Last updated: December 11, 2013 7:04 pm

YouTube advertising revenue surges 50% to $5.6bn

Advertisers will spend a projected $5.6bn on YouTube in 2013, an increase of more than 50 per cent on the previous year, according to a report that underlines a shift away from traditional television ads.

The sharp rise, which follows an explosion of viewing on mobile devices, comes as advertisers strive to reach younger consumers who have drifted away from television.

Television's share of advertising budgets has peaked after 30 years of growth and online video is now competing for ad spending. 

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YouTube does not keep all of the advertising revenue that flows through its site, paying much of it to partners and “content creators”.

However, the report, by media research firm eMarketer, predicts that YouTube’s net revenues will be $1.96bn once those partners have been paid, giving it 1.7 per cent of all global digital advertising spending. This is a larger market share than sites such as Twitter, AOL and Pandora, eMarketer said.

“Video ad revenues are expected to increase significantly in coming years for YouTube’s US operations, particularly as mobile video viewership grows,” said the report.

Television remains the biggest global recipient of ad spending globally: in the US advertisers are expected to spend an estimated $66.5bn in 2013. But eMarketer is projecting only modest increases over the next three years.

“There's ongoing fragmentation in viewing,” said Dan Cryan, senior director of digital media with IHS, a media research firm. “TV viewing is more or less flat but total video viewing is going up and that’s being driven by things like YouTube and Netflix.” 

YouTube, acquired by Google in 2006 for $1.65bn, has more than 1bn viewers every month and attracts about a fifth of all advertising spending on US online video. It has faced competition from rival sites such as Hulu, which expects to generate $1bn in advertising revenues in 2013, but it has maintained its lead. Hulu, owned by Walt Disney, 21st century Fox and NBCUniversal, has twice explored a sale only to call off proposed deals at the last minute.

Heightened advertiser interest in YouTube comes as a new generation of online video production studios have sprung up to cater for a younger generation that watches most of its television programming online.

Investors are clamouring to get a foothold in these companies: Maker Studios, one of the biggest online video networks, recently brought in investors to join a shareholder list that includes Time Warner, Elisabeth Murdoch and Robert Downey Jr, the film star.

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