commitment to give advertisers more control over where their ads appear.
“We have related concerns,” he said in a research note, “but think Google will successfully work through these issues.”
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