The Financial Times reported earlier this week that some YouTube channels may be going the paid subscription route soon.
The obvious question though is, will YouTube viewers pony up?
That’s important because, while the amounts in question – $1.99, OK, $2 a month, $3 or $4 – don’t represent a lot of money in absolute terms on a monthly basis, YouTube customers aren’t used to paying for content and any attempts at changing that behavior may only be marginally effective. A company called J. C. Penney recently and famously found out how set consumers are in their ways…
At the same time, companies like Google are not dilettantes. They have enormous amounts of historical and research data, and some pretty clever models that must be telling them what their chances of success are with this move. Otherwise why would they bother going to the trouble of launching these new channels in the first place? We’ll find out in a few months just how good those models and their underlying assumptions are.
Anyway, let me get back to the immutable truth that made me write this post: Quality costs money. Repeat after me, if you’re not already convinced. Quality. Costs. Money. And nowhere is this truer, than online.
Consider these companies or services (what’s the difference if you’re a consumer?): Facebook, Twitter, Google Search, Gmail and YouTube.
The business model for the first four is based on content created by users, growth via network effects and various creative (and mostly ad-driven) monetization techniques. And that was true of YouTube also, as long as its content consisted mostly of user-made videos of babies, cats and exploding cans of Mountain Dew that didn’t cost much more than a few minutes of someone’s time.
However, content on YouTube has been evolving over the last couple of years. Tens of YouTube channels have been drawing millions, or even tens of millions of viewers on a daily basis. In fact, one of the many things that the 290m+ views for Gangnam Style on YouTube illustrate is that quality entertainment draws immense audience interest online (or offline, for that matter).
But…what good are millions of viewers if you can’t capture some portion of the value you are creating for them – and using those proceeds to in turn pay your employees, pay your bills and make a respectable amount of profits?
The Internet does many things. It dramatically lowers your distribution costs. It also significantly weakens the distributors and allows content creators to more directly connect with their consumers. Further, it helps with the content discovery issue. And finally, it meets the needs of the long-tail.
What it doesn’t do, and cannot do, is to reduce all the other costs associated with creating quality content (original series, anyone?) - actors, writers, editors, AV crews, etc. This is as true of video entertainment as it is of quality journalism and writing, as many magazines and newspapers have also been discovering over the last year or two.
Unfortunately, ad revenue can only subsidize that content to a certain degree. That’s because the online content market is highly fragmented (blame the long-tail) and the cost for online ads is steadily dropping as the number of online destinations increases much faster than the online population.
Brian Robbins, the man behind AwesomenessTV, of the Dreamworks acquisition fame, admits as much:
“If we were building a business today solely on advertising revenue from YouTube, I’m not sure I’d be so bullish,” he said. “Eventually, yes. But the opportunity to create IP that’s valuable and that could be valuable downstream in all the other platforms that exist, that’s a big revenue stream.”
[As an aside, I couldn't find a single article or post on AwesomenessTV's profitability. Not saying it wasn't profitable, but this little detail is strangely lacking in all the breathless articles describing its acquisition.]
So with neither broadcast TV’s re-transmission fees nor million-dollar TV-network style ads underwriting quality content, what’s left?
Don’t want to, or can’t pay? There’s always LOLcats on YouTube.