The $1,000 CPM
Advertising is a kinda shitty model. It’s very exciting that we’re moving beyond it.
Sometime in the last year, my YouTube videos received their billionth view. At the average YouTube ad rate of $2 per thousand views (a $2 CPM), that’s around $2 million in revenue from advertising over the last eight years. Not bad!
Though, during those eight years, we have spent more than $4 million on the creation of YouTube videos. So also, not good!
Let’s do some quick math:
A 22 minute TV program is accompanied by sixteen 30-second ads, at an average cost of $25 per thousand impressions. That leaves us with a per-minute CPM of around $19. A 5.5 minute YouTube video monetized the same way would make about $100 per thousand impressions. After a billion views, that’s $100,000,000.
To be fair, YouTube would have taken 45% of that money,
so really I’m only down $53,000,000.
The CPM metric is not designed for creators; it’s designed for advertisers. It’s how much advertisers pay, not how much creators make. On a blog, there might be twelve different ad units, all with different CPMs. But independent creators need simple metrics, so we’ve adopted the CPM for ourselves. If that 12-unit page has an average of a $1 CPM per ad unit, then to the blogger, that’s a $12 CPM.
YouTube actually lumps this together in our analytics pages, so CPM has actually come to mean two different things. In this article, I’ll mostly be using it in the creator-centric way. Basically, to me a CPM is how much money I make per 1,000 views (adding together all sources of revenue).
Here’s where I start sounding a little crazy: I’m not really interested in clawing our way to TV levels of monetization; I think our goal should be to do better than TV. And in a couple limited cases, I’ve actually seen it happen.
If creators can climb their way to a $1,000 cumulative CPM, a person with an audience of just a couple thousand people would be able to be a full-time creator. That’s the world I want to live in.
This Is Not Actually Impossible
Imagine that you would like to consume a piece of content, but in between you and that content is a paywall. They’re asking $15 for one person to view the content one time. While a YouTube video might net you $2 per thousand viewers, this fantasy world I’ve just described will net you $15,000 per thousand impressions…A $15,000 CPM!
With a $15,000 CPM, every two thousand views is a full-time, living-wage human per year!
Of course, this model would never work…except that it works every day at every movie theater in America.
For a two-hour movie, that’s about $125 per minute per thousand people (remember TV shows made just $18 per minute per thousand people). Not to harp on this, but a YouTube video — if relying only on YouTube ads — makes around $0.50 per minute per thousand people.
If advertising is perfectly economically efficient, then we should be able to say that a YouTube video is 32× less valuable to a viewer than a TV show and 250× less valuable than a movie. I do not think we can say this. If you do, then you’re not going to care for the rest of this article…here’s a link to some cat videos.
For the rest of you, I think it’s safe to assume that we agree advertising is inefficient.
Before We Get Too Much Deeper
I want to point out the tremendous variety and quality of content that has been created within this extremely limited economic model. YouTube has helped people create at least three massive genres of cheap-to-produce, high-quality content that viewers really, really love. Video game ‘Let’s Plays’, style tutorials, and direct-to-camera monologues (which we in the biz call ‘Vlogs’) all fill those requirements and all score billions of views per month.
Other content has been nearly impossible to make work. Narrative content has existed mostly as aspirational, money-losing, pre-pilot pilots for TV shows. Even content that TV people consider dirt cheap (like game shows, talk shows, and reality shows) is hard to produce with online video budgets.
Possibly the only genre that efficiently converted from TV to YouTube / Vine is sketch comedy, which has always had more to do with the skills of its creators than its budgets.
The content that has survived on YouTube is a direct result of crappy advertising revenue. It’s put a dramatic emphasis on getting the most views possible, not just per video but per day. The result: A kind of hyper-frequency, with some gaming channels uploading three to five videos PER DAY. Without volume, it’s hard to make it work.
Amazing things have been done with that $2 CPM, but so many things remain unimagined because the tools to create that content cost more than $2 per thousand views. There are so many smaller channels that could ‘make it’ but won’t and so many big ideas that no one will have because humans have a hard time imagining impossible things. How do we make those things possible?
People Have to Pay
Not all people, and not a ton of money, but some people.
The first thing to remember is that a $1,000 CPM (that seemingly unachievable figure) is just every viewer paying an average of $1 per piece of content. That’s not crazy; it’s iTunes.
The other thing to remember (and that we so often forget) is that the ultimate value exchange in content is between creator and consumer of content (not creator of ads and consumer of ads). If someone watches something I’ve made, it’s because they consider it worth the four to twelve minutes it takes to watch it (and also worth the 5–30 seconds of ads beforehand).
The time they give is extremely valuable, and not just in the froofy community-building / personal validation way that’s important to me personally. It’s economically valuable, too. If we assume that a human’s free time is worth the U.S. minimum wage, then people have spent $600 million of their time with me. That’s not the kind of thing you can disrespect.
$600,000,000 of Time… Good Lord, Sometimes I Feel Like Apologizing.
If viewers are willing to spend $600,000,000 of time with me, why don’t we just make them pay a tiny fraction of that in dollars as well?
Well first, the internet is completely disinterested in paywalls. This makes sense. There’s pretty much an infinite amount of quality content online, especially when it comes to entertainment. Why would I pay for one thing when all the other things are free? Online creators also live and die by “discovery” (figuring out how to get new eyeballs on their content) and it’s pretty hard for content to get “discovered” if everyone (including Google’s algorithms) has to pay before they can see it.
This feels like a classically unsolvable problem. We need people to pay for content, but we can’t make them pay for content.
The solution we found is so strange and so antithetical to capitalism that I’m not quite comfortable suggesting that it’s a long-term, wide-ranging solution. But here it is: We just asked.
We kept all of our content on the internet for free for anyone, but if you want to pay, you can go to Patreon and give us however much you’d like per month. Crash Course brings in over $25,000 per month this way, making Patreon our biggest single source of revenue.
Twitch.tv (recently acquired by Amazon for around a billion dollars) builds this monetization system into its platform. Any approved creator has a $5 subscription option that grants paying subscribers special privileges on that channel. Third party plugins have been built on top of the streaming platform’s system that allow people to take tips and shout-out supporters in real time on their stream.
With this system, Twitch has very quickly become a full-time job for a huge number of creators. YouTube also recently implemented a ‘tip’ feature, though as it’s not part of the traditional culture (and it relies on Google Wallet) no one really expects it to catch on.
What excites me most about the “Just Ask” model is that it encourages a different kind of content. Instead of challenging creators to figure out how to get the highest view counts, creators have to puzzle out how to make the most valuable content. How can I create something that someone will watch and say, “I would feel better if I had paid for that.”
That’s a different sort of content, and it especially encourages small-scale niche content.
Molly Lewis is a musician with a small but dedicated audience. She’s in demand at conventions and nerd-music festivals with songs about MySpace, Abraham Lincoln, and beards, but she’s never going to be a mainstream act. Thanks to Patreon, though, she is a full-time creator.
Das Valdez, a streamer on Twitch, dives deep into the engineering and science of rocketry while playing Kerbal Space Program. Any one of his streams might have 300 to 2,000 viewers. He’s been able to go full-time with his streams. Around 20% of his viewers on any given stream are paying subscribers, but the majority of his money comes from donations external to Twitch’s infrastructure.
Lindsey Doe is a clinical sexologist who talks about healthy and happy sexuality on YouTube. Her weekly “Sexplanations” videos are viewed by 20,000 to 50,000 people and she makes $5,000 per month through Patreon. This is especially important to her because YouTube often serves particularly low CPM ads on her videos because they are flagged by a filter for “non-brand safe” content.
The list of niche creators going full-time is long and getting longer every day. This is largely being fueled by the acceptance of “Just Ask” as a cultural norm.
Does “Just Ask” Really Work?
There are two main problems with the “Just Ask” path to $1,000 CPMs. First, it only really works on audiences with money. The more money your audience has, the more likely they’ll be interested in giving. This is, of course, a problem with all content. Advertisers are also less interested in marketing to people without disposable income, but I would prefer a system that fixed this problem instead of perpetuating it.
The other problem is that, eventually, viewers might start to feel like you’re being compensated fairly for the product you provide, and so payment growth will slow down. And y’know what, I think that’s fine. I’d rather live in a world where a couple million people make a decent wage as full-time creators than one where a couple thousand people make millions.
This is not, however, a model that you can build huge entertainment businesses on. It’s much easier to monetize concentrated audiences and ultra-famous creators with forced (retail) or passive (advertisement) revenue than distributed (but massively satisfied) audiences. Obviously, the current industry is much more focused on ultra-fame / blockbuster models, so the “Just Ask” model tends to strike traditional entertainment people as either insanely idealistic or subconsciously threatening. Fractured fame is useless to them, so they tend to see it as irrelevant.
This couldn’t be further from the truth.
Fractured fame has the potential to be massively relevant.
That being said, there are other ways to get people to pay aside from just asking. Netflix, Hulu, and Amazon have proved that forced paywalls can work as long as the value proposition is HUGE. Meanwhile, agents, executives, and creators are all casting about for ways to create products that audiences feel comfortable paying for.
Freddie Wong’s ‘Rocket Jump’ found itself even more on the wrong side of new media economics with expensive and slow-to-produce special-effects driven videos. Eventually, they all but abandoned advertising (he reports that ads are roughly 10% of their revenue) in favor of working with distribution platforms like Hulu to bring exclusive content (mixed with a bit of crowd-funding on the side.)
Others are creating products that people are used to paying for like books and movies (and not just because they’re easier to monetize, but also because they’re creatively fulfilling). Some are performing on tour, some are getting into traditional acting, writing, and hosting gigs, and some are even becoming spokespeople for brands (which I’ve actually dabbled in a bit myself).
I Swear I’m Wrapping Up Now
I’ll be honest. I’m a little bummed that advertising didn’t explode on YouTube like I expected it to. People make a lot of guesses about why this is, but I can tell you for sure that it’s not because “there’s too much inventory.” This is a crazy idea considering the huge amount of inventory on TV (far more than on YouTube) that TV has no trouble filling up.
All I can say is that, in an economically efficient world, advertisers would have converted their campaigns to the new mainstream as soon as it started becoming mainstream, and they have not done that. I usually just find this annoying.
But part of me is actually glad that advertisers have been so slow to adapt. It’s made it clear to a lot of people that advertisements aren’t the only (or even the best) way to monetize content.
While YouTube advertisements account for a smaller and smaller percentage of our organization’s revenue each year, our per-impression revenue continues to grow. The only reason we can do this is because we make content people love and have cultivated an honest relationship with our community that includes discussion of finances. Throwing back that veil is intrinsically uncomfortable to people who make ridiculous amounts of money, but it’s not difficult at all if you honestly feel that you have nothing to be ashamed of.
What that leads to isn’t just new business models — we’re seeing new creation models, new audience relationships, and new kinds of content. With a couple of simple new tools, the economic arrow is suddenly pointing in new directions, and I’m very excited to see where it leads us.
Hank Green makes YouTube videos for a living. He also runs a merchandise company for internet creators (DFTBA Records), a conference for internet creators (VidCon), and his crowd-funding platform for internet creators (Subbable) was recently acquired by Patreon. He would like to propose that we start saying “New Mainstream” instead of “New Media” because the phrase “Mainstream Media” has clearly become useless.