How is the ad industry reacting to YouTube offering ad-free paid version?

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Google-owned YouTube, with over 6 billion hours of video watched in a month and 100 hours of video uploaded every minute, has recently announced plans to offer a paid, ad-free version of its site to users. But the question is, how will consumers react, and how will these changes affect the advertising industry as a whole?

From the recent “State of the Video Industry Report,” brands are reporting that video budgets would be incremental, with 33 percent saying their spending would not come at the expense of any other category (broadcast TV, etc.), which is up from 26 percent from last year. Using video as part of an integrated online marketing campaign is nothing new, but spending on it is on the rise, and more businesses are starting to take advantage of this approach, with an estimated 86 percent of brands planning to increase video and ad spending in 2014.

As explained in an article on the change published in Reuters, Alexei Oreskovic states YouTube’s new subscription program would be a “significant change for the world’s No. 1 online video website, whose free videos, often accompanied by short commercials, attract more than 1 billion users a month.”

A pilot program was launched by YouTube in May of last year, allowing “individual content creators to charge consumers a subscription fee to access a particular ‘channel’ of videos,” in an effort to collect data on what consumers would pay for access to ad-free viewing.

YouTube has not yet released statistics on revenue brands generated via YouTube campaigns, but its estimated gross and revenue in 2013 was $5.6 billion, with about $2 billion in net profit. And while the video site supergiant is still in the beginning phases of implementing this new model, the ad industry is already reacting.

Ilene Grimes, President and CEO of Strategic Planning Partners and former senior level marketing executive at the Coca-Cola Company, explains that the new model can be positive if companies “segment their prospects, and understand what is relevant to move them to purchase, and use YouTube as one piece of the marketing mix.”

It is not surprising that YouTube has made this shift as video ads are a proven way to generate revenue, but Grimes warns of a few challenges, mainly the value of the content and the changes in the way consumers will view them as a brand. “There will need to be a feeling of exclusivity to make consumers want to participate in a paid subscription,” explains Grimes. “Moving to a paid subscription model will change consumer perception from cutting-edge to mainstream, which will negatively affect the ability for a brand to create ‘stealth advertising’ content.”

And as far as the effect on the advertising industry as a whole, Grimes thinks that, “assuming YouTube will provide analytics to advertisers,” it could be a very effective medium for advertising if implemented correctly as part of an integrated campaign that could “result in higher conversion and adoption rates.”

In an article published in CNN Money, the CEO of YouTube, Susan Wojcicki, explains their subscription arrangement is “an interesting model,” and they are “thinking about how to give users options” to address the concerns of users not interested in paying money to avoid ads. One challenge they need to address relates the audience: “User demographics and their disposable income will also be major factors,” explains Grimes, who cites that, based on YouTube’s published monthly visitors, 83 percent of Gen Zs visit monthly, while 70 percent of Millennials and 58 percent of Gen Xers do. And assuming their target audiences are the Millennials and Gen Zs, it is crucial that YouTube pays attention to these demographic groups’ desires to pay for ad-free YouTube services.

There is still no information on the logistics of the shift, i.e. the cost of the subscription or when the changes will come into play. In the meantime, it may not be a bad idea for the advertising industry to consider YouTube as an aspect of an overall marketing plan, but, as Grimes suggests, “advertisers should be well-informed of the advertising options available on YouTube and choose the right strategy for their business goal.”

Flickr photo via user clasesdeperiodismo

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Alyssa Sellors

Alyssa Sellors

Alyssa teaches English and journalism, and is a full-time freelance writer. She has been published in BuzzFeed, TechSling, Social Media Today and on numerous business websites. In addition to her work as a journalist and freelance writer, she also works one-on-one with start-ups to develop web content and effective online marketing strategies.
Alyssa Sellors

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