YouTube Market Forces

An interesting debate has emerged in the last few weeks over the value of the views that videos (and video ads) receive on YouTube.

It all started with an eyebrow-raising blog post (and companion video) by Jason Calacanis about why he turned down funding from YouTube to create original content for the site. Shortly after, rumors emerged that Maker Studios – one of the main YouTube “studios” – was mulling creating its own post-YouTube video site.

The issues at play revolve around two common themes. First, there is no viable video competitor to YouTube, at least not in terms of overall reach and volume. Second (and obviously related) is that partners are beginning to chaff at YouTube’s business policies, most notably: the 45 percent cut of advertising it takes, the lack of any marketing support, and the lack of a dedicated YouTube ad sales force.

To be sure, YouTube is making efforts to increase the revenue stream it offers partners. It added paid subscriptions (the jury on which is still out) and has jazzed up its mobile advertising efforts to the tune of an estimated $350 million in the last six months. But at the end of the day, YouTube should be viewed as a customer acquisition tool in addition to a monetization tool.

Simply put, YouTube is where the traffic is. Not every content publisher is a Vevo or a Hulu, with the cash, exclusive content, and major-label/studio clout needed to carve out its own presence online. So brands with video content to distribute and monetize would do well to have a presence on the platform. The question then is what to do with the attention received.

A branded video app, optimized for all platforms (mobile, tablet, web, and more) is one answer. Let’s consider for a moment the value of a video view on YouTube versus the value of a view in a mobile app.

First, mobile apps drive higher engagement. As I’ve stated in a previous column, the most active mobile video users are those aged 18 to 34 years old. Somewhere between 35 to 50 percent of these users choose to view video on mobile over other formats (to be clear, this stat refers to mobile views within branded apps, not mobile browser video views). Second, video apps deliver higher CPMs – today, anywhere from two to three times the CPMs of online video advertising.

Taken together, I estimate the opportunity cost for not augmenting a YouTube channel with a mobile app is anywhere from hundreds to thousands of dollars per month in purely advertising revenue, depending upon the popularity of your YouTube channel – on top of which, an app adds the opportunity to offer e-commerce, subscription, and In-App purchasing to your most engaged fans. So a smart play is to use both YouTube and an app strategy together for the best revenue potential.

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