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.
Hank Green, a YouTuber, entrepreneurs, and author of a great article on Medium on the topic of the $2 CPM.
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.
TOTW: Google's Project Ara Modular Phone May Be The Future Of SmartphonesOctober 30, 2014
