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Today, 89 million people in the U.S. will watch 1.2 billion online videos.
By 2016, online video viewers are expected to double to 1.5 billion. Naturally, companies are looking for a way to monetize this influx of activity.
The New York Times recently announced plans to allow non-subscribers to view its online video content. The 10-articles-per-month limit still stands, but videos don’t count.
Contrariwise, YouTube, according to a number of reports, may begin charging $1.99 to $5.00 per month to view some channels.
The New York Times and YouTube seem to be heading in opposite directions, with one favoring free content and the other getting set for paywalls. These developments leave more questions than answers for the future of online video monetization.
Plenty of organizations favor free, ad-sponsored video content –- an approach widely popularized by YouTube. Essentially, this model is reminiscent of the traditional TV model of free content supported by advertising.
The New York Times and Hulu have favored the free strategy, but it comes with pros and cons. While free content is great for the consumer, the viewing experience is significantly reduced. Ad personalization, which allows advertisers to target content to users based on their interests, is still developing. Plenty of users say targeted ads make them uncomfortable, and others note they see the same ads over and over.
Other organizations, like Netflix, Amazon Prime, and Quello, are turning to flat fee and à la carte services. This approach allows users to access exclusive content without having to view advertisements, but content selection is often limited (remember when Netflix cut 1,800 titles from its streaming library?). This approach also creates high barriers to entry for newcomers to the market.
A pay-as-you-go approach, favored by iTunes, Amazon, Vimeo, Chill.com, Vudu, and others, has also grown in popularity. With new video platforms entering the market, it’s become easier than ever for organizations to set up paid content sites. DRM (digital rights management) technologies like Widevine ensure the content is protected and can be streamed securely. This is an affordable model for both consumers and companies; most companies collect 10 to 30 percent of the transaction fee.
Pay-as-you-go models have a slew of benefits. Premium content, easy downloading for offline viewing, and low barriers to content entry make this an attractive option. The downside? Pay-as-you-go is more expensive for companies than other business models.
While all these monetization options are viable and evolving, YouTube stands to shake up the industry significantly if it does decide to roll out its paid subscription channels. Much like the pay-as-you-go model pioneered by iTunes, consumers will likely find it appealing to pay $1.99 to $5.00 per month for an online channel. Currently, a satellite or cable TV subscription in the U.S. runs at $75 per month. If consumers flock to online content, it may drive basic TV channels to offer more content on the Web.
It’s worth noting there are already plenty of devices in the works that have not enticed Americans to ditch the traditional cable subscription.
For example, consumers were excited about Apple TV, but it hasn’t caught on in the mainstream. Boxee, a cloud DVR, brings streamed content to our living rooms’ big screens. It’s generated a lot of buzz, but many have doubts about how far it will go. By the end of the year, Boxee plans to serve only a fraction of the market, and it may not be able to compete with market leaders like TiVo.
We may continue to see a blend of online video services that allow users to access free, à la carte, and paid subscription services. But in the coming years, the industry will likely begin to consolidate in such a way that one of these models reigns supreme: only time will tell which model users (and businesses) come to prefer.
For now, there’s room for competition. Producers will likely continue to favor the option of having complete control over their content, perhaps choosing video solutions that they deploy on their own over huge platforms like YouTube. But free content models will continue to have a place for startups and content producers looking to gain a following.
The online TV revolution is coming, and both consumers and businesses should keep a close eye on the industry as it hashes out the best monetization model. As new models are introduced and key players continue to adopt different strategies, it is certain that the entire industry will look much different in the coming years.
Iddo Shai is a video producer specializing in broadcast journalism and online video platforms. He is currently director of video production at open-source video platform Kaltura.
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