It’s time for Alphabet to spin off YouTube: It could be worth more than Netflix

For YouTube, there are many arguments in favour. One is focus. Such is the upheaval in the entertainment industry, from TikTok and the streaming wars to cord-cutting in pay-tv, that laserlike concentration is essential. Alphabet has too much else on its plate to give YouTube full attention. Then there is the business model. Without the hand of an advertising behemoth on its shoulder, it would have greater freedom to experiment with subscription revenues. A third argument has to do with regulators. A case heard on February 21st at the Supreme Court on whether YouTube violated anti-terror laws by using algorithms that recommended extremist videos was met with scepticism by justices. And Facebook has suffered plenty of political heat over content. But being part of a bigger firm than Meta, Facebook’s parent, makes YouTube a juicier target, especially for trustbusters. Its ability to expand services like YouTube tv globally may be hindered by regulatory concerns about Alphabet’s size. Alphabet could reap benefits, too. Mr Pichai’s panicky response to Chatgpt, an artificial-intelligence (ai) partnership between Microsoft and a startup called Openai, has raised doubts about his leadership. A spin-off of YouTube would send a strong signal that he is doubling down on such “generative” ai. It would also enable Alphabet to get ahead of the Department of Justice (doj), which in January sued Google over its alleged monopoly of digital-advertising technologies. Alphabet denies it is a monopoly. But if courts decide differently, a voluntary break-up, even loosely related to ad-tech, would be preferable to a doj-imposed half-Nelson. YouTube’s valuation as an independent public company could be eye-popping. Its ad sales are close to Netflix’s revenues of $32bn, not counting its 80m music and premium subscribers or tv revenues. Laura Martin of Needham, an investment bank, reckons that it could be worth at least $300bn, more than half as much again as Disney and double Netflix’s market capitalisation. https://www.economist.com/business/2023/02/23/its-time-for-alphabet-to-spin-off-youtube

It’s time for Alphabet to spin off YouTube

The Economist