The Big, Awkward Problem of YouTube Fees

YouTube has become our national trove of free video, a place where a company can find a free platform for video marketing junk and individuals can watch dogs sleepwalk. But as we've discussed before, the Web's video giant costs Google an unsustainable amount of money each year, regardless of the paltry revenue the site has earned from advertising. So the conversation continues: how does Google make YouTube profitable without killing the service we know and love?

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The New York Times Bits blog brings up a new suggestion from a Piper Jaffray analyst: charge a small fee for video uploads that aren't readily monetizable through advertising. While they acknowledge that Google probably won't implement a plan like this, a paying option might not be off the table. Google releases its quarterly results today.

As the Times acknowledges, a nominal fee for ad-less videos would add real punch to the site's bottom line, but would tarnish the brand. But what's been left unsaid by both the Piper Jaffray analyst and the media reaction is whether or not a system like this is technically feasible or equitable to users. As the analyst says:

"YouTube could develop technology based on its current Video Identification technology to protect copyrights to determine whether advertising could be sold against the video to be uploaded. If the algorithm deems Google could not monetize the video through advertising, it could require the user to pay a nominal fee to upload the video to the site, which could be based on the average lifetime cost of streaming for a given video."

Right now, there isn't a lot of pressure on Google's algorithms to get the advertising game right, besides its own revenue. Its system automatically analyzes the content of a video, probably checks tags, title, and description for ad-ready keywords, and decides whether to serve an ad. But when that system becomes the arbiter between a user and his pocketbook, it'll undergo a new level of stress. People will want to know exactly which criteria they're being judged on, because it's costing them money. Accusations of one kind of bias or another will fly.

That's not to mention that whatever system works this way can be gamed; adding certain words, phrases or frames could trick the algorithm into serving an ad and letting the video go up gratis. YouTube would then be stuck with a bunch of ad-interlopers it'd need to weed out at great expense. As users, we'd be stuck with a random frame of a commercial product or incomprehensible descriptions in every video, just because the user was trying to avoid charges.

The final question is billing: currently, few payment systems are set up to handle and process batches of micropayments. Nominal fees are nice and cheap, but if each one is processed separately, it will cost Google a tidy sum in processing fees. They'll either have to develop their own micropayment system--that wouldn't be all that easy--or contract to a potential competitor like Amazon's FPS.

The Times suggests that YouTube's operating costs might not be as high as commonly thought, in which case the whole question is moot. But should Google need to wring more cash from the site, it might create a nest of more complex customer-relations issues. Stay tuned for coverage of Google's earnings results.

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6 Comments

  • Raja Kiran

    Yeah - this is really awkward . When the web is becoming more and more open , the B2C part should be always free . More over as said there is lots of competition catching up in the videos space to even watch latest movies online and stuff . At this stage they should not think of stuff like fees and all .

  • Simon Kenworthy-Dell

    "Who pays that analyst to come with such half-baked ideas for monetization."

    Amen to that. If I worked at Piper Jaffray I'd be ashamed that this was the best we could come up with.

    Lets face it, the large proportion of YouTube content is crap. I think this graph at Graph Jam pretty much sums it up: http://graphjam.com/2009/07/17...

    The simple solution is a premium version of YouTube with exclusive videos/content that no-one else has access to. One of the better suggestions would be to rape the past 30 years of UK/US comedy, put them online and charge a few $$ to access episodes of classic shows when we want to. Failing that, releasing episodes of new shows on YouTube a week or so before they hit normal TV.

    Honestly, a revenue-generating model isn't exactly rocket science. And at the end of the day, if my suggestions above don't work, at least they'd have tried something.

    Simon
    www.straightedge.com.au

  • Russell Heimlich

    This seems like such a convoluted process and very un-Google like. I've had ideas on how YouTube could be the next adsense since 2007 -> http://www.russellheimlich.com...

    Some of the ideas:
    Related video clicks - Google can leverage what they know best: connecting people with the content they are looking for and mixing in sponsored links where relevant.

    Video Owner Controls Ads - Create a system where video owners decide where an ad spot should be and let Google serve up dynamic video ads there. This is more akin to the current commercial system on TV.

    Paid membership - A la Flickr, set-up a freemium business model with better perks to those that pay.

    Anything is better than these stupid overlay ads which are distracting and intrusive unlike other Google advertising.

  • Apostol Apostolov

    Who pays that analyst to come with such half-baked ideas for monetization?!

    Yesterday I have been discussing the idea for YouTube monetization on FriendFeed, and I have suggested monetization of video length rather than content. Uploading up to 10 minutes is free as it is now, but each additional minute will cost 50 cents, to a maximum of 60 minutes, each additional minute after 60 costs 1 dollar and must be approved content (in order to discourage illegal movie uploads). This will suddenly open YouTube as a video podcast platform, finally offering unlimited size for those who really need to squeeze additional video length. At the same time even casual users won't feel bad to pay 1-2$ instead spending hour of video editing their video down to 10 minutes or less.

    This is a monetization plan that doesn't tarnish a brand, that actually expands the functionality and that encourages people to micro-pay for comfort and easy of use.

  • Michael Lum

    @Freddy I think the partner discounts option is very interesting, and I also really enjoyed your blog post on the notion of "free".

    I think iTunes is an excellent example of how even in today's content-saturated environment, people are willing to pay for consumer experiences they can't get anywhere else. I don't consider myself an addict on Youtube, Facebook, or any other site, but wouldn't be totally opposed to micropayments if companies go in that direction.

    Like one of my old professors used to say, "ain't no free lunch folks!"

    --
    My Blog on Society/Technology:
    http://www.mikailum.com

  • Freddy Nager

    I can’t speak for everyone, but I pay for services and content I like. I already do so with music at iTunes and photos at iStock. Why not YouTube?

    What would entice you to pay to watch YouTube? How about an ad-free experience? a higher-quality video? having your video rating count for twice as much? having your comments appear at the top? invitations to exclusive YouTube events and parties? exclusive first views of select videos? access to uncensored videos? a chance to appear in a video with your favorite YouTube star?

    A large corporation like Google could also negotiate partner discounts as a bonus for your membership. For example, for a $20 annual subscription to YouTube that includes all those benefits I mentioned, you would also get a $20 credit at Amazon or Virgin America. In return, Amazon and Virgin would receive $20 of free YouTube advertising per registrant.

    It's like free, but different.

    I think there's too much talk of algorithms and technology; the discussion should center on the good ol' fashioned notion of paying for value.

    http://coolrulespronto.wordpre...