Google has a surprise moneymaker: people pay for YouTube, which brings in  billion in subscriptions

Google has a surprise moneymaker: people pay for YouTube, which brings in $15 billion in subscriptions

Google has a surprise moneymaker: people pay for YouTube, which brings in  billion in subscriptions

Alphabet CEO Sundar Pichai was among the company’s executives who talked about the importance of YouTube subscriptions during the company’s fourth-quarter earnings call.

Search ads are as central to Google’s identity as the Big Mac is to McDonalds. But on Tuesday, the tech giant revealed that another business it’s been quietly cooking up for years is now paying big.

Google CEO Sundar Pichai said during the company’s quarterly earnings call on Tuesday that paid subscriptions generate $15 billion in annual revenue.

Pichai credited YouTube for delivering the largest share of subscription growth thanks to its mix of paid services, including live TV, music, ad-free online content and live sports.

For context, Google’s subscriptions generate more than double the 2022 revenue of Yum Brands, the parent company of fast food purveyors Taco Bell, KFC and Pizza Hut.

The subscription growth came as a bit of a shocker, as the video platform and parent company Google as a whole have historically generated most of their revenue from advertisers rather than paying consumers. It shows that with premium partnerships like the NFL Sunday Ticket offer and ad-free consumption options, people are willing to pay for YouTube.

YouTube is not shying away from advertising. The video site’s ad revenue rose to $9.2 billion in the fourth quarter, up from $7.96 billion in the year-ago period.

“We are very pleased with the growth in YouTube’s ad revenue in the fourth quarter, as well as the significant growth in our subscription revenue,” Philipp Schindler, YouTube’s chief business officer, said on the call.

YouTube’s paid subscription offerings vary in terms of access and pricing. The lowest-priced option is YouTube Music, which lets users listen to music and watch music videos ad-free and reportedly pays artists $0.002 per stream. Next up is YouTube Premium, formerly YouTube Red, which lets people watch YouTube videos ad-free for $13.99 a month and pays 55% of that to the owners of the content viewed by those subscribers. At the highest price point is the NFL Sunday Ticket, a partnership between the NFL and YouTube that gives subscribers access to games for $449 per season.

Subscription revenue is part of Google’s broader “Subscriptions, Platforms and Devices” category — a new line item the company previously called “Google Other.” In the fourth quarter of 2023, the Subscriptions, Platforms and Devices business earned $10.8 billion, up 23% year-over-year. The company did not break out what portion of subscriptions contributed to the overall quarterly total, saying only that the subscription segment now generates $15 billion on an annualized basis.

Alphabet, the parent company of YouTube and Google, reported better-than-expected fourth-quarter results on Tuesday, with total revenue of $72.5 billion and earnings per share of $1.64, beating the $71 billion expected by Bloomberg analysts. It was $1.59 against estimates. Alphabet shares fell more than 6% in after-hours trading as results in Google’s core search business fell short of expectations, according to Bloomberg.

Google’s subscriptions, platform and devices business, as well as its YouTube ads business, outpaced Google search’s 12.7% growth rate during the quarter. Some investors may be ready for less positive news after YouTube cut 100 jobs, mostly in its creative management division. It’s part of Google’s two-year plan to cut its workforce — it has already laid off more than 12,000 people in 2023.

The company’s chief financial officer, Ruth Porat, said when asked about the total layoffs that severance payments accounted for $700 million of first-quarter costs but would “pave way” as we “continue to do business.” [they’re] does.”

Much of this work will be an investment in encouraging YouTube viewers to become subscribers. The company believes strong subscription growth is a factor in YouTube’s growing popularity on connected TVs, where users stream paid offerings like NFL Sunday Ticket and YouTube Premium. Schindler says he plans to continue to “invest heavily” in these living room YouTube experiences.

Schindler considered creators producing both free and premium video content as a common thread driving YouTube’s business.

“YouTube’s success starts with the success of creators,” Schindler said, explaining that “more creators means more content, which means more viewers.”

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