Why YouTube and Advertisers Are Looking to Target Kids in a Digital World

NEW YORK (TheStreet) -- With just one click, 11-year-old Anastasia Conner is able to learn more about people she has never and will never meet in 30 minutes or less than most people would learn in an hour-long conversation. It's not because they're on her television -- it's because Conner, like so many of her peers, is going to YouTube for her entertainment.

In a recent poll, 36.1% of kids between the ages of 8 and 15 said YouTube is their favorite website, more than quadrupling the second-ranked Web site's results. YouTube's parent company Google (GOOG), (GOOGL), which was ranked second among the responses, only received 8.8% of the votes, according to market research firm KidSay.

This number just keeps on growing, especially since young people are leaving behind traditional television and consuming more digital content. Conner admits to spending twice as much time watching videos on YouTube as she does watching television, and for Conner, one of the primary things she likes about YouTube is that she can pick and choose which advertisements she watches, unlike on television.

YouTube and its advertisers are positioned to gain as they tap into as this expanding younger demographic, and as is often reported, YouTube could benefit from an additional revenue boost.

Estimates show YouTube's 2014 revenue ranging anywhere from $4 billion to $6.1 billion and Bank of America Merrill Lynch analyst Post believes YouTube could generate $8.2 billion in revenues in 2015 and as much as $10.4 billion in 2016.

Google has never disclosed the exact amount of revenue the video sharing company generates, saying only that as a result of higher viewership more advertisements are not being clicked through but instead are being watched. "YouTube's contribution to our advertising revenue continues to grow at a strong rate year over year," former CFO Patrick Pichette in the company's first quarter earnings call. "And we're really pleased with how the YouTube business is progressing."

But it has reportedly struggled to turn a profit -- The Wall Street Journal recently reported YouTube is roughly breaking even, though the company has not confirmed this.

Profitability aside, YouTube and its advertisers are coming up with new techniques, like automatic targeting which programmatically places advertisements with channels that are best suited to the advertisers' needs, to attract their consumers.

"To put it from a marketer's perspective, if you're trying to reach a 14-year-old girl and you're only advertising to her from a television perspective, you're definitely not reaching her," Outrigger Media CEO Michael Henry, whose company monitors and measures the value of content for advertisers, said in a phone conversation. "And in fact you're probably wasting your time trying to reach them from television."

Henry said it is increasingly less likely that those under the age of 30 are relying on traditional TV for entertainment, which is why he thinks advertisers have to work harder than ever to get people talking about their brands. 

"You have to know a lot more about this space then you have to about television," he said. "So if you're Hasbro (HAS) and you're use to buying television commercials, you need to know where your audience is but not too much about the demographics. But in a world where there are hundreds of thousands of producers on YouTube alone, it's much more serious game to understand the nature and quality of the content."

Interestingly, advertisers have been slower to embrace digital media than consumers, leaving plenty of room to catch up, according to research firm eMarketer analyst Paul Verna.

"This tells us that it's possible for video advertising to grow more or take more dollars away from TV than it already has been doing," Verna said in a phone interview. "It's certainly a possibility when you look at the trend lines and consumer behavior in terms of advertising."

Digital video ad spending reached $5.8 billion in 2014 and is expected to increase 33.8% to $7.7 billion in 2015, according to eMarketer. Advertising for mobile devices is driving a majority of this growth, and with the majority of teens now accessing sites like YouTube from tablets or phones, it makes sense that mobile content spending is increasing quickly.

Thirty percent of teens ages 8-15 report to using a tablet to get to the Internet, according to marketing research group KidSay, so it stands to reason that companies like YouTube are creating more mobile-friendly products to lure them in.

In February of this year, Google released YouTube Kids, an app created solely for children. From larger clickable features to easy search tools, the application has limited content to what the company deems appropriate for children.

Since its launch, YouTube Kids has been downloaded about 1.2 million times from the Google's Play Store and Apple's (AAPL) App Store, according to Xyo, a company that tracks app usage. And with at least 1.2 million users, advertisers have the chance to not only increase their brand awareness but also introduce a much younger audience to their brand with the hopes that those young viewers will use their products for many years to come.

YouTube's rollout of YouTube Kids did not come without blowback. Consumer watchdog groups filing a joint complaint with Federal Trade Commission accusing Google of mixing in commercial content in a way that was deceptive and unfair to children. YouTube Kids currently bans a wide variety of advertisements such as ones for politics, religion, relationships and food. The company also bans all advertisements for video games rated higher than "E for Everyone," according to the Web site.

Advertising to children directly on television is highly regulated by the FTC, and Verna said as YouTube's advertisers target children more through digital advertisements, the questions posed in consumer group's lawsuit will be asked more frequently.

"There's more and more native advertising and content marketing, and the FTC is really trying to understand if there is a way it can regulate or at least provide some guidelines there, and with children's advertising it's even more important," Verna said.

More from Technology

What Internet Sales Tax Ruling? Amazon Still Headed to $1,850

What Internet Sales Tax Ruling? Amazon Still Headed to $1,850

How Long Can the Netflix Surge Last?

How Long Can the Netflix Surge Last?

Throwback Thursday: Intel Edition

Throwback Thursday: Intel Edition

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Video: What Oprah's Content Partnership With Apple Means for the Rest of Tech

Intel CEO's Surprise Exit Leaves 'Large Void' That Won't Be Easy to Fill

Intel CEO's Surprise Exit Leaves 'Large Void' That Won't Be Easy to Fill