Google’s 2016 will likely to be characterized as the year of YouTube. Although the core search business will likely to remain the cash cow for Google, video advertising and subscription service will be the key drivers for Google as YouTube leverages its 1b+ viewer base.
First, the macro picture certainly favors YouTube. The trend of cord-cutting and cord-shaving is irreversible as viewership and engagement migrate to digital channels. This secular tailwind favors video streaming platform that have a broad spectrum of content capable of attracting various audiences. In addition, the growing penetration of smart TVs globally with YouTube as a pre-installed channel app is also driving YouTube penetration higher, allowing GOOG to steal more ad dollars away from TV. While the trend of ad dollars shifting from traditional media to digital media is well-documented by the analyst community, it is worth noting that magazine and newspapers have suffered the most within traditional media as content shifts online. However, TV is holding its ground with 1-2% ad dollar growth/year given its large viewership and the growth from emerging markets where TV penetration is still low when compared with developed nations. That said, TV remains the largest untapped market within traditional media and this area represents the most attractive growth area for internet companies as they aggressively focus on online video distribution by creating large-scale, brand-based ad campaigns and leveraging existing user bases to attract advertisers, in our view.
Source : Seeking Alpha