Could micropayments be the key to monetizing YouTube? The New York Times has an interesting article today about the history and future of micropayments. "In December 2000, Clay Shirky, an adjunct professor in New York University’s interactive telecommunications program, wrote a manifesto that people still cite whenever someone suggests resurrecting the idea," writes the Times. "Micropayments will never work, he wrote, mainly because 'users hate them.'"
But, says the paper, micropayments are here, just not in the form we initially thought. Dot-com flameouts like BitPass, DigiCash, and Peppercoin all tried various methods of micropayments with the hope that content publishers would be able to charge a few cents to a few dollars for articles, reports, images, and other downloads. For the consumer, most of these schemes worked like a prepaid calling card -- load money into your account and buy stuff with credits.
"But wait. Amid the disdain, and without many people noticing, micropayments have arrived -- just not in the way they were originally envisioned. The 99 cents you pay for a song on iTunes is a micropayment. So are the tiny amounts that some operators of small Web sites earn whenever someone clicks on the ads on their pages. Some stock-photography companies sell pictures for as little as $1 each."
Certainly, it is far too early to judge YouTube's just launched video overlay ads, but early user reviews are mixed, at best. Morgan Stanley's Mary Meeker estimates (after some revised math) that YouTube's ads will pull in between $75 and $189 million gross revenue per year -- which, with the astronomical cost of streaming video, won't really cut it.
So what about charging small amounts for high quality, downloadable versions of commercial content on YouTube as a way to bring in money? Sure, Google already tried that with Google Video, and shut that service down citing an "effort to improve all Google services." But Apple has had a lot of success selling TV shows and movies (they sold a million of them in the first 20 days, and move tens of millions of video downloads per year through iTunes), so the model is sustainable.
YouTube is already the web's most recognizable video brand, and Google could take pains not to repeat the mistakes they made when launching the Google Video Store a year and half ago. This also seems like a good opportunity to tie in another Google service, Checkout, and put some heat on PayPal, which has become the web's most successful micropayment processor (though it is also used for macropayments).
YouTube could further offer a way for user generated content creators to monetize content other than ads. While it's unlikely that people would pay for single episodes of Lonelygirl15, die-hard fans of the web show might pay a nominal fee for high quality, DVD-burnable downloads of the entire series. Similarly, NBC has had great success with their YouTube channel showing clips of Saturday Night Live (including owning the 5th most watched all time), and they could use that popularity to sell DVDs like "The Best of Chris Farley" in a YouTube download store.
The biggest hurdle to a download store would be DRM. Apple has had some success convincing music labels to sell songs sans-DRM, but their video downloads are annoyingly locked into iTunes (I'm still sore I can't burn my 2006 Fiesta Bowl download to DVD). Any download service that can figure out how to convince the studios to do away with DRM -- or at least make it a whole lot less intrusive -- will be an instant hit with users.
YouTube coin graphic by Kelli Shaver of DesignMagus.
Comments
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This is a great post! It must be the sign of the times. The mind of the market is becoming self-aware. I've got my mind on the money and the money on my mind. You'll see ghetto gates is on the rise. I've defined the new micro. Only one more month in the eye of the storm. Who's going to blog it and really define the switch? I've got the new script because soon everyone is going to get blip'd!
Posted by: Ty Graham | August 27, 2007 1:45 PM
no offense, but this post is retarded.
where is the evidence that people would pay to get a dvd quality, downloaded version of the lonelygirl series? that goes against the ephemeral nature of these blips. and where is the evidence that people would pay to download a best of chris farley on youtube? the second some dumb geezer tried to pull that trick off, the whole thing would be free on every corner of the net, including the site that tried to sell it.
even worse, why are you conflating advertising with micropayments? giving attention in chunks is not the same thing as paying pennies. it's a different person paying, and a different person getting paid!
there's a reason there's two different words. it's two different ideas completely. your argument is the logical equivalent of saying look, large media companies are re-emerging as powerhouses offline because independent blogs are getting lots of readers online, as at the end of the day independent blogs online and newspapers offline are really the same thing. no, actually, they're not, and neither are advertising and micropayments.
the only connection might be sometime in the future when people pay me, in micro-chunks, for my attention, but that's another kettle of fish entirely.
Posted by: russ | August 27, 2007 11:30 PM
@Russ: I love when people start with "no offense" then proceed to offend. ;)
To address your comments:
Re: lonelygirl15 -- Hence my use of the word "might" ... It was pure speculation, and lonelygirl was used as an example because she is perhaps the most known YouTube video. You could easily replace any number of UGC creations (for example, any of those car chase videos, or maybe a full comedy routine from the History of Dance guy, etc.). I don't think it is out of the realm of possibility there there exist people who would pay for high quality, DVD-burnable downloads of their favorite web shows or popular user created media.
Re: Paying for a download of "The Best of Chris Farley" -- Why not? Apple sells millions of movies and TV shows each year on iTunes... Certainly there is the potential for a well-known video site like YouTube to have similar success if properly implemented and rolled out. It seems you agree with me that DRM is the biggest stumbling block for this idea.
Re: Conflating advertising and micropayments -- That's just something I didn't do. It seems to misread what I wrote in that regard. I was offering an alternative monetization method, especially in light of that fact that analyst estimates of YouTube's overlay advertising predict an unfavorable end result and user reviews have been mixed (possibly trending toward lukewarm). I was in no way suggesting that advertising and micropayments were one in the same or interchangeable terms.
If I'm reading your comment right, you're implying that people watching YouTube videos ("giving attention in chunks") are not the same people paying for downloads. So you're arguing that advertising might work for them (since they're already paying attention) but asking them to pay for premium content would not (since they're used to freebies). Is that right?
That seems like a leap, unless you have any hard numbers indicating that there isn't any overlap in YouTube viewers and iTunes, Unbox, Netflix, etc. customers.
Maybe I am misunderstanding your point. But I would be willing to bet there is a good deal of overlap in those user sets (certainly speculation on my part).
Posted by: Josh Catone | August 28, 2007 1:20 AM
One more reason why it doesn't work: music videos.
You're basically suggesting to have a certain % of people paying for music videos of better quality. But people don't want better quality. P2P impressive volumes clearly show that mp3 quality is fine for 99% of users. Your proposal is like opening iTunes for streaming full songs and charging for download (or, it's the same, making Rhapsody a free service). You're removing a revenue stream without replacing it with another one.
Posted by: Simone | August 28, 2007 2:41 AM
I think you're missing my point. I'm not suggesting that YouTube would charge for every video on YouTube. I'm suggesting that there is a potential for YouTube to be able to charge for premium content -- content that is not currently on the site. No one really knows yet the best way to monetize YouTube and I am simply suggesting an alternative method to the types of advertising tried so far.
Posted by: Josh Catone | August 28, 2007 9:15 AM
Anytime someone tries to write a thoughtful piece on micropayments, he gets heckled by the thoughtless minions of the Advertising-Uber-Alles or Content-Should-be-Free fan clubs who don't even pay attention to the article.
Moreover, these zealots forget that you can't get everything on YouTube. What?!
If you could, slingbox wouldn't have a business, and neither would comcast. In fact, system we have today for getting content from The Internets is incomplete, and broken.
So, maybe Lonlygirl 15 isn't the best example, but the next time you're thinking, "Hmm, I'd like to watch some English Premier League" (or NFL, MLB, NBA, NHL...) imagine how nice it would be to have a mechanism to click and not be forced into a subscription.
Micropayments are synonymous with "on-demand premium content".
And, instead of having to buy America's Top 5,380 Channels on Dishnetwork, think about disaggregation. Micropayments could provide that, too.
So instead berating anyone exploring micropayments, stop pretending that you never pay for media, check your cable bill and think about "on demand premium content" and "disaggregation". It will be great for consumers.
As an aside, I don't think DRM is the technical nut to crack: it's figuring out how to reward "sharers" as honest-to-goodness distributors. Align interests, pay where it's due and everybody wins. (Except the inefficient distributors of today.)
Posted by: Israel L | August 28, 2007 11:54 AM
If micropayments worked, why wouldn't cable TV go that way? We still have HBO/Showtime/etc. and then a zillion other channels that no one would actually pay for. And for video on demand, it's hard enough to get someone to pay a few bucks for a successful hollywood movie, much less some clip of a dog waterskiing.
Posted by: Ryan | August 30, 2007 6:34 AM
@Ryan: I actually think TV is moving in that direction. As soon as there is infrastructure in place to support it, my feeling is that TV will be 100% on demand and a la carte (of course things like news, sports, and other "real world" events will still be live).
I don't think it will be hard to sell people on a TV set up in which they only pay for what they watch, small amounts, and with less or no advertisements. Especially the younger generation who are more and more used to all their entertainment being on demand.
Posted by: Josh Catone | August 30, 2007 9:53 AM