Why the YouTube Ad Boycott Could Cost Google $750 Million
Over the past few weeks, a wide range of major consumer brands have pulled their ads from the video-sharing site, including Johnson & Johnson, PepsiCo, and McDonald’s. The companies are protesting the fact that their ads are appearing next to offensive content, including videos posted by terrorism-affiliated groups.
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According to analysts at Nomura Instinet, meanwhile, even if Google does move to address the issue quickly, the boycott could cost its video service dearly.
The brokerage firm said in a research note for its clients that YouTube could see its annual revenues—which are estimated to be $10.2 billion for this year—cut by as much as 7.5% due to the controversy, combined with the costs of actually fixing the problem.
“Ad buyers are likely to demand greater direct control over ad placement, which could take time and resources to implement,” Nomura said in its note.
The controversy first arose in Britain, where a number of brands and the U.K. government itself withdrew their advertising after a Times investigation showed that ads were appearing on videos from terrorist organizations and other offensive content. Google was even summoned to address the U.K. parliament about what it planned to do about the problem.
Unfortunately for Google and YouTube, the controversy has erupted just as advertisers are getting ready for the “upfronts,” a process in which TV networks try to sign long-term contracts with major brands and agencies based on their ability to reach specific audiences.
Nomura suggested that pitches from the major networks might be more appealing to advertisers because of the problems at YouTube, and that they might shift at least some of their spending away from Google as a result.
Not everyone is convinced that the ad boycott is going to cause lasting damage, however. In a recent research update, RBC Capital Markets noted that the part of Google’s business that is affected by the controversy only accounts for about 10% of the company’s revenues.
“This is a headline negative and we can understand why brands would be upset,” RBC said Thursday. But the firm added that the effect would likely be minimal, and said that Google “is one of the strongest, most consistent fundamental stories in tech. Period.”