YouTube’s Freemium Model: Who Wins Marketers Or Consumers?

Recently, YouTube announced that it’s fine-tuning a subscription model for a music streaming service called YouTube Music Key that they plan to launch in the next few months. Music Key would allow users to listen to music on YouTube ad free with a monthly subscription. Freemium seems to be all the rage in digital media the last few years. Freemium is a pricing structure that allows people to use the service of free but also gives the option to upgrade to a higher tier of service, often to remove ads or unlock advanced features.

Many popular companies are currently using the freemium model including LinkedIn, Spotify, Dropbox, and Hulu. Supercell’s Clash of Clans, a freemium mobile game where players can download the app for free but can also spend real world dollars on upgrades, reportedly made $654,000 a day last year. With more apps and websites releasing freemium upgrades to already ‘free’ services, marketers and consumers are at a standoff where one is paying to reach the other, and the other is paying to stop them. And neither has heard of AdBlock…

What It Means for Consumers

Consumers have to realize that nothing in life is truly free. If there are any costs involved in creating or maintain something, there’s will be an expense to the user. With freemium business models, you have two options on how you want to pay: with your attention, or your money.

YouTube’s paid model would still be a better option than media channels like cable television where you’re paying for channels and still seeing ads. As of May 2014, the music streaming service Spotify had 40 million active users. Of those, 10 million were paid subscriptions where user avoided ads and gained features such as higher quality audio and full access to the Spotify library on their mobile app. The success of Spotify and Pandora One display the willingness for consumers to buy their way out of ads.

What it Means for Marketers

According to Forrester Research, video ad spend was set to eclipse $4.6 Billion in 2014, which is a 20% increase from 2011. This illustrates that brands are quickly shifting a large amount of their budgets to the digital video space. Currently, YouTube reigns supreme as the biggest platform for video streaming with over 1 billion users. By removing ads from a significant number of video plays, it could shrink the market for video advertising and increase the cost to advertise on YouTube. A smaller pool of potential impressions could also lead to users getting ad fatigue faster. Ad fatigue is the theory that when a person views the same ad multiple times they engage less with it and can even develop a negative opinion about the ad or brand.

On the flipside, it could lead to YouTube restricting the way they display advertisements. Similar to Pandora, they could remove the option for users to skip an ad after a set amount of time, a feature that’s currently available on YouTube. This would be beneficial to advertisers by guaranteeing the whole ad is shown. Typically, the call-to-action, URL, and social channels are in the post-roll. This leads to future value and conversations by capturing visits to a site or likes, follows, and subscriptions on social media channels.

Who’s the Real Winner?

YouTube users are the winner here. They now have additional options for how they want to spend their time and money. If you like YouTube how it is now, chances are you won’t notice too much of a difference. If you prefer a premium experience with out advertisements, you’ll have solutions. Many are speculating that the YouTube Music Key may lead to a similar ad free model for all videos not just music. The popularity of Netflix and Hulu has fuelled the cut the cord trend that’s had consumers turning away from advertisements in favor of monthly subscriptions. If you want to try out the beta for Music Key you can find it here.

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