Google has entered the premium content era, but its a la carte subscription approach is weak and looks backwards. It was announced late last week that YouTube would begin rolling out pay-per premium content services with video from producers ranging from Sesame Street and National Geographic to the Ultimate Fighting Championship. YouTube now allows these producers to sell monthly subscriptions of their content for a 50/50 revenue split. I can’t figure out why a forward-looking outfit like Google would fall back on such a primitive approach to content monetization as it dives into the premium content era. I also can’t imagine that producers like NatGeo see this new YouTube approach as anything more than an early experiment that unlikely to generate much cash as-is.
Subscriptions are limiting and they go against a web surfer’s psychology. Think about it – You’re surfing YouTube. You find some exciting content. When you go to watch it, you get pulled out of the flow; you’re asked to sign up for a monthly subscription which may require you to set up a Google Wallet if you’ve not already done so. The moment is lost. You wanted two minutes of entertainment; instead you were upsold a monthly commitment. Worse, there’s an unlimited amount of free content on YouTube, so why commit to a monthly subscription and interrupt your fun when you can just skip it and watch virtually the same content that some pirate posted from his DVR? Psychologically, you’re asking someone in a “give it to me now” mindset to think about whether he or she will still want it tomorrow. Anyone who has ever tried to get a date at a bar will understand why this doesn’t work.
When are providers going to get it through their heads that you will earn more than your $2.99 per month (or roughly $36 per year if the subscriber sticks) if you go on-demand with your content? Charge 50 cents or a dollar without interrupting the user’s stream of consciousness (i.e. once my eWallet is set up – with direct-operator-billing I skip this step – let me debit against a balance or charge me with a single click of a ‘Go’ or ‘Buy’ button). Not only will you sell more this way, you’ll have less subscription management and customer care to deal with. Plus, if you really want subscriptions, then there’s no better way to sign folks up than to let them buy on-demand; once I realize I’ve spent more on a pay-per basis than the subscription costs, I’ll be more likely to subscribe.
The real problem with subscriptions, however, is that once you offer an all-you-can-eat subscription, you’re always fighting upstream in the future to change or expand your pricing. Just as the mobile operators found out, people don’t like it when you try to stuff the all-you-can-eat genie back in the bottle. Netflix found the same thing; as successful as they are, their customer base mutinied when they tried to raise their price. They offer $8 per month unlimited and have had to produce or license their own exclusive content series in order to attract more $8 players and keep those they already have. Netflix is also now talking about family plans to try to combat password sharing. As much as they seem to be winning, they’ve actually painted themselves into a corner.
So, going back to YouTube’s 50/50 revenue split, we see another flaw in the model. Let me get this right; we get someone to sign up for $2 per month for premium HD content, and then I give you half? And I’m still probably inserting ads in that content to generate more revenue (which will really irritate my subscribers who will associate ‘paid’ or ‘premium’ with ‘ad-free’)? I get that YouTube is one of the top three or so most searched sites in the world, but I can be there for free if I need it as a promotional channel. What am I paying 50 percent for – the ability to run credit card charges through Google Wallet’s ham-handed payment flow? I don’t think so.
I really believe this is where Telco, Mobile, and Pay TV providers need to crush everyone else in the premium content delivery business. Create a purchase flow that allows for on-demand or subscription, or some combination of both. Back it up with strong product management that allows the content provider to define all sorts of products (content and product are not the same thing) and bring them to market. Create a transaction fee structure that undercuts the market, but which will be profitable for Telcos and for providers, and drive direct-operator-billing through it (I’ve seen research that will soon come to light about an overwhelming percentage of consumers preferring to have premium content charges go right to their mobile, Pay TV, or Internet access bills). And build premium content access and packages right into broadband offerings – i.e. here’s the step away from selling bits at a declining price and into selling value that actually pays for broadband consumption in a two-sided business model.
In short – yes, I think telco billing and charging is the ultimate weapon in the emerging battle for premium content transactions.