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YouTube is testing server-side ad injection to counteract ad blockers
(alternativeto.net)
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Because it’s actually really hard to achieve technically. When ads are served outside the stream you can easily serve different ads to different viewers based on their profiles. When the ads are baked into the stream you can either
A) Create a whole bunch of different copies of the video asset with different ads baked in and then rotate these on a regular basis. Which would be expensive to update and store and limit the range of adverts that could be served to a particular user.
B) Dynamically create a stream on the users request, which while possible means standard CDN caching isn’t going to work so there’s a distribution challenge.
Or some other alternative they’ve come up with. I’d be really interest to know what their approach is here.
They’re probably inserting the ads “on the fly”. It can be finicky depending on codec, but doable.
Look up how HLS (HTTP Live Streaming) works. They just need to generate a personalized playlist for each person which points at things already hosted on CDN, and insert the ads where they want in the literal text file that your video player reads from to serve you the video.
I don't know much about it, but it looks like there's specific tags designed for dynamic ad insertion. Idk if YouTube plans to use them in this case though, if they want it to be undetectable to the client.