The Future of Media: Ads vs Subscriptions

Business The Edge Podcast Top November 30, 2018
How many subscriptions will people pay for?


The Future of Media: Ads vs Subscriptions

YouTube announced yesterday that they’re going to shift their focus back to being an ad-supported platform and will greatly reduce their spending on original premium content. The YouTube Premium service is $12/month and offers and ad free YouTube experience along with access to their Premium shows and movies that mostly feature YouTube stars.

This news came out as I was writing this article discussing where the future of online media is heading. I think it served to further prove my thesis. That thesis being, consumers are becoming more willing to pay for online media subscriptions, but the content offering must provide tremendous value for consumers to do so.

Is there a maximum amount of money people will pay for digital subscriptions?

Yes (obviously), but that number is likely higher than most think. Of course, there is no “one size fits all” number for what people will spend, it very much depends on how much discretionary income a person has, and how much time they spend consuming digital content vs traditional. Overall however, the amount of people willing to pay for digital content along with the total amount those people are willing to spend is going up.

But how high can those numbers get?

One easy comparison would be to see how much consumers were spending on media before the digital age. It used to be that people subscribe to either cable or satellite for ‘video content’ plus maybe throw in an HBO subscription. Let’s call it an average of $100/month. On top of that many subscribed to physical newspapers and magazines (remember those?). National newspapers like the New York Times or USA Today would cost you about $25/month on average (depending on your frequency and billing schedule). Add a local newspaper in for $5/month. Magazines vary greatly because they frequently have entry offers, let’s be conservative and say $10/month.

Add that all up and you get $140/month in media subscriptions. Again this is a rough estimate of what the average person was spending, many spent far less, and many spent much more.

Most people likely do not spend $140/month on digital subscriptions. I myself am nowhere close. I pay just about $50/month in total (Netflix, Audible, Spotify, YouTube Premium, and other blogs). Which means I and many others have plenty of room for more subscriptions. This is why I think the amount people spend on average will continue to go up for the foreseeable future. It might not reach the same level as before($140/month+), but I could easily see it double from where it is now.

Will people pay more for certain types of mediums or categories of content?

Video vs Written Articles vs Audio, which can you charge more for? The answer isn’t really clear. Video is by far the most expensive to create, but I’m not sure whether or not you can charge that much more for it. Netflix is the poster child of video content subscriptions, but at $8-14/month, they charge about the same as many media publications who create mostly written content. The Economist for example charges ~$14/month, the New York Times is ~$15/month, New York Magazine recently rolled out a $5/month subscription. Needless to say prices vary, but they all seem to fall in that general range regardless of the medium they produce.

Side Note: Since video is much more expensive to produce, it would make sense for video content providers to charge more, case in point Bloomberg. Bloomberg’s digital subscription is $35/month for unlimited articles and access to Bloomberg TV. But here’s the thing, I don’t care about Bloomberg TV, I only want the articles. I understand that 24/7 video news is expensive to operate, but if I’m not watching it then I don’t care. If they had a $10/month, articles only option, I would consider. I suspect I’m not the only one who thinks this way, and that perhaps we could see companies that create several types of content offer them in separate packages. Some money is better than no money.

Entertainment vs Learning.

Another question is whether or not people place subscriptions into different mental buckets. This question is difficult to find an answer to. Personally, I am more willing to spend money on a subscription if I think it will provide me with valuable information or education, because I view it more as an investment rather than an expense. I know many others who think the same, but this is all anecdotal. My guess would be yes, on average people will spend more on informative/educational content than they will on content meant for entertainment, but I don’t know for sure (if anyone reading this is aware of data or studies on this please let me know!).

Does ad-supported media still work?

This brings me back to where this all started, YouTube going against the trend, and opting to focus on increasing ad revenue rather than going after paid subscribers. This is because YouTube was not able to create the necessary “tremendously valuable” content. The majority of their premium content was focused around their platform’s stars. But here’s the problem, YouTube stars are very good at making YouTube videos, they are not good at acting or writing original screenplays. Which is why the shows and movies they created were so bad.

Now realizing all of this, YouTube has called it quits. They’re going back to making money from ads, which is smart, for them. YouTube’s ad platform is connected directly to the Godfather of advertising, Google. They have access to all the same data, all the same users, and most importantly, all the same ad buyers. Why would YouTube want to monetize any other way?

Every other media company does not have the advantages when it comes to selling ads that YouTube has, and as more and more media companies choose the subscription route, ad buyers will have to spend more on YouTube (and Google). YouTube’s revenues will continue to grow, and they will be saving a fortune because they no longer will be spending on original content. This is the right move for YouTube.

But what if you don’t have Google’s wagon to hitch on to, can you still succeed creating media that is only supported by ads? Perhaps, but it will be difficult. Ad supported companies have been missing revenue targets left and right, BuzzFeed, Vox, and Vice all missed by 15-20%. That’s a big deal when you’re not turning a profit and living off of venture money. At the end of the day creating massive amounts of quality content isn’t cheap, and video/banner ads don’t bring in many dollars. A YouTube video that gets one million views might only bring $2-3000 in ad revenue. How much do you think Vox spent making this video?

Ad-Supported companies rely almost entirely on ‘Sponsored Content,’ which is where a brand pays them to create a specific piece of content that promotes said brand in some way. To do this you need a sales force to go out and find companies willing to pay for this content, which costs even more money. All of this, and I haven’t even discussed the fact that when you rely on ads to survive you tend to create more clickbait-y and lower quality content.

Relying on ad revenue to survive will be incredibly difficult for traditional media companies. There are just not enough dollars to pay for large editorial teams, fancy offices with juice bars, HR departments, and all of the other overhead that comes with being a large company.

Those who can survive off of ads are those who don’t have all of that overhead, meaning independent creators and small teams. Big media companies will need to cut costs if they want to continue to live as an ad driven company, their businesses are simply not sustainable in their current state.