YouTube Monopoly & Consequences


Alexandru Fartade

YouTube is highly popular, and users have become accustomed to seeing short ads during most videos on the site. It makes $9 billion per year from advertising. However, there is another value to YouTube that is harder to measure in dollars. By owning this company, Google dominates the online video business.

 

YouTube is the King

With 1.8 billion monthly active users in the world, YouTube is definitely the master (data updated May 4th, 2018). YouTube has seen increased traffic and viewership, while Facebook’s page visits have declined from 8.5 billion to 4.7 billion in the past two years. Facebook has seen this decline since dealing with several privacy issues on the platform. This causes great concern over how the data is handled.

To imagine the greatness of the video platform, just think that 150 million hours of collective view time per day are boasting. Nearly 2 billion users are spending more than one hour a day on the platform. More than half of adults choose to view contents on YouTube.These statistics and the lack of a real alternative makes YouTube a monopoly.

Monopoly & the prices

The monopoly is a form of non-competitive market in which the offer of a good / service (advertisement in the case of YouTube) is concentrated in the hands of a single company (YouTube), while the demand is divided between multiple buyers. The monopolistic company can decide the selling price at will because there are no substitutes or competitors. Also, consumers have no alternative to turn to.

The monopolistic company can choose the selling price of the asset in two ways: indirect method or direct method. YouTube uses the direct method: The company directly sets the sale price (P) of the asset and leaves it to the buyers to decide the purchase quantity (Qd). Then the company adjusts the production volume (Qs) to the quantity requested without changing the price.

The difference between the monopolistic and competitive enterprise

The monopolistic company controls both the selling price and the quantity offered. On the other hand, competitive companies do not control the price because they are price-takers. It is the competitive market that determines the price. This makes us understand why YouTube is aiming to have a totalitarian control. Increasing the production of content within the platform, will not only sell more products (advertisements), but also shift the balance of the monopoly.

The following Cartesian diagram represents the monopoly balance.

Monopoly balance occurs when the monopolist maximizes profit. The profit maximization condition is the equality of marginal revenue (MR) and marginal cost (MC).

MR = MC

The monopolistic company maximizes profit at the meeting point e (min) between marginal cost (MC) and marginal revenue (MR). The point q* determines the quantity of production of the good by the monopolistic company. With respect to production q * the market demand determines the market price which is p *. Given the average production costs (AC), the monopolistic company obtains a profit equal to the green area A in the graph. To maximize profit, the monopolist can reduce production to increase the selling price of the asset. In this way the monopolist obtains an extra-profit equal to the difference between the selling price (p) and the average cost (AC) of production.

YouTube will now be able to maximize profit by reducing production (advertisement) and increasing the sales price. This will in the future make advertising available only to a small elite of individuals. Those individuals will be the only ones able to create considerable advertising campaigns. A market in which there is a monopoly will generate less wealth for a society than a competitive market would.

A monopoly leads to the following:

-A lower quantity of goods produced and consumed than in a competitive market.
-A higher price than the equilibrium price in a competitive market.
-A higher profit for the firm.

 

Blockchain to fix internet

When the Internet was created, it was thought of as a decentralized system. Instead of having computers connected to a single server, there was a decentralized network of servers to connect to. Although designed with this idea, the services developed on it have undergone so-called “net effects”, which determine natural monopolies for a few providers.

Networks, particularly the Internet, are subject to Metcalfe’s law. This law explains that “the value of use of a network grows with the square of the number N^2 of its users”. And also, the law of Reed which explains that, if the value of a network is linked to the number of user groups (as in a social network), it grows as 2^N (N = number of users). In short, it means that the value created by a network for its users explodes with the growth of the number of its users. This explosion of value draws more users into the network once again with positive feedback known as “network effect”.

The rise and dominance of Twitter, Facebook, YouTube and Instagram are a clear example of how the network effect works. Which is, winner takes it all! This ineluctable outcome is confirmed by numerous studies, such as a recent analysis by Mozilla that shows that over 90% of searches are carried out through the Google engine. Web 2.0 and the laws that shape it have created centralized and giant platforms that govern billions of people – YouTube plus the 1.8 billion active users – now seem to give way to another technological evolution. The technological evolution will deploy its effects on society and on users from centralized to decentralized platforms, in the wake of the propulsive drive of models based on peer-to-peer networking, such as blockchain.

In fact, the blockchain has seen many alternatives available, from the well-known Steemit, similar to Reddit, but decentralized, to Mastodon, which wants to replace Twitter. They are all decentralized and without the possibility of inadequate use of personal data. AngryToken will deploy two social media, Slinkad a decentralized video sharing platform and Snipad a decentralized news platform, that will increase the decentralized competitive market. Find out more about how the two new platforms from AngryToken will change the social media and how we will empower the users in our platforms, in the next article.