YouTube Warms to Subscription Model

YouTube CEO Susan Wojcicki this week told the Code/Mobile audience that her team was in the early stages of exploring a new subscription business model. Wojcicki didn’t offer any specific details, but she did suggest that one option might include an ad-free service.

That would be a big change from YouTube’s current advertising-only approach. YouTube accounted for close to 20 percent of peak Internet traffic in North America, Sandvine reported almost a year ago.

Overall watch time has been growing at a 50 percent annual rate, Wojcicki noted during the conference.

At some point, people won’t want to see ads, observed Wojcicki, who took over as YouTube CEO in February, and that’s when a subscription model could come into play.

This is a surprising turn, given that Wojcicki’s background was in the online ad business. Prior to running YouTube, she led Google’s advertising and analytics team and oversaw AdSense, AdWords and DoubleClick.

New Subscribers

The idea of a subscription model for YouTube isn’t entirely new, however. A subscription option introduced in May 2013 enabled some channel owners to charge viewers to watch some videos — the channel owners were offered 55 percent of the proceeds.

National Geographic, Sesame Street and UFC were part of that initial trial, but National Geographic quickly scaled back after failing to attract the requisite viewers to make the subscription model work. That is not to say what didn’t work before couldn’t work now.

“Video service providers like Netflix, Hulu and now YouTube are pivoting their models to respond to consumer interest in offering video content that isn’t interrupted by advertisements,” said Josh Crandall, principal analyst at Netpop Research.

“As a parent of two impressionable preteens, I’m included,” he told the E-Commerce Times.

“Ad-free video content has changed my perspective on how much video we’re comfortable with in the house. Through my subscriptions, I’ve realized that it’s less the videos that the kids are watching than the advertisements that encourage consumerism that pop in between,” Crandall said.

“It’s worth a few dollars to skip those enticing messages that kids can’t seem to turn away from,” he added.

“Ad-free content subscription models in some categories — Hulu Plus, Pandora, Spotify, Google Play — are working well,” observed Greg Sterling, vice president of strategy and insights at the Local Search Association.

“Thus there’s an opportunity here to offer more choice to YouTube users,” he told the E-Commerce Times.

“There’s a material difference right now between the services — especially Hulu — mentioned above and YouTube, which has lots of low-quality video and noise,” Sterling pointed out. “The fact that there are so many weeds on YouTube may limit the subscription opportunity.”

Advertiser Response

YouTube would not be the first online site to move away from a fully ad-supported model to one that offers a subscription-supported service. The question becomes one of advertiser response, and how the online advertising business will adapt to ad-free services.

“The advertising industry thrives on creativity. Today, creativity extends to closed-gardens in which service providers offer ad-free subscriptions,” noted Crandall.

“Advertising isn’t going away because service providers offer an ad-free service model,” he added. “How will advertisers cope? They’ll find solutions to promote their products through product placement in shows, lifestyle messaging, and through digital media.”

Interface Challenges

Many viewers on YouTube actually tune in to watch certain ads.

“Budweiser’s ‘Puppy Love’ ad has been viewed more than 52 million times on YouTube,” said Crandall.

“YouTube’s challenges will be more user interface than business modeling,” he suggested.

“Will users be able to access a video that’s supported by ads as easily and quickly as those who select the ad-free subscription package? Or will users be confronted with additional screens offering the ad-free solution?” Crandall wondered.

“If the service doesn’t manage the different models seamlessly side-by-side,” he said, “YouTube risks alienating a large group of important viewers.”

Revenue Driver

While not everyone may want to pay a subscription to view what has for the most part been free, it actually could draw in some users. Still, it may not be much of a new revenue stream for YouTube and Google.

“Pricing is key,” said Sterling.

“That will determine how large or small the uptake is. Another question involves the scope of content to be included in an ad-free subscription — everything or selected content? My assumption is that the entire site would be ad-free,” he added.

“In the end, it’s unlikely to be a big revenue driver for Google,” Sterling predicted. “Rather, it’s a consumer-friendly option for those that want it. And for those that opt in, Google would get the benefit of a sign-in from those users as well.”

Peter Suciu is a freelance writer who has covered consumer electronics, technology, electronic entertainment and fitness-related trends for more than a decade. His work has appeared in more than three dozen publications, and he is the co-author of Careers in the Computer Game Industry (Career in the New Economy series), a career guide aimed at high school students from Rosen Publishing. You can connect with Peter on Google+.

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