Alphabet Inc (NASDAQ: GOOGL) (NASDAQ: GOOG) is taking action to extract more ad revenue from its YouTube video sharing platform. The search engine giant is now moving towards a free ad revenue model by introducing ads into non-partner channels.
What happened: In its recently updated Terms of Service, the company added a “Right to Monetize” section that covers channels that are not part of the YouTube Partner Program (YPP). A limited number of videos uploaded by non-YPP content creators will start showing ads.
This update is for small creators. Alphabet confirmed to The Verge that the ads will still not run on videos on sensitive topics such as politics, religion, alcohol and gambling.
Alphabet also said that as of Wednesday, it would classify all payments to content creators in the United States as royalties under federal tax laws. In some cases, content creators may need to provide additional documentation and tax information in AdSense.
The company plans to introduce a similar reclassification of partner payments for content creators outside of the United States, and it could be available by 2021.
Why is this important: According to an Investopedia publication in June, Alphabet and program partners split revenue shares by a ratio of 45/55. Since the new terms will be applied selectively to non-YPP channels, Alphabet is not legally obligated to share these revenues with channel moderators.
Currently, the main eligibility criteria for the PJP require that channels have more than 1,000 subscribers and 4,000 hours of video viewing in the past 12 months.
In its third quarter 2020 results, Alphabet reported $ 5 billion in revenue from YouTube ads, representing 11% of overall revenue.
Price action: GOOG shares closed 1.32% lower at $ 1,746.78 on Wednesday.
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