Last week saw a red letter day for YouTube, finally unveiling its long-rumoured subscription service: YouTube Red. In the process, it risked alienating video creators, dealt a blow to Internet advertising and made a bold move to ensure its future relevance in online media.
Launching in the US on Wednesday, YouTube Red is a $9.99 per month service that gives you ad-free video, offline and background playback on mobile devices along with access to its upcoming Music (formerly known as Music Key), Gaming and Kids apps when they launch. Google has also signed deals with several popular YouTubers, including PewDiePie and Tobuscus, to produce original shows and content available exclusively to paid users.
YouTube will remain free, to those who can stand watching the same three adverts on loop, and should be largely unchanged. However, with companies like Spotify boasting 20 million paid-up members after imposing tighter and tighter restrictions on what its free version provided, it's possible we may also see ad-supported YouTube get marginalised beyond what a regular user can live with to encourage buying a subscription.
For "partner" creators - the people who make YouTube videos and earn money from adverts on them - the announcement has been met with uncertainty. Google has been ruthless in its attitude to creators, telling them they must sign up to YouTube Red's revenue deal or see their videos removed or made private, effectively preventing them from making any money off them. Already, the official YouTube channel of US sports network ESPN - which currently has over 1.5 million subscribers and racked up half a billion views - has lost all its videos after an issue with existing contracts prevented them from joining in.
For career YouTubers, losing all their work in one fell swoop is untenable, so they have no choice but to agree to the new terms, which explains why a Google spokesperson told TechCrunch that the partners representing 99% of content have signed up. Google also said that the goal of forcing the new deal was to ensure that Red subscribers don't find that certain videos aren't available ad-free. Of course, YouTube could simply not serve ads to Red members - supplemented by the monthly fee that goes directly to YouTube - and use the lost ad revenue to incentivise creators into agreeing to the new deal. But if Google wants YouTube Red to be a success and reclaim control over how online video is funded, instant and total participation from partner creators is essential.
Precisely how revenue share for creators will be calculated under an ad-free subscription model is unclear. But, at the launch event for Red, YouTube's chief business officer Robert Kyncl said that the "vast majority of revenue" will go to creators and that watch time will be a factor in how the revenue split is determined. If Red is successful, it's possible that the calculation based on ad impressions will become increasingly irrelevant and YouTube will be free to determine revenue rates on its own terms.
By lessening its dependence on advertising and bringing its content producers along for the ride, more power over online video shifts irrevocably back to YouTube. In the last few years, as the corporate world has caught on to the power of online media, YouTube has rapidly becoming a passive platform and advertising engine while all the major monetisation was being done outside their control. For many full-time creators, YouTube's ad revenue program - in which Google usually takes a 45% cut - has been only one part of how they make a living and thus were dependent more on the audience than YouTube itself.
The biggest example of this are sponsored videos. Creators are at liberty to upload content that a brand or other company has paid them to make. YouTube has some restrictions on how sponsored videos can be presented, but endorsements are an accepted part of the culture of online video and a major source of income for popular creators. These videos are often monetised through YouTube's adverts as well but if the creator abides by YouTube's restrictions and elects not to monetise the video, YouTube makes nothing from serving the video and the creator still gets paid.
Then there's the rise of crowdfunding, particularly services like Patreon where viewers can determine a monthly pledge that goes directly to the creator, albeit with Patreon taking a 5% commission. For video producers with a large and/or generous audience, their Patreon income often far surpasses the money scraped together by YouTube's ad impressions for the exact same work, without having to put up a paywall. Meanwhile, YouTube doesn't see a penny of it and only benefits if the video producer opts to apply adverts as well, which they increasingly they don't need to.
But the biggest threat to YouTube's power in online video could come from other media companies buying up multi-channel networks (MCNs). These are organisations that work with multiple YouTube channels to help its owners grow and fund new content in exchange for signing over revenue control. Probably the most notable MCN is Maker Studios, founded in 2009 by the popular YouTubers of the day, which was bought by Disney last year. Maker Studios' producers have been and continue to grow within YouTube's ecosystem, meaning every video Disney fund for Maker directly benefits YouTube, a rival media company, when Disney already has an expansive distribution network of its own.
For now, Disney benefits by keeping its Maker shows inside the YouTube walls to grow its audience, but eventually it's going to want the whole pie rather than sharing nearly half of it with Google. If it decided to move all Maker-owned channels onto a video service of its own and off YouTube, Google loses popular new content and has helped grow and part-funded a powerful new rival in online video. More MCNs being snapped up by more companies and not does the online video market become hopelessly fragmented, but YouTube is left out to dry. YouTube Red can't prevent that from happening - though, despite the ESPN problems, Disney has reportedly agreed to the new revenue deal - but it does position YouTube as a service people are willing to pay for rather than a passive platform that leeches advertising money Disney could generate itself.
With all these things undermining YouTube's importance in funding the people generating its content, Google has needed to rethink how it capitalises on its video services. Uncoupling video monetisation from advertising ensures that YouTube still makes money from videos even if the creator completely supplants their ad revenue income with sponsored videos and crowdfunding. Producing original content ensures YouTube's shelves keep being restocked even if large MCNs jump ship. Ultimately, Red turns YouTube into a service, a participant in online media rather than a simply a platform.