Google goes back to ad-supported model for its YouTube Originals

Google seems to come a cropper when it comes to its YouTube content ambitions, announcing all of its Original content will now be available for ‘free’.

As part of the evolution of YouTube, Google attempted something which could have been viewed as quite drastic; it introduced a paywall. For $11.99 a month, users could access ad-free content, Google’s library of music and also its Original content. For a platform which has a reputation for free content, it was a strategy which flew in the face of logic.

However, it would appear this strategy has been less than successful. This is not to say it is dead, but more work needs to be done on the foundations before the palace can be built. Starting at some point this year, YouTube Original content will be available for ‘free’, with adverts, on the YouTube platform for all to view.

“Today, we announced that all new YouTube Original series and specials will soon be available for fans around the world to watch for free with ads — just like they enjoy other content on the platform,” YouTube said in a blog entry.

The paywall business model might be attractive in the long-run, but Google is still a business with investors; it has to make money now as well.

“Presumably YouTube’s gargantuan global audience means its more lucrative to use advertising rather than subs to monetise those shows [YouTube Originals],” said Ed Barton, Chief Analyst at Ovum.

“YouTube has huge audiences in many countries which don’t have much propensity to subscribe to online video services so focusing on advertising presumably unlocks a lot of value in those markets.”

Perhaps this is what we should take away from this move; Google tried to do something new, it didn’t reap the rewards, and now the team is going back to the tried and tested ad-supported model. It was too much self-disruption to stomach is a single sitting.

The content conundrum

Despite content being one of the biggest discussions in the tech world over the last few years, the question of how to make money still remains.

On one side of the fence, you have the paywall business model. There are numerous benefits here, recurring revenues and brand stickiness being the most obvious, though it does also create a sense of authority in the field. This premium perception will be attractive to the content creators, and it does also simplify the process of paying the creators themselves.

However, a paywall does make it more difficult to scale viewing figures and does mean you have to justify the cost to consumers. Dud content is punishable through the trials of social media meaning more attention (and money) much be spent on creating original content.

Looking at the ad-supported model, the practice which drove Google to the behemoth it is today, content is much more accessible and simpler to scale. You also have the advantage of not being punished for suspect-quality content as consumers are being entertained for ‘free’.

But there is also the downside, which mirrors the paywall approach almost perfectly. Content creators will be afraid of de-valuing their work, while there is also the complicated matter of getting paid. Consumers are not necessarily guaranteed to come back, and when you have created a reputation for a free-content provider, shifting users towards premium products becomes much more difficult.

Google’s long-term ambitions

The ad-supported business model has fuelled Google’s growth over the last decade, though it would be stupid to ignore the trends which are in the market.

“Google and YouTube should certainly have an eye on over-arching trends in the content space,” said Paolo Pescatore of PP Foresight.

“Traditional content creators are gradually moving towards the world of OTT, and YouTube is the most popular streaming platform on the planet. It has to figure out how to change its perception in the eyes of the consumer, ushering the masses behind the paywall.”

As Pescatore points out, consumers view YouTube as a platform for free content. This engrained perception will present challenges in driving adoption of the premium products, however offering the Original programming for free might work as somewhat of a teaser to justify the expense of a subscription.

YouTube is a platform which can survive by solely focusing on the ad-supported model, however it will be leaving money on the table. Premium streaming services are certainly gaining more traction, creating more value throughout the entire digital ecosystem. Why would Google want to ignore this potential boost to revenues?

Diversification is key for every business, not just the ones who are under financial pressures. Google has consistently shown it is an organization which consistently strives for the new and is not afraid of setbacks.

The movement towards a paywall on the YouTube platform might not have worked for the moment, but there are simply too many gains to ignore. Releasing YouTube Originals as free content might be a smart way to alter the perception of YouTube, demonstrating the value of what is behind the paywall to consumers, and also proving content creators their pride and joy would not be devalued on the platform.

For the moment, Google executives seem to have decided that there is more money in ad-supported revenues than the paywall for YouTube Originals. This might not help long-term ambitions of making the paywall model work, but perhaps it was too much of a drastic step away from the traditional Google business model.

This is a minor set-back, but the YouTube paywall is far from destroyed.

Facebook calls on governments to help control content on the Internet

Facebook founder and CEO Mark Zuckerberg has governments and regulators to play a more active role in developing new rules for the internet.

In an op-ed for the Washington Post, Zuck claimed that the current rules of the internet have served his generation of entrepreneurs well, but “it’s time to update these rules to define clear responsibilities for people, companies and governments going forward.” He argued that companies like Facebook should not make daily judgments on the nature of all the content going through its platform just by themselves. “I believe we need a more active role for governments and regulators,” Zuckerberg said. For what he called the new rules for the internet, Zuckerberg proposed that the parties involved in the governance of the internet should focus on four areas.

“Harmful content” came on top of his list. Zuckerberg conceded that Facebook is having too much power over speech, and believed there is a need for an independent oversight body, dubbed by some media as a “Facebook Supreme Court”, which the company is building up. “First, it will prevent the concentration of too much decision-making within our teams. Second, it will create accountability and oversight. Third, it will provide assurance that these decisions are made in the best interests of our community and not for commercial reasons,” Zuckerberg explained the rationale when the content governance and enforcement plan was published last November.

Zuckerberg also cited the example of the company’s collaboration with the French government to highlight the Facebook’s willingness to work with regulators. Starting from January Facebook has hosted a group of French senior civil servants including those from the telecom regulator l’Arcep (Autorité de régulation des communications électroniques et des Postes) or the Ministry of Justice, whereby they can identify Facebook’s good practice that the delegation can approve. Incidentally, France raised nearly 38,000 requests for Facebook pages to be taken down in 2015, by far the highest number of all countries, according to a stat by Statista from a few years back, cited by the French media outlet Le Journal du Net (JDN) (pictured).

Second on Zuckerberg’s list is “election integrity”. Recognising the significant role Facebook data, and the misuse of it, has played in recent political campaigns, the company is implementing new rules related to political ads, in the run-up to the European Parliamentary election in May. Users are able to search who is behind a certain ad, how much is paid, the number of times the ad has been viewed, as well as the demographics of those that have viewed it. The “Ads Library” will be stored by Facebook for seven years.

However, Zuckerberg also recognised both the difficulty of identifying political ads (“deciding whether an ad is political isn’t always straightforward”), and the inadequacy of the current rules on political campaigns including online political advertising. Therefore, he was calling for both common standards for verifying political actors, and for updates on the laws to keep up with the fast-changing online realities. At about the same time, Facebook published a post to explain how “Why am I seeing this post?” and “Why am I seeing this ad?” work, to further its efforts to be more transparent.

“Privacy” is the next on Zuckerberg’s list. He focused on the topic of privacy in a long post recently, so he did not spell out the measures Facebook is taking. Instead, Zuckerberg was calling on governments and regulators from all countries to develop a common global framework modelled on the GDPR regime in the EU.

Last on the list is “data portability”, i.e. users should be able to seamlessly and securely move their data from one platform to another. This is centred on the Data Transfer Project (DTP) that Facebook is contributing to, together with Google, Microsoft, and Twitter, and is not directly related to governments or regulators. The project aims to build “a common framework with open-source code that can connect any two online service providers”. When the user initiates a data transfer request, DTP will use the “services’ existing APIs and authorization mechanisms to access data. It then uses service specific adapters to transfer that data into a common format, and then back into the new service’s API.”

Zuckerberg has extended plenty of goodwill recently, and there is no reason to question his sincerity. However, in addition to the lack of implementation details in his proposal, his call for actively working with governments and regulators can be a double-edged sword. On one hand, a global oversight body could be able to define a set of common rules that all internet companies can be regulated by and assessed on. On the other hand, how to avoid being dictated by the agenda of individual governments, especially in countries where the demarcation between politicians and professional, supposedly neutral civil servants is less clear, is a hard question to answer. For example, how fundamentally different is Facebook’s collaboration with the French government from Google’s clandestine efforts to satisfy the Chinese government’s censorship requests?