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 delivering big returns.
Paid subscriptions now generate $15 billion in annual revenue, Google CEO Sundar Pichai said during the company’s quarterly earnings call Tuesday.
Pichai credited YouTube for delivering the lion’s share of subscriptions growth, thanks to a mix of paid services that includes live television, music, ad-free online content, and live sports.
For context, Google’s subscriptions are delivering more than twice the revenue that Yum Brands, the parent company of fast food purveyors Taco Bell, KFC, and Pizza Hut, rang up in 2022.
The subscription growth is a bit of a shock as the video platform—and parent company Google in general—have historically derived the bulk of revenues from advertisers, rather than by charging consumers. It shows that with premium partnerships, like its NFL Sunday Ticket offering, and ad-free consumption options, people are ready to pay for YouTube.
YouTube isn’t moving away from advertising. The video site rang up $9.2 billion of ad revenue in Q4, up from $7.96 billion in the year ago period.
“We’re obviously pleased with YouTube’s advertising revenue growth in Q4 and also significant growth in our subscription revenue,” YouTube’s chief business officer Philipp Schindler said on the call.
YouTube’s paid subscription offerings differ in access and price point. The lowest price option is YouTube Music, which enables users to listen to music, and watch music videos without ads, reportedly paying out $0.002 per stream to artists. Next is YouTube Premium, previously called YouTube Red, that allows individuals to watch YouTube videos ad-free for $13.99 per month, and pays 55% of this to content owners who are being viewed by these subscribers. At the highest price point is NFL Sunday Ticket, a partnership between the NFL and YouTube, that enables subscribers to access games for $449 per season.
The subscriptions revenue is part of Google’s broader “Subscriptions, Platforms, and Devices” category—a new line item that the company previously referred to as “Google Other.” In the fourth quarter of 2023, the Subscriptions, Platforms, and Devices business generated $10.8 billion, up 23% year over year. The company didn’t break out the portion that subscriptions contributed to overall quarterly total, saying only that the subscription slice was now generating $15 billion on an annual basis.
Alphabet, the parent company of YouTube and Google, reported better than expected Q4 results on Tuesday, with total revenue of $86.3 billion, above the $71 billion expected by analysts according to Bloomberg, with earnings per share of $1.64 versus Wall Street estimates of $1.59. Alphabet shares fell by more than 6% in after hours trading, as results in Google’s core search business came in shy of expectations, according to Bloomberg.
Google’s subscriptions, platform and devices business, as well as its YouTube ads business, both outpaced the 12.7% growth rate of Google’s search during the quarter. Some investors may have braced for less positive news out of YouTube after it had laid off 100 employees, largely in its creator management division. This is part of Google’s two-year plan to reduce headcount–already having laid off 12,000-plus people in 2023.
When asked about overall layoffs, Ruth Porat, the company’s chief financial officer, said that severance payouts account for $700 million of first quarter expenses, but will “pave the way” as they continue to “do the work [they’re] doing.”
Much of this work will be investing to encourage YouTube viewers to become subscribers. The company believes the strong growth in subscriptions is in-part a factor of YouTube’s increasing popularity on connected TVs, where users are streaming paid offerings like NFL Sunday Ticket and YouTube Premium. It plans to continue to “invest heavily” in these living room YouTube experiences, says Schindler.
Schindler credited creators, who produce both free and premium video content, as the common thread powering YouTube’s business.
“YouTube success starts with creator success,” said Schindler, describing how “more creators means more content, which leads to more viewers.”
