This past Tuesday, the Wall Street Journal reported that YouTube is exploring a paid subscription model.
To understand YouTube’s announcement of a subscription model, we first need to get a sense of the broader context.
What is happening in the world of online video?
In spite of YouTube being the biggest player right now, YouTube is feeling threatened for the first time in years.
YouTube relies on its creators to act as the engine for growth on the platform. Creators draw in the viewers, which ultimately draws in the advertisers, which pays for the site to keep running. If the creators were to leave or prioritize their presence somewhere beyond YouTube, the implications could be devastating, especially considering that advertisers are already planning to increase their media buys on Facebook and Twitter over YouTube.
YouTube invests heavily in getting more creators on the platform and incentivizes them to stay there. For example, YouTube shares revenue with creators through the partner program, they provide free production support and facilities in major markets, there are tons of educational courses geared toward creators, etc.
The importance of keeping the YouTubers invested in the platform cannot be underestimated. Their audience of largely younger viewers is the future of media consumption. For millennials, these creators are stars, and are far more important than TV or traditional celebrities — notably, Variety recently did a survey and found that top YouTubers are more famous (to teens) than traditional celebrities.
Keeping creators happy isn’t easy. There’s been discontent among the community for quite some time. Many have publicly vented their frustrations to the press, complaining they are having trouble maintaining a living on the platform. Ad revenue for some channels has dipped for many YouTube channels as supply has increased beyond existing demand.
YouTube has attempted to counteract this by aggressively courting brands. This year YouTube launched a massive traditional media ad campaign in an attempt to raise awareness of the creators on the platform (and the audiences they wield) among brands and agency decision makers. YouTube also launched Google Preferred, where verticalized channels are bought and sold in a manner similar to TV advertising. These attempts have all been part of a larger effort to capture more brand dollars and keep creators happy.
Other platforms are bringing lucrative contracts to top tier creators. AOL has launched several content series starting YouTubers, and Yahoo has been rumored to have offered top YouTubers aggressive production deals to get them to create exclusive content off YouTube. MCNs have also invested in their own third party video sites (Maker with blip.TV, Collective with Metacafe). Having their own sites allows them to monetize 100 percent of the views and not split revenue with YouTube.
To top it off, Facebook is jumping into the video space in a big way. They’ve been aggressively pushing Facebook Video to brands in an attempt to capture more ad dollars that would otherwise be likely be allocated to YouTube.
Advertisers have already invested millions into growing their Facebook Fans — far more so than they have in growing their YouTube subscribers. Consequently, it’s logical to assume that brands would have a commitment bias toward using Facebook.
In this landscape where competition has increased and creators are being promised more revenue by rival video sites and brands are exploring alternative video platforms, what can Youtube do to keep their audience growing and the creators happy?
It makes sense YouTube would seek an alternative to advertisers to supplement creators’ ad revenue. In fact, YouTube has already dabbled in supporting creators growing their revenue streams beyond ads, this past summer they rolled out a crowdfunding product — allowing viewers to donate to the creators they love.
Today, it’s not uncommon for viewers donate to the channels they watch without any incentive other than the fact that they want to support the creators they love. It makes sense that if YouTube could offer incentives to donate to creators (in the form of no ads if you pay for a subscription) that this would drive fans to support creators even more (not unlike subbable).
A subscription model could solve for a lot of challenges YouTube is facing, but it doesn’t come without its own set of challenges. YouTube has implemented paid offerings before in the form of movie rentals, and even paid subscriptions to specific channels. Neither of these seem to have reached the same level of success as YouTube’s unpaid offerings.
However, if successful, a subscription model could provide enough additional revenue for YouTubers to want to stay on the platform. This would allow YouTube to avoid defection of its most valuable commodity — the YouTube creators, and the audiences that would invariably follow.
Brendan Gahan (@brendangahan) is a YouTube expert helping Fortune 500 brands with their YouTube influencer and community building campaigns. He was named Forbes 30 Under 30 in Marketing & Advertising and one of the 25 Top YouTube Business Power Players for 2013.