May 10, 2013
YouTube finally announced this week that it would allow channels to charge monthly fees to access content on YouTube. Some have predicted that YouTube’s subscription model would undercut its ad model in an echo of the infamous pay-wall problem that has bedeviled online newspapers as they shifted from ad-supported to paid. Others have suggested that this shows that YouTube is up against an advertising wall of its own making — advertisers will only pay so much to advertise against this amateur and semi-pro content (and to be fair, I am in this camp even though I don’t think this fact is dire). And still others gleefully wait to watch as YouTube learns how hard it is to get people to pay for things online.
In fact, all three of these things are minor asides in YouTube’s decision-making, as I see it. Instead of reacting to these and other constraints, YouTube is proacting on imminent opportunity. YouTube is basically making a grab for more of everything that matters:
- More business model options. TV is both ad-supported and subscription-supported, and that works just fine. It gives companies like HBO the creative flexibility to generate content that advertisers may not be ready for, and it gives companies like Scripps the freedom to promise more home-focused entertainment that home-focused advertisers care about. That flexibility is crucial to the ongoing success of those companies, and it will be crucial to YouTube as well. Although in YouTube’s case, I would be surprised if the revenue balance in the one- to two-year time frame exceeded 10% or 15% subscription to advertising.
- More content partners. This is the best gotcha for YouTube. Remember when Viacom sued YouTube? And remember how other content providers refused to give YouTube content of any kind, with some of them opting to enthusiastically back Hulu for a while as an alternative to strengthening YouTube? Now professional content providers that have stayed out of the YouTube fray are entering, creating channels like National Geographic Kids and Sesame Street. These companies aren't naïve entrants, either. They know how many millions of views they already get on YouTube, and like the music business that ultimately partnered with YouTube to create the online music video service Vevo, they want to monetize those views more effectively while simultaneously building a customer relationship with those views. YouTube smiles all the way to the bank, hand in hand with premium content partners.
- More satisfying customer experiences. For now, this move preserves YouTube’s use of the word “channel” to refer to content organized around the producer of that content. But in the long run, the YouTube experience needs to create a You Channel, content organized around you as a viewer. Before it can do that, it has to have the content you want (see No. 2 above), and it has to be able to deliver that content on all of the screens you have in a way that simplifies the infinite-seeming array of YouTube videos into a compact, satisfying viewer experience.
All of this ultimately leads to the one “more” that matters most — more minutes of your time. If, by getting people to pay for even a fraction of what they watch on YouTube, the company convinces us that the content it delivers is more important than we realized (funny thing about paying for something; you feel you should use it), then it wins. It does so by getting us to watch even 5 more minutes a day, which is 5 minutes that come from somewhere else in our lives, whether it’s Cut the Rope, HBO, or quality family time. YouTube doesn't care where it comes from; it just wants more of it. And the flexible subscription model, pushed by each of its content partners at their own discretion, is precisely the way to reach for it.