YouTube Will Run Ads On Some Creator Videos Without Sharing Revenue

Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) is making moves to squeeze out more ad revenues from its video-sharing platform YouTube. The search-engine giant is now evolving to a Free-ad revenue model by introducing ads in non-partnered channels.  

What Happened: In its recently updated terms of services, the company added a “Right To Monetize” section that ropes in channels which are not part of the YouTube Partner Program (YPP). A limited number of videos uploaded by non-YPP content creators will start featuring ads.

This update affects smaller creators. Alphabet confirmed to the Verge that ads will still not run on videos on sensitive topics like politics, religion, alcohol, and gambling.

Alphabet also declared that effective from Wednesday, it would classify any payments to content creators in the U.S. as Royalties under the Federal Tax Laws. In some cases, content creators may have to furnish additional documentation and tax information in AdSense.

The company plans to introduce a similar partner payment reclassification for content creators outside the U.S., and it could be out by 2021.

Why Does It Matter: According to an Investopedia publication in June, Alphabet and the program partners split revenue shares in a 45:55 ratio. Since the new terms will be selectively applied to non-YPP channels, Alphabet is not legally obligated to share these revenues with the channel moderators.

Currently, the prime YPP eligibility criteria require channels to have over 1,000 subscribers with 4,000 viewing hours of videos in the last 12 months.

In its third-quarter 2020 earnings, Alphabet reported $5 billion in revenues from YouTube ads, accounting for 11% of overall revenue.

Price Action: GOOG shares closed 1.32% lower at $1,746.78 on Wednesday.