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.

Apple announces original content, a credit card and a news subscription service

Apple’s big services event didn’t disappoint, with a bunch of potentially disruptive launches together with new levels of hyperbole and clapping.

The headline service was Apple TV+, which marks Apple’s first major foray into original content. We were treated to an interminable procession of Hollywood types, starting with Stephen Spielberg and culminating with Oprah Winfrey, all taking it in turns to come onto the stage and hype their projects. Judging by the line-up Apple has realised it needs to spend big if it wants to take on the likes of Netflix.

As ever the audience of media and analysts at the live event were about as objective and sceptical as hungry puppies. Every pause in the polished narrative was filled with rapturous applause and ecstatic whoops. So choreographed was it that we wouldn’t be surprised if there were prompts and the tendency to cheer at the mere mention of a new product without waiting to even find out anything about it was especially jarring.

As was Apple CEO Tim Cook’s toe-curling hyperbole. “TV at its best enriches our lives and we can share it with the people we love,” he pronounced at the start of the TV announcement. The original content bit was preceded with the revelation that “great stories can change the world.” This sort of stuff was pretty hard to stomach when Steve Jobs was delivering it, but his messianic zeal just about pulled it off. Cook offers little such salve.

The other potentially disruptive announcement was a new Apple credit card called Apple Card. This had been rumoured for a while and, as expected, it has been create in partnership with Goldman Sachs and MasterCard. In reference to Apple Pay Cook felt compelled to say “Its growth has been literally off the charts,” for some reason. The most intriguing part of the card is the offer of 2% cash back on every purchase, which makes you wonder how much merchants are going to get stung for its use. There’s also a physical card made out of titanium that only offers 1% for some reason.

Apart from that we got a couple of new subscription services. The more significant one is for news and magazines that will set you back a tenner a month and will be positioned as a potential solution to the cash crisis faced by the media, but let’s see. “We believe in the power of journalism,” said Cook. There was also a teaser for a games subscription service that will offer exclusive titles and make it easier to play across platforms.

“We’re honoured that the absolute best line-up of storytellers in the world — both in front of and behind the camera — are coming to Apple TV+,” said Eddy Cue, Apple’s SVP of Internet Software and Services. “We’re thrilled to give viewers a sneak peek of Apple TV+ and cannot wait for them to tune in starting this fall. Apple TV+ will be home to some of the highest quality original storytelling that TV and movie lovers have seen yet.”

“Apple Card builds on the tremendous success of Apple Pay and delivers new experiences only possible with the power of iPhone,” said Jennifer Bailey, VP of Apple Pay. “Apple Card is designed to help customers lead a healthier financial life, which starts with a better understanding of their spending so they can make smarter choices with their money, transparency to help them understand how much it will cost if they want to pay over time and ways to help them pay down their balance.”

“We’re committed to supporting quality journalism, and with Apple News+, we want to celebrate the great work being done by magazines and news outlets,” said Lauren Kern, Editor in Chief of Apple News. “We think the breadth and quality of publications within Apple News+ will encourage more people to discover stories and titles they may never have come across before.”

Note Apple News has an Editor in Chief. Cook made it clear that Apple would only serve up the right kind of news for its subscribers and he has been clear about his willingness to impose a moral filter on everything Apple does. You have to wonder how empowered to interfere with the content published on Apple News this Editor in Chief will be.

“This represents a landmark moment for Apple with a major event solely focussed on services,” said Analyst Paolo Pescatore, who was at the event. “It underlines a growing and strong focus on services as a future source of revenue growth. In essence Apple is seeking to become a Netflix of everything in services; music, news and magazines, video and games.

“Netflix has done a great job to date. However, more content and media owners will pull programming off its offering. This represents a significant opportunity for the likes of Apple who has scale and greater resources. There are too many players chasing too few dollars. The market will evolve towards a handful of players in the future.”

Apple idiosyncrasies aside this felt like a fairly solid  launch event. The company has an amazing track record of disrupting industries and seems likely to do so again with original TV content and consumer finance. The scene is set for a content arms race with only the biggest spenders likely to survive and Apple has a deepest pockets of all. Game on, here are some vids.

 

AT&T just misplaced 267k DirecTV Now subs, but it’s OK

The AT&T earnings call was somewhat of a mixed bag of results, with gains on mobile but it somewhat irresponsibly managed to misplace 267,000 DirecTV Now subscribers; its ok says CEO.

Digging down into the numbers always tends to lead to many twists and turns, but the big one is DirecTV Now, the telcos attempt to blend into differentiation and get ahead of the cord cutting generation. This has not exactly been a rip-roaring success for the business so far but losing 267,000 subscribers in three months is a headline which will take some beating.

So where did they go? According to the business, they were basically just allowed to leave. With $10 a month promotional subscriptions biting down hard on profitability, the powers-that-be seemingly decided to cut the losses. The company scaled back promotions and the number of customers on entry-level plans declined significantly, however on a more positive note, the number of premium subscriptions remained stable.

Unfortunately for AT&T, stable will not cut the grade anymore. Having made the questionable decision to acquire DirecTV for $67 billion in mid-2015, some would have hoped the outcome would be more than ‘stable’ three years later. With another whopper of an acquisition taking place during this three-year period, AT&T will be hoping to scale up success before too long if it is to reduce the debt weighing down the spreadsheets.

“Our top priority for 2018 and 2019 is reducing our debt and I couldn’t be more pleased with how we closed the year,” said CEO Randall Stephenson. “In 2018, we generated record free cash flow while investing at near-record levels.”

The other acquisition, WarnerMedia, seems to be having a better time of it than DirecTV. Total WarnerMedia revenues were $9.2 billion, up 5.9% year over year, primarily driven by higher Warner Bros revenues, consolidation of Otter Media and higher affiliate subscription revenues at Turner. What remains to be seen is whether this can continue. WarnerMedia is a media company which is awaiting the full integration and transformation wonders from AT&T. What impact this risk-adverse, lethargic and traditional business will have on the media giant is unknown in the long-run.

Elsewhere in the business, things were a little more positive. The team added 134,000 valuable post-paid subscriptions in the wireless business, though this remained below expectations, with the total now up to 153 million. Total revenues were up15.2% to $47.99 billion though this was also below analysts’ estimates of $48.5 billion. A bit more positive, than DirecTV’s car crash, but still not good enough according to Wall Street as share price declined 4.5%.

Apple turns to gaming to crack subscription conundrum – sources

Apple has been searching far and wide for alternative revenue streams to reduce its reliance on the plateauing devices market, and the latest venture might take it into the world of gaming.

With content being an incredible bust for the business, Apple is reportedly in hot pursuit of the blossoming gaming segment. This is an area which would seemingly tick all the boxes for the iLeader; recurring revenues, a chance to grow organically and in before the segment has become popular and saturated.

According to Cheddar, Apple is in discussions to create a gaming platform which would bundle various titles together behind a paywall. It sounds like it could be a Netflix for gamers and would certainly give the status quo of gaming a bit of a poke.

Looking at the gaming segment, this is an area which is becoming increasing popular with users while profitability is certainly heading in the right direction for the developers and platform owners. There is already a lot of money flowing around this space, but as more games evolve away from single- to multi-player, internet focused experiences, popularity seems to be growing in the mainstream markets.

Recent figures from the Entertainment Retailers Association (ERA) in the UK suggest gaming now accounts for just over 51% of the three segments in the entertainment world (video and music being the other two), doubling in revenues since 2007. Netflix and Amazon have proven the subscription OTT segment has legs, normalised the idea in the mind of the consumer, so why shouldn’t a gaming platform work as well.

Of course, for this to work Apple would have to convince the developers to join hands behind the paywall. This is where Apple’s venture into the world of content has failed before; it didn’t create good enough content to be considered a realistic player. This will certainly be a big change in the status quo for the developers and it will be interesting to see what the results are. Apple not only needs high quality content, but a broad enough portfolio to make it value for money.

Here is where Apple is swimming against the tide. Single purchases might have been the way developers made money in the past, but the popular route is now free-to-play with in-game purchasing options. It has proven to be very successful and there might be some resistance to move to another business model. Don’t fix what isn’t broken might be a relevant phrase here. What Apple is suggesting in a completely new approach to revenue sharing as the games are bundled together behind a paywall. Theoretically it can work but change scares the majority.

If Apple can balance the equation, it would certainly be a relief for CEO Tim Cook who must be feeling some pressure right now. A less than enthusiastic earnings call demonstrated Apple is floundering in the software and services segment. Yes, it is growing, but not at the rate of knots which Apple investors have come to expect. Apple hasn’t really done anything exciting or applaudable in this segment yet, most of the gains are through iTunes or Apple Care for example; differentiation and diversification are desired above all else.

Apple is certainly stepping out of its comfort zone here, and we strongly suspect it might fail because of this. However, it might just lead the way for a fast follower (Netflix perhaps?) to reap the rewards.

In fairness though, you have to give Apple credit for creative thinking and an interesting idea. Those recurring revenues might not be that far away for the iGiant.

Jio bags another 10 million – how was your October?

The Telecom Regulatory Authority of India (TRAI) has released the subscription data for October and it’s another familiar story as Reliance Jio grows its subscription base again.

Looking at the market on the whole, India now has 1.17 billion wireless subscriptions, having added another 720,000 during October. Amazingly, market penetration is now up to 87%. While growth has been staggering since Reliance Jio shunted the status quo, if the country follows what would be considered the traditional trend (mobile penetration eventually exceeding 100% of population) there are still a couple of hundred million mobile subscription to realise.

Unsurprisingly, Reliance Jio has greedily devoured almost all of the positive growth.

Subscription growth Market share
Reliance Jio 10,500,227 22.46%
BSNL 386,926 9.7%
Reliance (3,831) 0.002%
MTNL (8,068) 0.3%
Tata (925,299) 1.8%
Bharti Airtel (1,864,065) 29.2%
Vodafone Idea (7,361,165) 36.55%

With only BSNL, India’s state-owned telco, heading upwards Reliance Jio has firmly placed itself in the strongest position across the market. Bharti Airtel is in somewhat of a downward spiral and it’s difficult to see how it will get itself out of this position, therefore eyes will be cast towards Vodafone Idea for resistance to the Reliance Jio tsunami which is sweeping India.

Looking at these figures alone paints a relatively dreary picture, though you have to appreciate the complicated process the business is currently undertaking. The merger between Vodafone and Idea, which was caused by the jittery upstart Jio, is going through the rationalisation period right now. This is a very complex time and will define the firm’s ability to tackle the Reliance Jio headache in the months to come.

On the money side, we do not foresee this being a massive issue. Vodafone and Idea are merging two massive networks and will soon enough realise the benefits of scale. The subscriber base is massive, providing security for any future investments, and the sale of various different assets (such as the respective tower businesses) provides a hefty war-chest. Taking these factors into account, money should not be an issue, so we have to wonder whether the right people will be put into the right roles and if the right (and flexible enough) strategy will be put in place.

Vodafone Idea is now clearly the market leader in India, but it will only take a couple more months of Reliance Jio continuing on its current path for this lead to be eroded. The momentum is gathering behind Reliance Jio and new products and services (such as fixed broadband) will only add more as convergence ambitions are realised; the emphasis is certainly on Vodafone Idea to prove this isn’t turning into a one-man market.