YouTube's dominance in streaming has forced media companies to make a choice between ally and adversary.

• In May, nearly 10% of all viewership on connected and traditional TVs in the U.S. came from YouTube, while Netflix ranked second with 7.6% of viewership.
• ""The TV is the focus, not your mobile phone or laptop, as stated by LightShed media analyst Rich Greenfield. All media executives must pay attention to it," said Greenfield."
• The threat doesn't have a uniform strategy for media companies like Netflix, Disney, and Warner Bros. Discovery to deal with.

Nearly two decades have passed since YouTube's inception, and Hollywood remains unsure of how to effectively utilize it.

YouTube, the platform that popularized user-generated content, has a significant portion of overall media consumption and is now a mainstay in households.

In May, YouTube had the largest share of TV viewership ever reported by Nielsen's "The Gauge" report, with 9.7% of all viewership on connected and traditional TVs in the U.S. YouTube was ranked second, with 7.6% of viewership, while among streamers only, YouTube had a close to 25% market share.

""On the largest screen in the house, the TV, which is likely being used by your kids, is something that every media executive must pay attention to, as stated by LightShed media analyst Rich Greenfield," said Greenfield."

Netflix and other media companies are uncertain about whether YouTube is an ally or a competitor.

While some media executives view YouTube as a complementary platform to subscription streaming services and cable TV, others see it as a threat to the entertainment industry, stealing viewership and taking away the cultural significance of American youth.

To combat the growing threat, media and entertainment companies have devised numerous strategies.

Disney leaders frequently discuss YouTube in strategic meetings and have contemplated incorporating user-generated content into Disney+, although it is not currently part of their immediate plans, according to sources who requested anonymity due to the confidential nature of the discussions.

Netflix and Warner Bros. Discovery have deliberately decided to concentrate on the remaining 90% of the TV viewing market that doesn't consist of YouTube.

Tara Walpert Levy, YouTube's vice president of Americas, stated in an interview that people were caught off guard by the significance of YouTube in their daily lives and viewing experiences, not just on their phones but also in their living rooms.

Nielsen's observation that YouTube was leading in streaming wars, including ad-supported platforms, left my advertising and media friends in awe, as it surpassed even their expectations.

YouTube's growing dominance

Over 1 billion hours of YouTube content are watched daily on TV screens, with more than 150 million Americans accessing the platform on connected TVs monthly, as announced by YouTube CEO Neal Mohan.

In 2023, YouTube generated $31.5 billion in advertising revenue, representing an 8% increase from 2022 and a 271% increase from six years prior. In the first quarter of 2024, YouTube's ad revenue grew by 21% compared to the previous year, reaching $8.1 billion.

In 2006, YouTube, founded in 2005, was sold to Google for $1.65 billion. Since then, the platform has grown significantly as advertisers have flocked to it. Media analyst Michael Nathanson of MoffettNathanson estimated in March that YouTube is worth a staggering $400 billion as a standalone company, which is more than Disney and combined.

Candle Media co-CEO Kevin Mayer, who previously ran Disney's streaming business and was briefly CEO of TikTok, stated that YouTube remains a dominant force in the industry and is difficult to stop.

Disney's YouTube focus

Disney executives are acutely aware of YouTube's growing influence among young people, as evidenced by their focus on the platform, according to sources.

Disney has a large fan base that promotes and critiques its parks, rides, merchandise, movies, and TV shows on social media. Incorporating some of that content as supplementary programming to Disney+'s scripted series and movies could help retain users.

Disney refused to comment on discussions about adding original content to their platform.

According to LightShed's Greenfield, traditional media companies lack sufficient content and find it expensive to produce premium content at scale. As a result, they may look to the user-generated content economy as a lower-cost way to add content to their services, not as a means to create a competitor.

Disney is considering placing more full episodes of Disney+ and Hulu series aimed at older kids and adults on YouTube to attract an audience that is not currently subscribed to its streaming platforms, according to a source.

Disney has long employed a strategy to boost the popularity of children's content, including successful animated series such as "Bluey," "Spidey and his Amazing Friends," and "Mickey Mouse Clubhouse."

"Disney is a storytelling machine, according to Mayer. Although we utilized short-form video on YouTube as a promotional tool for our content, I believe that we, as well as other traditional media companies, should have leveraged YouTube as an original storytelling platform to a greater extent."

Disney executives have concluded that younger Americans use YouTube as an online encyclopedia, according to internal research. As a result, the company is focusing on the benefits of the platform's discovery functionality while also programming against it.

Disney has created custom YouTube content for its new preschool series "Disney Junior's Ariel," which premieres on June 27, to familiarize children with the mermaid character. Additionally, the company has produced a series of "Winnie the Pooh" shorts to study how the animated bear and his companions connect with modern young people.

The company is now considering creating a full-length animated series based on the short-form video data of "Winnie the Pooh."

Netflix's muted response

Netflix is taking on YouTube from a different angle.

Netflix does not view the platform as a singular threat to viewership as some of its peers do.

Netflix executives view YouTube as serving a distinct consumer demand.

Netflix's success is attributed to a unique combination of a strong slate, superior recommendations, broad reach, and intense fandom, which leads to healthy engagement among its members. To maintain growth and delight its members, Netflix emphasizes the importance of improving these key areas.

Netflix has even found some success duplicating content on YouTube in specific instances.

The animated series "Cocomelon," owned by Moonbug Entertainment, has gained immense popularity on both YouTube and Netflix. With 175 million subscribers on its English language YouTube channel, it has a significant following. The number of subscribers increases when all languages are taken into account, Mayer stated.

Among kids shows on Netflix, Cocomelon is often the most popular.

Netflix is now competing with YouTube for advertising revenue after introducing its ad-supported tier in November 2022.

Netflix has 40 million monthly active users for its advertising tier, which is significantly less than YouTube's more than 2 billion monthly active users.

Netflix is considering introducing free versions of its service in specific international markets to attract advertisers, although no definite plans have been announced, according to a report by Bloomberg earlier this week.

Netflix declined to comment for this story.

Other strategies

NBCUniversal has attempted to replicate the addictive nature of YouTube Shorts by presenting users with personalized clips from popular shows such as "Saturday Night Live," "The Office," and "Bravo."

NBCUniversal's Peacock streaming service aims to provide consumers with the option to watch content in their preferred manner, alongside its extensive collection of long-form movies and TV shows.

According to Nathanson, curating feeds within a content vertical now feels like a "YouTube 1.0 strategy" because TikTok, YouTube Shorts, and Instagram Reels have redefined short-form viewing.

"According to Nathanson, there is currently no strategy among traditional media players to create content specifically for the YouTube generation that goes beyond their current branded approach. The future strategy involves using AI to deliver personalized content to each individual, which is not yet being done by any of the traditional media players. This represents the next evolution of YouTube, known as YouTube 2.0."

YouTube is attempting a more direct approach by paying their biggest star to create a show for their own platform.

Earlier this year, the company struck a deal with MrBeast, whose real name is Jimmy Donaldson, to create a reality TV show called "Beast Games." The show will pay the winner $5 million in cash and will have a fast-paced and high-production format, borrowing heavily from previous MrBeast giveaway videos.

In 2024, MrBeast's YouTube channel is projected to generate $700 million in revenue, mainly through advertising and brand partnerships, with a global subscriber base of 289 million.

Despite MrBeast's potential for crossover appeal, there is doubt among creators that YouTube celebrities will succeed in creating shows for subscription streaming services. Additionally, the Hollywood system may be too slow to meet the demands of a younger generation that wants instant content.

YouTube's community

According to Brittany Broski, 27, the authentic relationship creators have with their fans is the reason for YouTube's popularity, with her own YouTube channel boasting over 2 million subscribers.

Broski stated that while he still watches Netflix and HBO for good fantasy series, he believes that YouTube has lost a sense of community and third spaces where people can hang out and meet new friends in this digital age.

During the pandemic, Broski's audience, consisting of Generation Z and young millennial women and members of the LGBTQ+ community, grew significantly. With limited social options while staying at home, hundreds of thousands of people discovered Broski as they sought out fresh and up-to-date content.

Broski stated that the personal relationship is YouTube's key ingredient, which cannot be replicated when creators switch to other platforms.

"Broski stated, "You're betraying your audience by leaving YouTube to act and not posting online anymore, and asking them to wait on a project in development for an extended period. People will forget about you, as that's how the internet works.""

YouTube's Partner Program has distributed over $70 billion to its creators in the past three years, incentivizing them to remain on the platform.

"Why bother selling my show to a network when I can put it on YouTube for free?" Broski asked. "You're self-funding, but if the money you're making from AdSense is going back into your content to make more money, why do you need to contact a third party?"

YouTube's low barrier to entry and instant feedback through comments from fans allow for continuous improvement of content, which cannot be replicated in scripted forms like TV shows with pre-made seasons and specific release schedules.

"According to YouTube star and former professional cyclist Michelle Khare, 31, who has over 4.5 million subscribers, the traditional industry focuses on proving to others that content is worthy of being made, seen, marketed, and funded. However, with YouTube, if one has the drive, ability, and a phone, they can bypass those steps and make their content accessible to a democratic audience where the viewers ultimately determine what becomes popular."

Aging out

YouTube's dominance among younger audiences is not a concern for Warner Bros. Discovery executives, as they are the least worried among legacy media companies. According to a 2023 Pew Research study, 93% of teenagers have used YouTube, compared to 63% on TikTok, 60% on Snapchat, and 59% on Instagram. Additionally, a 2023 survey from InMobi found that 61% of Gen Z respondents, or those aged 18-24, named user-generated content as their favorite form of media.

Max streaming service by Warner Bros. Discovery has shifted its programming focus from content targeted at kids and teenagers, except for the occasional successful show like "Euphoria." The company's emphasis on prestige dramas and adult movies is in stark contrast to YouTube's typical entertainment offerings.

The question of whether YouTube is beneficial or detrimental to the media industry includes a subquery: Will young viewers eventually outgrow the platform's primary content, which is creator-driven, non-linear storytelling?

"Mayer expressed his belief that longer form storytelling is difficult to substitute with super short form storytelling, as he suspects that there will be some aging out."

While there may be room for both subscription streamers and YouTube to thrive, YouTube's experimentation with episodic and scripted series could pose a direct threat to traditional Hollywood. For instance, "Cobra Kai," a spinoff of "The Karate Kid," started on YouTube's ad-free subscription service YouTube Premium, gained a following, and eventually moved to Netflix.

Nicky Rettke, YouTube's vice president of product management, stated that there is some conditioning that occurs when one becomes accustomed to a particular format that resonates with them. However, he emphasized that the audience's preferences for content are not always clear-cut and can vary depending on the type of content being consumed.

The potential threat of artificial intelligence on YouTube is a concern, as Hollywood's use of AI is restricted by contract, but there are no rules for user-generated content. This allows YouTube creators to experiment with technology that could rival professional studios, putting more pressure on traditional media.

Disclosure: Comcast's NBCUniversal is the parent company of CNBC.