Can free stuff make you rich? The battle of internet business models
For decades, teenagers have practiced guitar in their bedrooms, convinced it was a shortcut to fame and fortune. Now the same ambitions in the same bedrooms result in chatty videos recorded on smartphones. All that stands between today’s teenagers and world domination is the whim of millions of YouTube viewers. Or so the theory goes.
BBC Three’s Rise of the Superstar Vloggers examined the phenomenon of YouTube stars, and by doing so, perpetuated the myth of the bedroom superstar. True, the film didn’t promise that anyone could do it (nor did the BBC Academy podcast with YouTubers). However, because those who have succeeded have kept their feet on the ground, even as the owners of profitable businesses, they make it look easy.
Has YouTube really democratised success in the entertainment business? You need an awful lot of YouTube views to be anywhere near earning a living, never mind, the “jet set lifestyles” the film talked about.
First, ads don’t appear on every YouTube video shown. Second, you only start earning when someone clicks on an ad. One estimate is that you might earn $7.60 (£5.28) for every thousand ad views. So, given that not all videos include ads and then only a tiny minority of ads get clicked, it’s far from easy money.
The day after BBC Three’s film was shown came the news that Google’s corporate parent has become the most valuable business in the world. Since YouTube is owned by Google, it raises the question of who are the real YouTube winners. Are YouTubers Google’s customers? Or are they its — mostly unpaid — employees?
Compare YouTube and ITV. Both provide entertainment for mass audiences paid for by ads. The crucial difference is that ITV uses part of its ad revenue to commission programming. If ITV adopted the YouTube model, programme makers would only get paid for ratings winners and would have to fund their productions from their own pockets, hoping to be repaid eventually if they were popular.
Partly thanks to the ITV model, we have a television industry. There are jobs with salaries. What does the new world have to offer? Well, it’s not as if there isn’t paid work coming out of the new system. Netflix, Amazon Prime Video and others are commissioning some classy productions. Even YouTube makes a contribution to a few productions — but that’s very much in the margins of its business.
That said, YouTube is only part of the picture. There’s a huge rival business a few miles away in Silicon Valley, offering free, time-consuming entertainment: happy twelfth birthday (on Thursday), Facebook!
Last week Facebook announced it was earning more than half as much again from advertising than it made the previous year. Where once there were predictions that its business would be in trouble as more people accessed it on smartphones, it turns out that smartphone growth has been key to the success of Facebook’s thriving business.
Facebook takes the YouTube model one step further: it takes all the ad revenue. So is it time to accept a new world order where online advertising funds what needs funding and users accept exposure to ads in return for the services they want?
Well, it’s not quite as simple as that. First, the theory doesn’t always work. Take the British newspaper business. The Times and the Financial Times have adopted subscription models while the Guardian has determinedly offered a free online service. Recently it announced huge annual losses.
The thinking at the Guardian was perhaps similar to that of aspiring YouTubers: the returns from advertising may be small (and getting smaller), but that doesn’t matter as long as the numbers of readers are large enough. However, making those very small numbers and very large numbers meet as a workable business model isn’t proving easy. As US media commentator Michael Wolff put it:
In a way, the Guardian is the purest play in digital news and advertising, rather to digital what Cuba has been to socialism …in the Guardian, the dream that so many of us have had of free information, unlimited audiences and a sustaining new business model, whatever that might be, probably comes to an end.
A second problem with the ads-for-content arrangement is that users are increasingly resistant to ads, with ad-blocking software threatening to put a virtual spanner in the works. If people can opt out of the ads that pay for the content, it’s a bit like letting customers ignore the checkouts as they leave the supermarket.
So is there a different way? Internet guru Jaron Lanier has argued that we need to move to a system in which all users make tiny payments for content they consume online and on the other side of the equation, would be paid for blogs, videos or whatever else they create. That way he says, we’d be restoring the ability of creative people to turn what they want to do — and their audiences want to see or hear — into regular paying work.
Is that just some kind of techy utopia? Maybe not. In a follow-up blog, I’ll be finding out about the start-ups that believe in Lanier’s vision and are starting to do something about it.
If you want to learn film-making for the web, the BBC Academy, in partnership with the University of Birmingham, has created a four-week online course which starts on 29 February 2016.
Originally published at www.bbc.co.uk on February 4, 2016.
