Over the past few years, Netflix has vanquished the likes of Walt Disney, Amazon.com, and Apple in the battle to become the top videostreamer. Yet it’s slipping behind the company that has emerged as its biggest competitor: Alphabet’s YouTube.
This was hammered home on Thursday when Netflix reported second-quarter results. It earnings per share surged 47%. And according to Nielsen, its share of U.S. viewers remained at 8.3%—almost twice as high as all of the Disney channels combined.
The problem: YouTube’s share of U.S. viewers grew to 12.8% from 9.9% a year earlier. Whereas Netflix creates much of its own content and relies primarily on subscriptions, YouTube follows a different model that’s built on user-generated content and advertising.
Increasingly, Netflix is squaring off against YouTube while the rest of the streamers compete with one another.
Analysts pushed Netflix management about its YouTube dilemma during Netflix’s earnings call. Rich Greenfield of LightShed Partners asked about its “stagnation” of market share. In his answer, Netflix co-CEO Ted Sarandos tried to highlight the fact that his company had fairly stable market share despite the proliferation of “TV-based streaming services,” which notably excludes YouTube.
These two streamers come at viewers in different ways. Netflix’s income comes largely from subscription sales, and YouTube is primarily an ad-based service. But each is sliding into the other’s business model. Netflix has successfully launched a less-expensive ad tier to its offerings. YouTube now gets substantial subscription revenue from streaming cable channels on YouTubeTV, the valuable NFL Sunday Ticket package, and other services.
The financials tip even more in YouTube’s favor. Netflix saw sales of $39 billion last year, and on Thursday it raised the midpoint of its 2025 revenue guidance to $45 billion, up 15% on the year. According to Melissa Otto, head of Visible Alpha Research at S&P Global, analysts’ expectations are for ads to provide about a third of that growth.
All of that pales in comparison to what is happening at YouTube. Analyst Laura Martin of Needham estimates that YouTube revenue was $58 billion in 2024, and will be $70 billion in 2025, with $30 billion of that coming from subscriptions. She projects that a stand-alone YouTube would have a market capitalization of $720 billion. Netflix has a market cap of $556 billion.
YouTube became No. 1 by capturing a young demographic and holding on to those viewers as they aged. In doing so, it disrupted how people thought of “television” and who made it. This provides a great financial advantage to YouTube. In the second quarter, 52% of Netflix’s costs were content expenses. YouTube passes these expenses to its creators, keeping it relatively asset-light and increasing profit margins.
That means YouTube doesn’t own the content on its platform, which opens up another area for Netflix to move into its rival’s territory. Netflix now is using YouTube as a source of programming—which came up in the Thursday earnings call—by selectively luring popular YouTube entertainers.
“We want to be in business with the best creatives on the planet, regardless of where they come from,” said Sarandos. “Some are creators that distribute only on social-media platforms….For those creators doing great work, we have phenomenal distribution, desirable monetization…and a hungry audience waiting to be entertained.”
Miss Rachel, a children’s entertainer, has a very popular YouTube channel. And she now has a Netflix show that got 53 million hours of viewing in the first half of 2025.
We still don’t know how this movie will end. Just as YouTube disrupted TV a decade ago, it could itself be disrupted by TikTok, which has an even younger demographic and represents yet another way of watching television. If young people come to view television as simply watching short video after short video on their phones, the “endless scroll” of TikTok could be the ultimate winner.
Write to Adam Levine at adam.levine@barrons.com