YouTube seeks game-fan fees
With a seemingly infinite supply of free-to-watch videos, YouTube usage is huge, and still growing fast — nearly 20% annually in the U.S. alone by one estimate.
But although a few video stars make millions of dollars through advertising, YouTube itself has struggled to generate the revenue you’d think its massive audience could provide.
On Thursday, YouTube took a shot at changing that, announcing it would charge a “sponsor” fee of $3.99 a month for a growing number of its video game channels.
The move is an early test of subscription-like services to supplement the ad dollars YouTube generates. Owned by Google, which in turn is owned by parent Alphabet, YouTube doesn’t offer much transparency on finances. But industry analysts say YouTube isn’t anywhere close to revenue and profit that would put a smile on investors’ faces.
The sponsorships, which mimic an option that costs $4.99 a month per channel at rival video platform Twitch, amount to an experiment in extracting more dollars from viewers — a challenge in a medium in which users are used to paying nothing for an endless supply of video distraction.
Distributors of online video — new ones keep popping up to challenge YouTube — argue that they can create more and better content if user fees supplemented ad revenue. YouTube needs higher revenue to satisfy investors eager to see the service turn a profit and become an important contributor to Google’s bottom line.
The issue is becoming critical as Twitch, Facebook, Snapchat and even small start-ups such as Venice-based Mobcrush seek to lure video makers and viewership away from YouTube domination. Video game enthusiasts worldwide spend 2.4 billion hours each month on YouTube watching fellow gamers compete and discuss tactics and strategy.
For their $3.99, YouTube sponsors will enjoy exclusive live chats with content producers and receive a digital profile badge highlighting their sponsorship. Each game channel will carry a separate $3.99 monthly charge. Though they get badges, sponsors won’t avoid advertisements, which will run with the videos, sponsorship or not. And the videos themselves will remain free to non-sponsors.
The sponsored game channels are part of YouTube Gaming, a recently launched website and app dedicated to videos about “Minecraft,” “League of Legends” and other popular video games. The videos sometimes feature silly commentary of game play, or tips and tricks and reviews.
Video creators known as miniminter, TwoSyncFIFA and hikeplays will be among the first to solicit sponsors, but YouTube Gaming said it plans to let all channels sell sponsorships. YouTube keeps a minor cut of sponsorship dollars, though it declined to provide a specific figure.
Thursday’s rollout also introduced a feature called “fan funding” — digital payments to content producers, with YouTube pocketing a slice. Similar to throwing $1 into a sidewalk musician’s guitar case, viewers send video makers money online in exchange for no more than a thank you. YouTube said it would take 5% of each tip, plus 21 cents. The tips can be made publicly or anonymously. YouTube takes its share in either case.
YouTube is already a big business for many stars. This week, Forbes estimated that 13 YouTube personalities each make more than $2.5 million a year before taxes and agent fees. Most of it comes from their share of ad revenue, with the rest from book and movie deals, appearance fees and merchandise sales.
Topping the list was Felix Kjellberg, better known as PewDiePie. The 25-year-old Swede made $12 million over the past years, Forbes said, citing industry insiders and viewership data. PewDiePie’s comedic takes on video games have earned him 40 million followers on YouTube.
Now the question is, can YouTube become a big business unto itself. People in the U.S. alone will watch nearly 35 billion hours of YouTube in 2015, analysts at UBS said in July.
UBS estimated that YouTube could lift revenue by $3.2 billion in the U.S. if it charged users $9.99 a month for special features. Analysts based the estimate on a survey that found 17% of U.S. YouTube users would be “very likely” to subscribe.
Last month, YouTube told content creators in an email that it indeed would soon launch a subscription plan that removes ads from the YouTube experience.
“For years, YouTube’s fans have been telling us they want more — more choice when watching their favorite content, more ways to support their favorite creators and, above all, the option to watch their favorite videos uninterrupted,” YouTube wrote to video makers.
It’s unclear how much the service would cost. YouTube also hasn’t said how such a plan would interact with Music Key, a $9.99 subscription for ad-free music video watching that’s been under testing with a limited number of users since last fall.
The need to supplement ad-supported viewing has intensified at YouTube. Competitors are promising video makers with bigger paydays and more features that could help them make money from fans.
YouTube is trying to keep pace. On Thursday, it became more like Twitch and Mobcrush, allowing smartphone and tablet games on the Android operating system to be streamed online. It’s similar to the core offering of Mobcrush, but the start-up claims an edge, having been at it months longer and being dedicated solely to mobile games.
Snapchat is appealing to video makers with its young, global audience. Another video distributor, Vessel, argues that by charging viewers for early access to content and showing fancier ads, video makers will make considerably more money. Some online video studios such as Fullscreen are going at it alone, cutting out middlemen like YouTube and Facebook by launching their own subscription apps.
Facebook says its social media algorithms will drive more viewership for the best videos. Compared with YouTube, Facebook attracts more interaction and better commentary from viewers, keys to understanding and making money from them, Richard Windsor, an analyst at Edison Investment Research, said in a note to investors this week.
“To really take share from Google, Facebook still has some distance to go but the alarm bells are already ringing in Mountain View,” he said.
Twitter: @peard33
