Youtube Time to Start Charging Users - Case Study Example

YouTube: Time to start charging users? YouTube has for a long time allowed users to upload and access material free of charge. This has endeared the company and its parent company, Google, to billions of users worldwide who enjoy a variety of clips, music and other fun material at no cost. The only requirement for access to YouTube has been a computer, and in the recent past, mobile phones, and internet connection. During this time, spanning eight years, YouTube has had to rely on revenue generated through advertisements. It is only recently that YouTube’s potential to generate revenue using other avenues has been examined in full length (Elberse and Gupta). Partly, this is due to the limited revenue generated by advertisements compared to the cost incurred to keep YouTube running. In this case, the need to have YouTube generate more revenue is not only inclined to returns on investment but is also as much hedged in its long-term survival. It would be financially unsustainable to run a business that rakes in losses every year, even though this has not been officially confirmed by the parent company or the YouTube managers analysts have continuously confirmed. Even in this grim situation, there is little concern among most analysts as the company holds immense potential. This is if the number of viewership and users are to be considered from a business perspective (Elberse and Gupta). By 2009, YouTube was by far the biggest online video site with 129 million unique viewers in the U.S. since then the number has skyrocketed, considering the growth in internet coverage both in the U.S. and globally. The increased access, the exponential growth and the developing prominence of online videos are some of the factors that analysts are looking at when examining YouTube’s revenue potential. At the moment, given the YouTube’s popularity three viable options have been considered as potential sources of YouTube’s revenues. The three are; a hybrid model where YouTube charges a portion of its users to upload their videos, charge users for downloading movies and lastly continue with the current strategy of depending on advertisement generated revenues. YouTube has in the past tried out one of these options when in January 2010 the company started renting movies through its site. The move was experimental; first it offered five movies to help promote the Sundance Film Festival at a price of $3.99 for a 48 hour-viewing period. Under this plan, YouTube hoped to later allow producers to come up with their own prices to charge users (Elberse and Gupta). This was very much in line with the second revenue generation strategy fronted by Munster. The strategy sought to charge users for viewership similar to the way iTunes are operated, on subscription basis. However, like every new move, this strategy was laden with uncertainties mainly based on the users’ response to paying for a service that was initially free. Furthermore, such a move would need to come up with the category of users and content that would be charged. This is in line with the fact that not all material in YouTube would constitute value for money, a factor that would prompt YouTube to reevaluate its content (Hartley, Jean and Axel 410). Under this consideration, YouTube would have to establish a completely new relationship with content owners who in this case would upload material based on commercial viability. In summary, getting this strategy to work would require decisions touching on users’ categories, content, and payment channels. The other strategy in monetizing YouTube’s content is charging users for uploading videos. Charging users to upload their videos would provide the resources required to meet he assortment of costs that come with running and maintaining YouTube. These costs which include cost of bandwidth, site maintenance, and storage costs represent a significant part of YouTube’s cost outlay, if this cost is offset fully or partly by users, YouTube would record significant profits (Elberse and Gupta). However, this approach is not as straight forward, many more decisions have to be made, these include decisions on how to charge users, how much users should be charged, and under which circumstances the charges should be applied. One of the proposals in charging uploads was based on length and space thresholds, the idea is to charge videos that exceed a certain threshold both in terms of space and length. The third option is to continue with the current strategy which involves generating revenue from advertisements. As Kafka (2013) indicates, YouTube continually becomes big, it now commands the biggest video viewership globally, more than any other web based video site, and the ad dollars are in the rise. The number of partner programmers has also increased significantly and they now command much higher returns. However, the ad revenue seems to be the least progressive a fact that has informed YouTube partners to implore on the fore mentioned options as a means of advancing revenue. The biggest question at the moment is whether YouTube has the capacity to generate adequate ad money to prompt content makers to support “premium” viewership that the company seeks to achieve. According to analysts, such as Steve Raymond the proprietor of Big Frame, YouTube lacks the appropriate marketing infrastructure to meet premium programming economies Kafka (2013). It would be expected that turning around the advertisement model would be the most viable option for YouTube. This is because it carries the least risk, mainly because it does not upset the free upload and viewership approach. This is a major factor as it would not prompt a “mass exodus” to other sites such as Hulu and Comcast which offer premium content free of charge. The turnaround would enlist among other factors raising the amount of revenue charged for advertisements so that the company can increase the amount of money paid out to programmers who have continually complained for lacking enough money (Jarboe 10). This has been largely blamed on YouTube’s approach a factor that explains why top programmers have now turned to augmenting their own ad dollars by requiring users to subscribe to their content, an example being Maker Studios and Machinima. To augment their ad dollars, YouTube needs to constitute an able sales force as opposed to the current Google’s seller’s products. The other change YouTube has to enforce is shifting focus to sell individual shows and networks as opposed to the current focus on broad “audience” buys. These changes have been highlighted by YouTube programmers and very much represent the key changes likely to turnaround YouTube’s fortune. In conclusion, the best strategy remains focusing on advertisement revenue. This presents fewer risks and has great potential as well. This is given the fact that lesser entities have been able to augment their ad money and now generate much more revenue that YouTube. This underlines the fact that it is not the business that has a problem but the approach and the adopted model. Works Cited Elberse, Anita and Sunil Gupta. "YouTube: Time to charge users?" Harvard Business School, 26 October 2010. Jarboe, Greg. Youtube® and Video Marketing: an Hour a Day. Hoboken, NJ: Wiley, 2012. Print. Jennings, Marianne. Foundations of the Legal Environment of Business. Mason, OH: South-Western/Cengage Learning, 2013. Print. Hartley, John, Jean Burgess, and Axel Bruns. A Companion to New Media Dynamics. Chicester: Wiley, 2013. Print. Kafka, Peter. YouTube’s Show-Me-the-Money Problem. 4 March 2013. 1 April 2013 . Read More