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Vying for Video Subscription

  |  June 9, 2011   |  Comments

How much are consumers willing to pay to avoid ads?

If you ask a typical consumer what he dislikes most about the web, there's a good chance he'll say "ads." It's a visceral reaction; he's probably the same user who'll sit through an elaborate home page takeover without bother, and click on the very banners he claims to loathe. It might be that he's harboring some deep-seated resentment left over from the pop-up days. Or maybe he spends too much time on the kinds of sites that put more effort into ad quantity than quality.

Whatever the source of his chagrin about ads, it begs the question: will he pay to avoid them?

Historically, this has been a thorny issue for publishers. There's so much content out there that it's difficult to convince users to pay for it. There are some exceptions: Pandora is among a handful of sites that afford users free, ad-supported access to their product but also offer them the ability to upgrade (known as the "freemium model.") Most e-card companies take the same approach, with a selection of free cards and more premium options available for a nominal fee. And Hulu last year unveiled a paid service that provides access to current and past seasons of network programming through web-connected TVs and mobile phones, but doesn't reduce the ability of users to access Hulu online free of charge.

"It's a delicate balance between driving incremental revenue and disrupting an incredibly profitable, highly reliable revenue stream," David Bank, an RBC Capital Markets analyst, said of Hulu's new service at the time. Indeed, one doesn't want to bite the hand that feeds it, and for these video sites, dinner is a hefty serving of our clients' advertising.

The latest news on this front comes from video-sharing service Ustream, which recently launched a new paid membership service called Ustream's Premium Memberships. According to Tony Riggins, PR and marketing manager for Ustream, the service delivers a completely ad-free video viewing experience along with other bonus features. "The idea for its release came directly from our fans' feedback that tune into popular real-time educational channels," says Riggins. Educators, researchers, even the critically ill were approaching the site and requesting an ad-free alternative to its most popular streams, namely the Decorah Eagles and the Shiba Inu Puppies.

In fact, it has been primarily gamers and animal lovers who patronized the site's previous ad-free product, launched last October, to the tune of millions of views; Ustream says the average unique user of the Iowa eagle nest stream spent six hours and 10 minutes watching the content in April of this year. "That's 3 times more time spent than Gleeks watch new episodes of Glee, or 2,500 human years," Riggins says. Earlier this year, the year-old stream was said to have become the most-watched live stream of all time, outdoing even the Royal Wedding.

According to Saul Berman, a strategy consultant with IBM, consumers' willingness to endure advertising varies with age. The company's research shows that 80 percent of consumers would rather view advertising as a way of paying for content, but 50 percent of those above the age of 45 would be willing to subscribe as a way to avoid the ads. Berman believes the subscription model still has "untapped potential."

But if a paid model is so viable, why isn't it rampant already? Why can't content publishers maintain subscription-based services that are as profitable as their ad-based ones? And even if consumers do begin to express more of an interest in paying for their online videos, can their monthly fees ever compete with the millions of ad dollars publishers are enjoying now?

Beyond the expectation of free content, the bulk of the problem might lie in the proliferation and duplication of video content. Most video-sharing sites feature the same kinds of clips, and sometimes even the very same footage through syndication partnerships. The motivation to pay, then, must come from access to unique and exclusive content, as well as convenience – the kind of mobile access that Hulu Plus provides. So far, it seems, video sites are more than a little reluctant to emphasize an ad-free model. A YouTube spokesperson said, "Our focus is on putting the right ad in front of the right user at the right time so it is valuable for the viewer and effective for the advertiser. A subscription model does not suit this strategy at this time." And on the subject of convincing consumers to pay for video content, Hulu respectfully declined to comment.

Even if content publishers can attract a significant number of paid users, it's safe to say there's no threat of advertiser extinction…and no shortage of video content to call our own.

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Tessa Wegert

Tessa Wegert is a business reporter and former media strategist specializing in digital. In addition to writing for ClickZ since 2002, she has contributed to such publications as USA Today, Marketing Magazine, Mashable, and The Globe and Mail. Tessa manages marketing and communications for Enlighten, one of the first full-service digital marketing strategy agencies servicing such brands as Bioré, Food Network, illy, and Hunter Douglas. She has been working in online media since 1999.

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