Changes in how children’s advertising is served on YouTube is having a significant impact on WildBrain’s AVOD business, the Halifax-based kids company said this week.

CEO Eric Ellenbogen said WildBrain Spark has seen a 40% year-over-year revenue decrease since the change was introduced in early January.

YouTube stopped serving personalized ads on content that is “made for kids” under the changes implemented to address concerns raised by the U.S. Federal Trade Commission (FTC).

As well, likes/dislikes and subscriptions on kids content will no longer show up on public lists, and the ability to comment on kids content has been removed. (The creator/uploader of the content is instructed to classify whether the content is “made for kids” or not. If the creator does not classify the content, YouTube, through its algorithms, will classify the content).

The new regulations are in line with Children’s Online Privacy Protection Act (COPPA) standards, which do not the permit the use of ads targeted at kids based on their past usage of Google products and services. Ads are now targeted based on the context in which they are served (ie. the channel, the show or the individual video).

WildBrain said it anticipated the new regulations would have an adverse impact on its AVOD business, after YouTube said in early January that the changes “may result in a decrease in revenue for some creators.”

Ellenbogen called the regulation change a “big step forward for the sector as a whole” and something that will “improve the quality of content that’s viewed [on YouTube], and in turn create new opportunities for advertisers who are finding it increasingly difficult to reach younger audiences on linear television.”

However, he warned that WildBrain expects to see its AVOD revenues slide in the remaining two quarters of the fiscal year. Execs would not comment on whether or not they expect to see WildBrain Spark revenues increase again in the next fiscal year.

New ad sales strategy

In response to the dip, WildBrain has started selling ads directly to advertisers using its sales teams in the U.K., U.S. and Canada, with Ellenbogen noting that the company has seen an “encouraging” response from brands and agencies. “Our ambition is to build a sustainable new model for AVOD that works for viewers, advertisers and creators. And we believe we’re very well positioned to benefit from these changes in the long run,” he said.

The downturn in AVOD revenue did not affect the company’s Q2 filing, released Thursday, as the new regulations came into force after Dec. 31.

Overall, WildBrain’s revenue grew by 4% year-over-year to $122.1 million in Q2, up from $117 million the year prior. For the first half of the year, revenue was up 6% to $234.4 million, versus $221.1 million the year prior. Adjusted EBITDA was $25.6 million compared to $22 million in Q2 of 2019. Net loss for the quarter was $2.3 million, compared with $17.9 million the year prior. H1 2020 net loss of $18.3 million vs a net loss of $20.3 million in H1 2019.

Meanwhile, WildBrain Spark revenue grew 21% to $24.2 million in Q2, while views grew 36% to more than 9.9 billion in the quarter. In the first two quarters of fiscal 2020, the WildBrain Spark network racked up 22 billion views.

In terms of its consumer products-owned business unit, revenue rose by 9% to $47.3 million in Q2 2020 (versus $43.4 million a year ago), which WildBrain attributed to the Peanuts franchise and the launch of new Peanuts content on Apple TV+. Ellenbogen added that WildBrain sees the “new content as a huge brand driver across consumer products, which has been the mainstay of Peanut’s business.” More Peanuts content is underway for Apple TV+, added Ellenbogen, “so stay tuned.”

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