Posts tagged $2 CPM
This article is the second in a two-part series on the advertisement conundrum of online video. If you haven’t already, check out the first article in the series HERE.
In the previous article in this series, I explained the current monetization situation in online video, and how the $2 CPM ($2 per thousand views) is, as of right now, the industry standard ad rate. As I have begun to learn, along with many others in the field of online video, the $2 CPM is neither a sustainable nor beneficial model to anyone but the companies paying for the ads. There are a few reasons why the current $2 CPM standard simply doesn’t work. First of all, it’s just too low; with only $2 per thousand views, YouTubers have to grow a very large audience, which is incredibly hard in the current YouTube landscape. There has been an explosion of creators and content using YouTube in recent years, and as of now, it’s very unlikely that any one small YouTuber will hit it big, simply because of the enormity of the amount of channels out there in the first place. Secondly, even once you factor in the $2 ad rate, YouTube takes away 45% of that revenue for their own profit. While it isn’t surprising that YouTube has a “platform tax”, after all, Google is a publicly-traded company whose investors care about the bottom line. Yet 45% can be a big hit to smaller and larger channels, and compares unfavorably to Apple’s already high 30% revenue share for App Store products. But my suspicion is that this won’t be the part of the equation that will be changing, as YouTube has in the past addressed this issue and said nothing about reducing their share of the monetization.
Finally, the $2 CPM restricts the production quality of growing YouTubers who are forced to produce cheaper content more often to make ends meet. YouTube has addressed this as well, and their counterargument is that YouTube isn’t and wasn’t built to be the main source of revenue for a channel, and only really works in that capacity for smaller channels. And it’s true, YouTube is good at growing brands and personalities, although that attribute is shrinking because of the low odds of being successful.
Basically, they’re suggesting that you as a YouTuber derive your main or secondary source of income elsewhere, perhaps through sponsorships and other marketing deals. And while many channels do that type of marketing, at some point creators just don’t want to surrender their editorial control in exchange for money, most likely part of the reason they came to the platform in the first place. Hank Green, in his Medium article on the subject of the $2 CPM, posed the “just ask” strategy, i.e., just ask your audience for money. You might think that strategy would never work, but the website Patreon is built directly off of that strategy, and it has grown substantially and has become a great source of money for many creators.
Creators tell their audience that they would like, in exchange for some small perks, those who can afford and would like to, “pledge” to give them a certain amount of money regularly, commonly every video or every month. This allows creators to realize another source of income, without such a prominent middle man, and simply because the viewers like their content and want to creator to make more and better videos.
You may be skeptical that this strategy would work, but take Crash Course, which earns $29,000/month directly through Patreon, and they aren’t the only ones. As Hank Green wrote in his article, giving to creators because you like their work and want them to make better content doesn’t encourage more lower quality videos but “it encourages a different kind of content. Instead of challenging creators to figure out how to get the highest view counts, creators have to puzzle out how to make the most valuable content.”
Even still, we can’t expect Patreon to completely cover a creator’s budget, as even for large YouTubers only a small percentage of your audience is willing and able to pay on a regular basis. Ads certainly won’t cover the costs, and while sponsorships hopefully would fill the rest of the budget, for many creators you still end up on the short side of where you want to be. YouTube has only been around for a little more than 10 years, but it’s still on a path to realizing its full potential in terms of influence and popularity. Hank Green feels that the rough transition from TV to online video may actually be a good thing for creators:
“Part of me is actually glad that advertisers have been so slow to adapt. It’s made it clear to a lot of people that advertisements aren’t the only (or even the best) way to monetize content… What that leads to isn’t just new business models — we’re seeing new creation models, new audience relationships, and new kinds of content. With a couple of simple new tools, the economic arrow is suddenly pointing in new directions, and I’m very excited to see where it leads us.”
We’ll see where the ad conundrum of YouTube takes us, and if it can be solved in the near future. Right now, YouTube ad rates are valued at 32x less than TV and 250x less than film, figures that I doubt anyone who is familiar with the platform would agree with. Money guides everything, even an open platform with a negligibly small barrier-to-entry. In my opinion, despite all the constraints that are financially-cornering creators, the community as a whole will get past this issue and grow a thriving, profitable, and revolutionary (well, more revolutionary than it already has been) platform for creators and audiences of all kinds.
With the possible exception of the Super Bowl, I’d bet it’s safe to say that nobody likes ads. Whether before a movie or video, in commercial breaks during television programs, or in the middle of your favorite podcast, nobody really enjoys being told to buy this product or use this service (often in a cringe-worth way) while they are enjoying their entertainment. Yet advertisements aren’t going away anytime soon; with the larger and larger audiences their ads are reaching, companies remain willing to allocate precious dollars to get their name out in every way they can. In the world of Internet publishing, ads have persisted as the staple of a creator’s income, despite significant shifts in the media landscape. But for online video, currently dominated by YouTube. advertisements have been a challenged revenue channel for creators hoping to earn a living.
I love YouTube and have a massive respect for the creators who have made it their full-time occupation to publish videos on the platform. These individuals spent an incredible amount of time and effort to become popular enough just to quit their day jobs and spend their time earning a living via YouTube. The sad part is that making a living on YouTube is harder than one might think. With popular YouTubers like PewDiePie making up to $7 million per year, it might be easy to regard YouTube as an easy path to fame and riches. But really, every YouTuber with even just 5,000 subscribers have put their heart and soul into their videos. As it is, money coming from ads just isn’t enough to allow YouTubers to start making videos full-time until they become very popular, a level which many never reach.
Let’s do the math. The average personal income in the United States is roughly $30,000. The current YouTube ad rate is a $2 CPM ($2 for every thousand views). To earn even the average U.S. income, a YouTuber creating weekly videos (a common schedule) would have to average nearly 300,000 viewers per video, an average usually only met by a YouTuber with around 2 million subscribers. (this varies from channel to channel) Of course, the rate at which you create videos is key in this calculation; if you make a video every day, the average view count drops to a more plausible 40,000. Compare that to the average CPM rate for TV, which is $19 (for an average 22-minute show). With that rate, you would only have to get 30,000 views per weekly video to reach the national average – much more sustainable.
This isn’t just about YouTubers making more money because their media peers in television and film earn more. I’m not writing this out of pity for the struggling YouTubers who can’t earn a living wage yet are spending all their time trying to grow their audience. The reason the $2 CPM needs to be increased is because it simply isn’t enough to allow YouTubers to grow and make the great content we all want to watch. Take Olga Kay, a YouTuber with around 1 million subscribers across her five channels. In an article written in the New York Times, Olga talked about her hectic work schedule and about how “If we [her friends] were coming to YouTube today, it would be too hard. We couldn’t do it.”
Olga said in the article that she has made $100,000 to $130,000 every year for the last three years, which is a good income; yet she is still constantly stressed about finances, as much of that $100,000 goes straight back into her channels to pay for editors, equipment, etc. Let’s be honest: no one making twenty videos a week, almost three per day, especially with 1 million subscribers, should be that worried about finances.
This is the first part in Fast Forward’s two-part series on the YouTube’s advertisement and monetization conundrum. Stay tuned for the second article in the series over the next few days!