YouTube has over 47 million UK monthly users, equating to 92% of the British online population. It is the country’s most visited website (sometimes second to Google.com), one of the most downloaded apps from Apple’s App Store, comes pre-installed on Android devices, and boasts over 700 million hours of its content watched daily on connected TVs. And yet, despite its immense size and popularity, the strategic status of YouTube is often overlooked because it exists in the shadow of Google’s search revenues.
This blog post highlights the need for YouTube to be designated as having strategic market status (“SMS”) under the UK’s digital markets regime when the Digital Markets, Competition and Consumers (“DMCC”) Bill becomes law. It should be designated for two activities: video-sharing platform (“VSP”) services and online video display advertising (“OVDA”) services. In respect of the former, it has already been designated as a ‘core platform service’ by the European Commission under the Digital Markets Act (“DMA”).
YouTube is primarily active in two separate markets: (i) VSP services, and (ii) OVDA services. It is a multi-sided platform that brings together creators, viewers and advertisers. The OVDA side generates the revenues but would be unable to do so without the VSP side generating the content that attracts the viewers.
Video-sharing platform services
YouTube’s principal consumer-facing service is to allow users to share and watch video content. In this respect, it meets the definition of a VSP adopted by the Communications Act 2003 (as amended in November 2020), the DMA, and the EU’s Audiovisual Media Services Directive. This definition explicitly reflects the idea that there is a fundamental difference between (i) VSP platforms that do not have editorial control over the content that they host, and (ii) other video hosting platforms, like streaming services, that do have editorial control.
YouTube therefore competes on this market against VSPs with similar functionality, such as Vimeo, but also to some extent against social media platforms, such as Facebook, who also distribute user-generated videos. All of these platforms traditionally make their money from the display advertising side of their businesses, the success of which is dependent on the quantity of users watching the content and by extension the advertising they host.
However, from the user perspective, there is a difference between “pure” VSPs like YouTube and the social media sites. In its online platforms and digital advertising market study, the CMA differentiated YouTube from Facebook on the basis that consumers use the former primarily for video streaming rather than for social networking, finding a lack of evidence that consumers substitute Facebook’s services with YouTube. Also, YouTube’s primary use for video streaming means that it has become a key feature on connected TVs alongside Netflix and BBC iPlayer, an area where social media platforms like Facebook do not have a presence.
Online video display advertising
The other side of YouTube’s business model is the monetisation of its VSP content through the sale of display advertising. YouTube also monetises its content through the ad free subscription service “YouTube Premium” but, according to Ofcom’s Media Nations Report 2023 (Figure 38), this service is only used by 4% of the UK population. Display advertising is a form of digital advertising that allows online publishers to sell space, known as advertising inventory, on their platforms. This activity can be further narrowed to the provision of OVDA services for three reasons:
First, as set out by the US Justice Department in its lawsuit against Google (ft 17), video display advertising is functionally different from other forms of display advertising. The former usually consists of short 5-15 second videos appearing before, during, or after video content to captive audiences, somewhat resembling traditional TV advertising. The later usually consists of banner adverts appearing alongside and competing against a platform’s content for user attention.
Second, as the CMA found in its online platforms market study, there is limited substitutability between video and non-video display advertising, with advertisers reporting that the decision to choose one format over the other is made early on in the planning process of a campaign.
Third, YouTube is primarily active in OVDA services and not in other forms of display advertising.
Strategic Market Status
When the DMCC Bill becomes law, the CMA may designate an undertaking as having SMS in respect of a digital activity linked to the United Kingdom where the CMA considers that (i) the undertaking has substantial and entrenched market power, and (ii) the undertaking has a position of strategic significance in respect of the digital activity.
Video-sharing platform services
- Substantial and entrenched market power
Substantial and entrenched market power can be determined by assessing factors such as market share, evidence of the degree of competition, and/or evidence of barriers to entry and expansion.
YouTube is the leading platform for user-generated video content by number of users. No other pure VSP, such as Vimeo or Dailymotion, met the threshold of 45 million active monthly recipients of the service in the European Economic Area to make the European Commission’s recent list of Very Large Online Platforms (“VLOPs”). YouTube, by contrast, had 47 million monthly users in the UK alone in 2019.
If the market were expanded to include social media platforms with video-sharing functionality, YouTube’s market share is still high. For example, YouTube receives almost twice as much “time spent” by UK users as Facebook, its nearest rival for share of attention. Even in the relatively new area of short form video, Google has reported more monthly users watching YouTube Shorts than either TikTok or Instagram Reels. Indeed, since June 2019 and the emergence of TikTok, YouTube has only lost 16% of its share of “time spent” for 18-24 year-olds while Facebook and Instagram have lost 72% and 42% respectively, thereby demonstrating its resilience against attempted disruption.
Beyond market share and evidence of resistance to competition, YouTube benefits from network effects whereby the value of the platform to users increases as the number of video creators increases, and vice versa. Any entrant to the market would be competing against the network effects of an incumbent used by 92% of the British online population, and that has over 500 hours of video content uploaded every minute. This is the relationship that makes YouTube a “must have” platform for both creators and viewers and created the “winner takes all” conditions that led to YouTube’s status as the VSP. In this regard, the VSP market can be contrasted against the fragmented and competitive market for subscription streaming services. According to Ofcom’s Media Nations 2023, Netflix, Amazon Prime, Disney +, NOW, and Apple TV+ have subscriptions in 59%, 45%, 25%, 9% and 7% of UK households respectively.
- Strategic position
A strategic position in respect of a digital activity can be established where one or more of the conditions provided in clause 6 of the DMCC Bill are met. In short, they are (a) significant size or scale in respect of the activity, (b) a significant number of other undertakings use the activity in carrying on their own business, (c) the undertaking’s position allows it to extend its market power into other activities, (d) the undertaking’s position allows it to determine the ways in which other undertakings conduct themselves. Examples of YouTube’s strategic position for VSP services can be shown by reference to these conditions.
First, as discussed above, YouTube’s size and scale in VSP services is evident. It boasts over 47 million monthly UK users and has 500 hours of video content uploaded every minute.
Second, many undertakings use YouTube’s VSP service as a key component in their own businesses. This includes content creators who make money through shares in the advertising revenue and third-party sponsorship or product placement within their content. It also includes businesses who use YouTube as an important promotional tool to draw attention to their products, services, or content, such as promotional trailers for films.
Third, YouTube’s position allows Google to extend into other activities. YouTube’s status as the platform for user-generated video content has meant that consumers expect the platform to be available on connected TVs. In the US, it is now the leader in connected TV streaming “time spent” ahead of the streaming services, such as Netflix or Disney+. However, YouTube is now using that strategic position to transform itself into an “aggregator” for home entertainment and position itself as the interface through which all connected TV content is accessed.
Notably, the process has already begun in the US. YouTube has launched YouTube TV (a subscription service containing the major traditional live TV channels), purchased the rights to broadcast major sporting events like the NFL, and launched a new feature known as ‘Primetime Channels’ that brings together professionally made content from more than 30 services directly into the YouTube interface. Streaming services like Netflix or Disney+ have not yet subscribed to be part of YouTube’s new service, however as their growth slows, the pressure to be part of an aggregated package rather than lose subscribers could cause this to change. In October 2023, YouTube launched Primetime Channels in the UK and may easily replicate its purchase of the NFL with UK-orientated sporting rights.
- Potential harms from YouTube’s market power in VSP services
Potential for harm arises from YouTube’s “must have” status on connected TVs on the one hand and Google’s presence in the market for connected TV operating system on the other. The risk here is that the leveraging of a “must have” property like YouTube could lead to a consolidation of the connected TV operating system market that mirrors the consolidation that occurred in the mobile operating system market (which is nowadays an entrenched duopoly between Apple and Google), which is precisely the situation that ex ante regulation is designed to counter.
YouTube’s dominance as a VSP also means that multiple content creators are dependent on the platform as their means of distribution and connection to users. This gives YouTube significant power to influence the distribution of content. For example, YouTube has the power to remove, conceal or demonetise content according to its own standards. Such actions change the behaviour of the content producers as there is no other platform where they can distribute their videos to a similarly large audience.
Additionally, YouTube’s market power means that it may have the ability and incentive to pay creators a lower revenue share for the ad revenues they attract than if YouTube was subject to more intense competition.
Online video display advertising
- Substantial and entrenched market power
OVDA is not closely substitutable with other forms of online advertising. For at least a proportion of advertisers, access to YouTube’s ad inventory is a “must-have” service that lacks a good alternative. Five key features distinguish YouTube as a unique offering in the OVDA market and demonstrate its substantial and entrenched market power.
First, YouTube has nearly unlimited ad inventory owing to the sheer amount of video content it hosts.
Second, YouTube simply has more UK users than its rivals, ranking as both the most used social platform, most visited website, and the platform with the most “time spent”.
Third, as shown in research by Enders Analysis (paywall), YouTube is the only platform with a significant and consistent reach across all UK age demographics.
Fourth, YouTube is able to utilise not just its own vast consumer data but also consumer data from the whole Google ecosystem to allow for granular audience targeting.
Fifth, and perhaps mostly importantly, YouTube benefits greatly from its integration within Google’s wider ecosystem. Advertisers will typically use a single demand-side platform (“DSP”) for a campaign as this allows for better control, such as managing the frequency with which an individual user is shown the same message. Google’s DSP, called DV360, is the only service that gives advertisers exclusive access to YouTube’s inventory, the possibility of cross-channel coverage across all of Google’s properties, the ability to target specific audiences, and ultimately allows for a greater return on investment. YouTube’s integration within the Google ecosystem creates a more attractive product than if YouTube were an independent platform selling advertising inventory, and it also acts as a barrier to entry as a rival platform would not only need to replicate the scale of YouTube’s inventory but also the bundled advantages of Google’s ecosystem.
Furthermore, Google’s tying of DV360 to YouTube is itself strongly indicative of the platform’s market power in ODVA. It demonstrates how Google is willing to ration access to YouTube to only those who are willing to use Google’s own DSP precisely because YouTube’s ad inventory is so highly valued by advertisers.
- Strategic position
The DMCC Bill’s conditions for establishing a strategic position (discussed above) can equally be applied to establish YouTube’s strategic position in OVDA services. First, YouTube has an immense scale – even back in 2017, the platform reported that users were spending one billion hours per day watching content, presenting the opportunity for countless targeted adverts. Second, it is evident from YouTube’s USD 29 billion advertising revenue that a significant number of undertakings use the YouTube’s OVDA services to carry on their own businesses. Third, through its integration with the wider Google advertising ecosystem, YouTube is able to extend its market power in OVDA into an increased market share for Google in the DSP market. YouTube leverages the importance advertisers place on its advertising inventory by only permitting access through DV360 and not third-party DSPs.
Finally, this restriction allows the platform to determine how other undertakings conduct themselves by pushing advertisers towards using DV360 even for non-Google inventory. In other words, an advertiser running a video advertising campaign will typically want three things: (i) access to YouTube’s inventory, (ii) access to third-party inventory, and (iii) the tools that allow for audience management and reporting across the entire campaign. In such cases, their only choice is to use DV360. Indeed, in the online platforms market study, the CMA found that “access to YouTube is one of the main reasons why advertisers choose DV360” and “YouTube provides a very significant advantage to DV360 and creates a barrier to the growth of competitors”. In recognising the strategic position gained from YouTube’s integration with other Google services, the CMA recommended opening up access to YouTube’s inventory to achieve significant benefits on the market for DSP services.
- Potential harms from YouTube’s market power in OVDA services
There are multiple potential harms that arise from YouTube’s position of SMS in the market for OVDA. YouTube’s monopoly in the sale of its own advertising inventory, access to Google’s granular data, and high reach to different audience types, may combine to allow YouTube to sell its inventory at a higher price than other platforms that do not have the scale to offer the same quality of advertising services. Advertisers may pass at least some of those higher fees on to consumers across the UK economy.
The CMA’s online platform market study noted that the leveraging of YouTube’s inventory raises concerns over “conflicts of interest between Google’s role on the buy and sell sides of the open display market; and the potential for Google to leverage its market power from its owned and operated advertising inventory into the open display market and to foreclose potential competitors in advertising intermediation”. As discussed above, Google is foreclosing competition on the third-party DSP market by linking access to YouTube’s inventory to the use of its proprietary DSP, DV360. This tying behaviour reduces advertisers’ choice of which companies to contract with and their freedom in how to conduct their advertising campaigns.
The need for SMS designation
There are substantial risks of harm if YouTube is not designated in respect of both VSP and OVDA services. It is a must-have platform for video creators, viewers and advertisers. The CMA would also find itself hampered in its objectives if only one side of YouTube’s platform were to be designated as the two sides are necessarily intertwined due to the OVDA side generating the revenues that subsidise the VSP side.
Reliance on the leveraging principle in section 20(3)(c) of the DMCC Bill, which allows the CMA to address behaviour outside of the SMS activity only if it enhances the firm’s market power in the SMS activity, would be misguided. This principle is drawn too narrowly to be of use in many potential situations. For example, if Google Search were SMS-designated, section 20(3)(c) would not be able to help when the “must have” nature of YouTube is leveraged to help Google’s connected TV operating systems increase market share. The CMA would find itself unable to address any conduct of YouTube unless that conduct enhanced the market power of Google Search (or one of its other SMS activities), but in many situations harmful conduct would not (at least directly) do so.
[This blog post was co-written with Oliver Montgomery]