Breakingviews: YouTube spinoff would be a must-watch

YouTube deserves its own show, away from its $900 billion parent, Alphabet. Three things would make a breakup compelling viewing. It should create a valuation boost, the companies would be better able to field mounting regulatory probes – and Alphabet’s siloed setup means it’s already part way there.

Right now, YouTube is part of a sprawling Alphabet cosmos run by Larry Page. The video site, which has 2 billion monthly active users, sits within Google, which is also an umbrella for Cloud, Android, Maps, Search, and app store Play. The broader group also includes smart-home enabler Nest and self-driving unit Waymo.

That complexity carries a valuation cost. Alphabet is worth just under 6 times its 2018 revenue of $137 billion, after deducting its net cash, in the same league as Twitter. But YouTube is more like video-streaming service Netflix, which is valued closer to 9 times its 2018 revenue of $16 billion. That could give YouTube an enterprise value of about $180 billion, based on the $20 billion RBC Capital Markets analysts estimate it makes in annual sales.

Alphabet’s biggest divisions risk dragging each other down in Washington too. Google is under antitrust scrutiny for its dominance in search and other areas. YouTube is in the spotlight for content, including its videos involving or geared toward children. In September, the video service was hit with a $170 million fine for allegedly violating child privacy laws. It has also had to apologize for being a channel for hate speech.

While these are different issues – or should be – Alphabet is at risk of the perception that it is too big and dysfunctional to manage. Separating YouTube might pre-empt harsher measures from the Justice Department and Federal Trade Commission, which are both probing Google, or Democratic presidential candidate Elizabeth Warren, who has vowed to break up big technology firms, should she win in 2020.

A breakup isn’t just desirable – it’s possible too. Alphabet has said in the past that it sees its empire as autonomous businesses, unlike Facebook, which has more closely integrated pic-sharing app Instagram and messaging service WhatsApp. YouTube has its own chief executive in Susan Wojcicki, its own headquarters in San Bruno, California, and a strong stand-alone brand. All good reasons to start clipping.

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