How YouTube’s Subscription Plans Change the Game

The elephant in the room at this year’s NewFronts was YouTube’s intention to roll out a subscription service to offer viewers an option to pay for ad-free videos.

It’s an interesting move on YouTube’s part. On one hand, YouTube needs to pacify some of the more visible and vocal content creators who are bristling at the money made from YouTube’s advertising business. Giving them a 55 percent cut of regular subscription fees from their most engaged fans is one way to diversify revenues.

But on the other hand, doing so would remove the most engaged fans from the value proposition to advertisers, which could further erode the advertising business model most YouTube creators — particularly the smaller ones — rely on.

The video advertising space is already fragmented across multiple devices and formats, forcing advertisers to launch and manage multiple campaigns to target their audience. By splitting its audience even further, YouTube risks alienating advertisers who may decide to allocate their campaigns elsewhere for maximum effect.

YouTube is already facing competitive pressure from the likes of Facebook, which is reporting 4 billion daily views. Facebook remains an ad-centric platform with no subscription tier to muddy its value prop to advertisers.

What’s more, many of the top YouTube MCN held their own NewFront presentations to attract advertisers directly. These include the likes of Fullscreen, Machinima, and several others. Most notable was Maker Studios, which offered the first glimpse of the role new parent company Disney has on content production.

Almost all were focused on the creators and personalities in their roster, and how their audience reach extends past YouTube to Facebook, Twitter, and other platforms. They’re offering to create custom videos for brands using their talent, and even looking for series “presented by” sponsorships. In other words, advertising models from which YouTube does not receive a dime, for now. Already, we’ve seen the Ad Council using YouTube celebrities like Grace Helbig and Justine Ezarik as part of its “Creators for Good” social issues campaign that will soon also feature contributions from AwesomenessTV, StyleHaul, and Defy Media among others.

Now YouTube has plenty of momentum going into this year. Its Google Preferred program, introduced at last year’s NewFront presentations, has proven to be highly successful, particularly with attracting traditional TV advertisers. It’s also taking steps to appeal to its more visible “YouTube Stars” by paying them to create original series as well as feature films that will premiere first on the YouTube network.

While most of the NewFront discussion centered on YouTube stars and dominant MCNs, consider the smaller, long-tail creators, those with 50,000 fans or so who depend on advertising to cover costs and eek a profit. They’re not going to see many high-tier subscribers in the early days, if ever. If this new subscription initiative impacts YouTube’s core advertising revenue, it will be these smaller creators that will suffer.

The irony here is that YouTube’s subscription tier is an effort to compete with off-YouTube distribution options like Facebook and others. But by removing a layer of premium viewers from advertisers’ reach through a subscription tier, YouTube may in fact wind up pushing creators to these competitors by eroding the advertising revenue from those who aren’t yet ready to acquire meaningful subscribers.

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