Companies are boycotting YouTube because their ads are showing up next to hate-filled and extremist videos

Picture an advertisement for a sleek, shiny Mercedes Saloon underneath a picture of an Islamic State flag.

That's just one of the countless awkward ad placements that's landed YouTube in hot water this month.

Over the past two weeks, major advertisers around the globe have been leaving the video platform in droves after finding their ads next to racist, homophobic and extremist content on the site.

The boycott came about after the British newspaper, The Times, revealed that many companies' ads were appearing next to controversial content from the likes of ISIS supporters and American white supremacist David Duke, the former leader of the KKK.

This week, the Australian government joined the boycott, following in the footsteps of the British government, which pulled all advertising from YouTube last week after discovering taxpayer-funded ads next to videos of Islamic State supporters.

The boycott now includes more than 250 companies across the U.K. and some of the biggest advertisers in the U.S. and Australia — including PepsiCo,  McDonalds, AT&T, Johnson and Johnson, Tesco and Toyota, just to name a few.

Analysts say the boycott will cost YouTube's parent company, Google, up to $750 million dollars. YouTube could lose up to 7.5 per cent of its revenue.

Alexi Mostrous is The Times' head of investigations and the one of the reporters who broke the story.

As he tells Day 6 guest host Rachel Giese, the boycott could have major implications for Google.

A shock for advertisers

Mostrous says none of the companies he featured in his reporting were aware that their ads were appearing next to this controversial content.

"Everybody came back to us and said, 'Look, we're really shocked that you found our ads here'," he says.

Still, Mostrous says the brands do hold some responsibility for the controversy.

"What they were aware of was that they were using this technique called programmatic advertising, which has the effect of placing their ads next to consumers or potential customers no matter where they are on the web," he says.

"So they kind of knew, hypothetically, that their ads could turn up in unusual places — but they certainly didn't know that they were turning up on terror videos."

Unlike previous advertising models, programmatic advertising uses complex algorithms to track potential customers on the web based on specific demographic targets, such as age or income.

They weren't simply being promoted next to extremist content, they were inadvertently funding the posters of the extremist content under the contracts that are offered by Google and other companies to the people who place ads.- Alexi Mostrous, Head of Investigations with 

Once a potential customer is identified, targeted ads can appear on any website they visit, including shopping sites, online newspapers and yes, Facebook and YouTube.

That's a dramatic shift from the past, when ad spaces were purchased directly from specific websites, such as The Times, Mostrous says.

"The point is that they're serving you, the web user, the ads, rather than buying space on individual web pages."

Targeted ads are proven to be more lucrative for brands, Mostrous says, making programmatic advertising models attractive to many companies — even though they don't know where those ads might ultimately end up.

Funding terrorism

The placement of advertisements next to controversial and extremist content on YouTube isn't just a PR problem, it means also indirectly funding the people who post the content — including possible terrorists or Islamic State supporters.

"This was the real kicker for the brands we found on those websites," says Mostrous. "They weren't simply being promoted next to extremist content, they were inadvertently funding the posters of the extremist content under the contracts that are offered by Google and other companies to the people who place ads."

As Mostrous explains, a significant percentage of YouTube's ad revenues are funnelled directly to the producers of the video content where the ad appeared.

"In most cases, there's a general rule that if you see advertising on YouTube videos, the poster of those videos is getting money from the advertisers."

That poses a particularly acute problem for governments that advertise on YouTube, who may inadvertently find themselves funding terrorist content through taxpayer-funded ads, as happened in the UK.

Google apologizes

Given the sheer volume of content hosted by YouTube — estimated at 400 hours of video uploaded and 1 billion hours of video consumed daily — monitoring every video that goes up online would be a massive logistical challenge.

But last week, Google EMEA President Matt Brittin issued a high-profile apology and promised to take significant steps to do address the problem.

The company pledged to hire more people to review flagged content and to increase funding for technology that would help identify hateful or extremist content. They have also promised to give brands more control over where their ads appear.

Still, Mostrous says advertisers have yet to be convinced that YouTube is a "guaranteed safe environment."

"What the advertisers really want is for Google to kind of switch its business model around on YouTube, so instead of monetizing this content first and then reviewing it and taking it down if it's extreme, what advertisers want is for them to only offer brands quarantined … pre-screened, pre-safe content."

"And YouTube … is pushing back against that, because that would really impact on the amount of videos that they could put ads on."

Mostrous believes pressure from advertisers could force Google to take greater responsibility for the content on its sites as a publisher, rather than just a conduit or platform.

"I think that Google will do almost anything in its power before it accepts those sort of responsibilities, because it will fundamentally change how it makes money," he says.

"I think, though, that what we're seeing is a commercial and political alliance emerging against Google and Facebook and the other social media platforms in which increasing numbers of people are saying, 'that position is no longer tenable'."

"As we go on, I think that the pressure will rise on these social media companies to do something to acknowledge that in certain circumstances, they are responsible for the content that is being put out, and on which they make a lot of money in the process."

To hear Rachel Giese's conversation with Alexi Mostrous, download our podcast or click the 'Listen' button at the top of this page.