2020 was a heck of a year for YouTube, as people turned to videos to replace in-person events and activities. As on February 2021, YouTube had more than 2 billion logged-in monthly users – That’s not quite as large an audience as Facebook’s 2.74 billion monthly active users. But keep in mind that it’s possible to watch YouTube content without ever creating an account, so the “logged-in monthly users” number likely underreports the actual number of people watching YouTube content each month. That brings home an interesting question: How can such a platform earn revenue when its content has free to access?
Fun Fact: YouTube was started as a dating website in 2005. Today, it is the biggest video sharing platform & second largest search engine in the www.
How YouTubers make money is common knowledge, but how does the platform make money is tricky. Let’s find out:
#1 Well, the first intuitive answer is advertising
Ans yes, you are right about this one.
YouTube, like most other Google properties, earns the bulk of its revenue through advertisements. YouTube embeds targeted advertising directly into the video clips that its users watch, as well as promoting featured content. In 2017 it generated $9 billion in ad revenue & a whopping $34 billion (with a ‘b’) in the next 3 years!!
How does this happen? YouTube approaches video advertising through an opt-in ad program named TrueView. TrueView includes two types of ads: in-stream and video discovery. With in-stream ads, the viewer only has to watch the first five seconds and then can skip the rest of the ad. The supplier pays only in case the user watched over 30 seconds or clicked on an entity on the screen related to the ad. Video discovery ads are advertisement videos listed on the page along with other content and charged for only when the user clicks on them.
#2 Subscriptions are the new login
Do you think Amazon & Netflix are the only ones running a subscription-based model? If yes, you are definitely not consuming YouTube content as much as you should! YouTube subscription model is known as YouTube Premium & offers exclusive benefits to users at minimal fees starting from INR 199 per month. The company has more than 20 million subscribers across its Premium (ad-free YouTube) and Music Premium services, according to Google.
YouTube’s internet TV service, YouTube TV, is another subscription service by the company which had more than 2 million subscribers, as of Dec 2020. The service allows users to stream from over 70 networks. However, there are some premium channels which can be subscribed after paying additional amounts. Coming with complimentary chromecast with every subscription, this service hasn’t been launched in India yet.
#3 Channel Memberships – the Golf Club of YouTube
Introduced in 2018, YouTube Memberships allow channels to charge a monthly fee for additional “perks”. In addition, YouTube gives members a badge to make them stand out in the comments and live chats. These badges denote how long they’ve been a member of the channel, Membership level, and the channel can create its own custom badges. Simply put, a YouTube Channel Membership is a way to support the channel directly and get extra content for a monthly price.
What does YouTube get out of it? 30% of the membership fee paid by a subscriber!
We do not know the number of viewers subscribing to channel memberships yet, but – Overall, the number of creators earning five figures a year went up by 35 percent, and the number of those earning six figures went up by 40 percent after this feature was launched, according to YouTube. We leave rest of the maths to you!
#4 Merchandise – monetise on your catchphrases!
In addition to memberships, YouTube allows creators to sell to fans directly.
In a shelf directly below the video itself, creators with more than 10,000 subscribers can offer merchandise like tee-shirts, hats, phone cases or any one of over 20 different merchandise items that make sense for their channel – these mostly include items with famous catchphrases from the channels.
This new program launched in 2018 with partnership with custom merchandise platform Teespring. Teespring retains a cut of every piece of merchandise sold, which varies per item.
YouTube benefit? YouTube has negotiated a deal with Teespring where it receives a commission on those sales — a small flat percentage! Pretty Neat, Eh? The exact commission agreed upon is not public knowledge, neither is the revenue from the same.
However, during beta testing, Teespring said there was an 82 percent success rate for YouTubers using the merchandise service, and conversions from views to sales were testing at 2.5 times higher than with standard description links. This led to an average of 25 percent more units sold per user, among early adopters. Remember the number of users that YouTube has? You might need a scientific calculator to calculate revenues from this one!
While these are just the top picks, there are many more revenue streams for YouTube like “premieres” or ”stories”. The analysis paralysis of them is something we save for the next time! We have to admit that advertising is the major revenue stream and it will continue to remain so in the near future. Probably that’s the reason that the most innovative YouTube features exist in the advertising space (sponsored ads, embedded ads, landing page ads, etc).
In conclusion, Creators are the beating heart of YouTube, but advertising is the blood that flows throughout. Creators upload videos to YouTube; viewers flock to the platform; advertisers come to YouTube because that’s where the audience is; YouTube gives creators a portion of that revenue to entice them to continue uploading; and creators stay on YouTube because they receive a part of advertising, subscription or merchandising money. Rinse and repeat.
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By: Anmol Gupta | Isha Garg