For creators of content, whether it be shows, movies, written articles, or music, there are essentially two ways to monetize your product:
On one hand, you can charge users directly to enjoy the aforementioned content.
On the other, you can deliver the content for free, turning to third-party advertisers in order to monetize output.
Of course, this is not always a mutually exclusive construct; television is a great example of a format that utilizes both monetization models.
In the digital realm, however, the method to monetize content has traditionally been in favor of an ad-supported model. New streaming music services like Pandora and Spotify are primarily ad-supported businesses -- although they do have subscription-based services -- and most websites allow you to read their articles for free after wading through a host of pop-up ads. More recently, there's a nascent, but growing trend toward direct content monetization.
In music, Apple (NASDAQ:AAPL) has led the charge in streaming-based delivery with its Apple Music offering. Unlike Pandora and Spotify, Apple Music is only a subscription-based model. And now Alphabet's (NASDAQ:GOOGL) (NASDAQ:GOOG) YouTube is getting on the subscription-based, ad-free trend.
Hola YouTube Red; adios ads
Long discussed, YouTube's ad-free option will be available on Oct. 28. The service, available for $9.99 per month, also brings a host of new features alongside it. The first is a new YouTube Music app, as a way to compete against Apple Music in music-video delivery. Not only that, YouTube Red users are allowed automatic access to Google Play Music and its host of streaming-based music.
Early reports were that YouTube's had problems convincing the large content creators, responsible for billions of views, to agree to a wide-scale change in how they were paid, as Google's revenue -- and, more importantly, its revenue split with creators -- would be affected. Having a large contingent of these large content creators on board was essential to the service's success.
Google has apparently overcome the initial apprehension among these content partners with its newly announced YouTube Originals content selection (and hard-nosed negotiations), which appears to be packaged eerily similar to a certain ad-free streaming video provider that rhymes with Netkicks. Combining the best features of Apple and Reed Hastings' company with no ads brings a strong value proposition to YouTube users that want an ad-free experience.
For investors, this doesn't matter
For those who own either Apple or Alphabet, this is really insignificant. Although investors want to see all facets of the company doing well, these businesses are -- and will continue to be, at least in the short term -- a minor part in the company's top and bottom lines.
For Alphabet, YouTube revenue and profit have always been a black box from a company-disclosure standpoint, but insiders pegged YouTube's revenue at $4 billion in 2014 versus Alphabet's total revenue haul during that period of $66 billion and reports are the business was only "break-even" from a profit standpoint.
Even if Google, er, Alphabet, is able to drive considerable revenue growth from a subscription-based revenue option, it will unlikely be enough to move the needle from an earnings standpoint. Apple, on the other hand, uses its Apple Music and its subscription-based model mostly as ecosystem builders to sell high-margin iDevices.
However, for advertisers and content outlets, there are some signals as to the future of content monetization. Will there continue to be a transition to subscription-based content? It will interesting to watch, with wide-ranging implications.