Children are the future (of advertising)

YouTube Kids launched this week to a decent amount of fanfare, representing a safer, family-friendly alternative for allowing kids to interact with media on the internet.

The service touts features including: a timer (to limit the amount of time kids can spend watching clips); elimination of the search bar, which limits the content available for viewing to a preset menu; and obvious filtering of any content that could be deemed offensive or inappropriate for children. After all, you don’t want your kid searching for “Power Rangers” and stumbling upon the awesomely violent unofficial Power Rangers reboot featuring James Van Der Beek.

Google is not the first to release a video service focused on children. Last year Todd Yellin, Netflix’s Vice President of Product Innovation, came to talk with Columbia’s Media Management Association. When asked about the biggest growth area for Netflix, Mr. Yellin spoke at length about the potential of Netflix Kids (which was already released to the public).

It is clear that the big digital media companies see children as a critical demographic for their business models. I chalk this up to three key themes. In order of increasing importance:

1. Stickiness- where the childrens’ eyeballs go, so will the parents’ (along with their subscription dollars)

2. Competitive advantage- these companies are chasing sustainable competitive advantage in the form of customer captivity- specifically, habit formation. Kids that grow up with YouTube or Netflix as their primary media vehicle will be much more likely to be heavy consumers as adults.

3. Advertising- this new, kids-only offering allows Google to provide advertisers (toymakers, cereal brands, etc.) highly targeted ad inventory that is guaranteed to be viewed by a captive audience of children. This should therefore command higher CPMs/CPCs with specific advertisers and represent a new revenue stream that Google hasn’t been focused on before.

On the downside, parents have a right to be concerned about the frequency and other possible ill affects of all this targeted advertising. “What could possibly happen?”, you may ask. Here’s an anecdote: I had a manager who shared an iPad with his kid. About a month into letting his son download a game on the iPad, he received a bill from Apple well into the hundreds of dollars for in-game purchases that his kid was making to level up in a game. His kid had no idea of the consequences of clicking the button- he just thought it was part of the game!

Increased advertising to unsophisticated audiences will inevitably cause an increase in similar types of incidents across the board. It’s ok to let your kid watch streaming content on kid-friendly providers… you just want to make sure that your credit card isn’t connected to that service!