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ARE YOU READY FOR YOUTUBE’S PAID SUBSCRIPTIONS?


May 8, 2013

YouTube is soon preparing to launch paid subscriptions to as many as 50 channels for around $1.99 per month per channel. And we’re betting that YouTube is likely going to be rolling this out to more channels in the near future.

Ergo, as a content creator you have to ask yourself the question, “Am I ready for paid subscriptions?”

To help you answer this important question, or even just get your arms around this new channel model, we want to quickly lay out the pros, cons and unknowns of YouTube’s paid subscription model (with a dash of basic math).

PROS
• A new revenue stream for your channel
• Identifying loyal fans. Paying users are fans willing to spend money connecting with their favorite creators via merch, fan clubs, etc
• Fan base targeting via collected info from paywall authentication
• Potentially higher CPMs. Advertisers may pay up for eyeballs from viewers of paid channels

CONS
• Subscriber churn / slower subscriber growth. Anything that costs money translates to slower user adoption, especially when there are creators willing to not charge subscribers for what they will brand as similar, premium content
• Potential clumsy product integration. No one knows how YouTube will incorporate this into their interface
• Potentially lower CPMs. Initial video views are driven by subscribers, and so less subscribers and therefore lower initial video views translates to less promotion across the YouTube platform as a whole, adversely impacting a video’s long term view growth trajectory. CPM is tied to video demand when advertisers bid for media placement, so lower video demand can drive CPMs downward

Now, let’s do some quick math for a creator with an existing YouTube channel thinking about what paid subscriptions means in terms of monthly revenue:

A channel with 100k subscribers gets 1mm monthly monetized playbacks and a CPM of $4.00, equating to $4,000 of gross AdSense earnings.

Now imagine that channel turns on paid subscriptions at $2 per month, resulting in subscribers reducing from 100k to 5k (a 95% drop!). At $2 per month, that equates to $10k of monthly gross revenue from paid subscriptions alone. So even after a 95% subscriber decline, YouTube channel revenue increases by 250%, not even including the impact of AdSense.

While this seems great at first glance, don’t forget about the value of an audience and influence. With a smaller audience and thus less influence, brand integrations, merch and other revenue streams for creators are much harder to come by. But again, that could be offset by a smaller but more loyal fan base that has a higher willingness to spend connecting with their favorite creator. But we’ll stop there before I go down the rabbit hole of playing devil’s advocate for both sides.

Here are some other important things to consider:

Unknowns Worth Knowing
• How will paid subscriptions affect YouTube algorithms? Will the YouTube search algorithm favor paid channels over non-paid channels?
• What is YouTube’s cut for subscriptions? Will it be the same as AdSense?
• Who will have control over pricing, YouTube or the creator?
• What will be the optimized programming strategy for paid channels? Will paying users want a different viewing experience from the current YouTube layout?
• Is YouTube the next Hulu / HBO GO / Netflix?

The takeaway here is that creators must weigh the total channel and influence impact of paid subscriptions, and that looking at the revenue of paid subscriptions in isolation is a shortsighted proposition.

There is a lot to think about and the above notes only scratch the surface. We hope this empowers you, the creator, to approach the new paid subscription model armed with insight and a balanced perspective.

Here’s to a better informed creator community!

 

Chris Erwin
Chief Operating Officer
@chrnov