In recent months, there has been considerable debate by videos creators on YouTube about the future of generating revenue through Google’s extremely popular streaming video service. Advertisers are backing away from more controversial content and YouTube has begun to demonetize several types of videos. Services like Flattr, which attempted to allow content consumers to fill the tip jars of creators, have slowly fizzled. Yet out of those ashes has come a new service known as Patreon, which allows fans to directly contribute to the continual production of many varieties of art.
Ad keywords on YouTube are priced, matched and added to content in a sophisticated yet closed, proprietary set of real time services. This makes it nearly impossible to get accurate numbers on how much content creators make per view, as it literally varies for everyone1. Furthermore, YouTube is a walled garden, meaning that although it’s a very powerful free service, it’s completely controlled by Google and their policies. In recent years YouTube has demonetized several types of videos, include those that deal with political content or issues that may be considered controversial to members of their advertising base.
“…On TV they typically avoid going too far down certain paths, for the most part, because advertisers don’t like offensive stuff … YouTube beckoned us all in with this motorization, but now, in the past year, they’ve changed their minds and have started imposing heavy restrictions on themes and content. Guess who’s calling this one? It’s those lovely advert coin-men in their lovely lovely suits. For many creators this is our job and many of us would actually have to simply adhere to the rules and makes some changes to continue … now that’s a different approach to censorship. Don’t use force, just simply take the coins away. Now I could bland it up and start making middle of the road nice stuff, but who wants that? Nobody! .. Now YouTube can do what the hell they want. It’s their platform. If they think a green man’s nipple on the least realistic looking cartoon ever drawn squirting milk is bad for business, then I’m in the wrong place. Advertising is dog shit anyway. I don’t like all that subliminal suggesting; it’s poison…” -David Firth2
Flattr is a service that was based out of Sweden and launched in 2010. It allows users to set aside a certain amount of funds to tip content creators monthly. They initially integrated with APIs from services like YouTube and Twitter so that donations could be automatic for simply liking or giving a thumbs up to content. However most of these hooks have been removed as Twitter and YouTube both disallowed this type of tracking via their official API.
Flattr is limited by the fact that it only provides a virtual tip jar, often to give funds to a specific video, tweet, photo or blog post. What Patreon does is provide a system for fans to continually subscribe directly to contributors. It provides either a constant source of monthly revenue, or creators can ask supporters to have contributions made per work produced (e.g per blog post or video). It cuts through the current debate about the ethics of ad blocking software by removing advertising from the equation. Excluding payment gateway and transfer fees, they take 5% of successful contributions to fund their service3.
For many writers and artists who are just starting out or have low readership (like myself), Pateron can be similar to Flattr, acting as a tip jar and providing a few extra dollars each month, for fans to show their appreciation. For those who are more popular and have been creating content for years, it can provide a direct way for fans to fill in the financial gaps created by YouTube over the past few years.
Walled Gardens and Profitability
Back when YouTube started in 2005, it was not the only player in the video hosting game. One of the likely factors in YouTube surviving, where its rivals stumbled, was their scalability engineering. Their original stack included Python, MySQL (with sharding) and Lighttpd. Their founding staff would spend each day identifying performance bottlenecks, fixing those bottlenecks, drinking and (maybe) sleeping. Engineering manger Cuong Do explained in a 2007 talk on scalability, that this process continued for months on end in YouTube’s early days4. Serving video efficiently is by no means a trivial operation. What made YouTube so successful, leading to its eventual buyout by Google, was not that it had zero downtime, but simply that it didn’t crash as often, and had less downtime than its competitors.
There isn’t a lot of information to be found on YouTube’s current technology stack. It’s most likely proprietary and held in secret by Google. In 2012, Google claimed that their service served 4 billion videos daily, yet most of those videos didn’t generate any revenue. Only 3 billion videos per week, roughly 10%, were monetized by advertising5. Even by 2014 with posted revenues of over $4 billion, YouTube revenues didn’t contribute to Google’s earnings as the company claimed they were still “roughly break[ing]-even6.” Even by 2016, Google still refused to release revenue numbers specific to YouTube. Susan Wojcicki, CEO of YouTube, mentioned how YouTube was still in “investment mode7.”
Ad Revenue Sustainability
YouTube is in a very interesting position, where it ingests nearly 65 years of content per day1. In their earlier days, normal accounts were restricted to only 15 minutes video clips (which is why many older videos are multi-part 15 minute segments combined via a playlist). However, that restriction has been lifted for years. Rivals like Vimeo offered longer clips, higher bitrates for High Definition (HD) content, and paid accounts for greater upload capacity. YouTube has caught up in recent years with not only HD content, but 4k and 3D video hosting as well. Another thing which put YouTube ahead of Vimeo was its related video section. Combined with massive amounts of new daily content, the related list allowed for users to quickly move from one video to the next. Although Vimeo added their own version of this feature later, YouTube provided a means for new videos to be recognized and accessible.
Services like Patreon now provide a direct means of revenue, meaning that creators that have content which may fit perfectly into YouTube’s revenue model, may opt to not use YouTube’s ad placement system. Some creators have direct sponsorship and place ads directly into their videos or mention products at the beginning or end of their clips. Other creators use a combination of user donations and in-video ads, but the point is that in all of these cases, YouTube is now essentially hosting peoples’ content for free. Those creators also have less of an incentive to use YouTube’s monetization system at all.
With the utterly massive amount of new content ingested and videos streamed to viewers every day, one has to ask the question: is YouTube’s business model sustainable? It’s unlikely we’ll see a future where Google limits the amount of uploads or starts charging extra for higher levels of video quality. If the dot-com bust of 2001 has taught us anything, it’s that charging a fee for features that were initially free is a great way to kill your business. With YouTube being such an iconic name and brand in the minds of people all over this planet, any types of changes aimed at long-term sustainability or profitability must be made carefully.
YouTube’s current shortfall seems to be with sticking to the traditional business model around funding entertainment with ad revenue. Apple iTunes, Google Play and Amazon Music all take a 33% cut of sales, similar to the traditional CD industry that proceeded them. Bandcamp disrupted this system by only charging 15% for the same services (10% for high revenue earners who hit $5,000 USD), while also providing higher quality lossless audio formats.
Patreon’s service is similarly disruptive and fulfills a deep need for artists and writers. Their minimal overhead costs make it seem, at least on the surface, as a business geared towards helping independent creators, more than their own bottom line. Patreon offers some limited posting abilities, but it’s not designed to host content directly. Instead posts, both public and exclusive to patrons, often link to other hosting services like YouTube, BandCamp, SoundCloud or independent blogs and websites. By not relying on advertising, creators now have a direct link with their audience. By not trying to host content directly, Patreon gives creators the choice to use whichever services they prefer.
At its core, Patreon is a very simple concept. It combines the somewhat feature-lacking concept of PayPal Subscriptions and wraps it in a very basic posting system, which restricts access by subscriber tiers, while providing goals and rewards. It’s like a Kickstarter or Indiegogo for long-term, sustained work, instead of one-off projects. Their website does help with discovering other projects and creators which may match one’s interests, similar to related videos on YouTube or the project listings on Kickstarter. However there are many open source alternatives to Patreon as well, such as SnowDrift, Liberapay, Salt and Gratipay. Such projects are useful for people who either want to self host their funding campaigns or use systems specifically designed for open source software.
We are likely to see other services like Patreon in the future; potentially targeted at specific types of content and creators. The thing that has really caused Patreon to grow recently, besides YouTube’s controversial changes, is that it doesn’t strongly couple individuals to delivery services. If YouTube decides to start deleting old content or changing its video policies, a filmmaker with a substantial following on Patreon can simply move to a different platform. If Deviant Art decides to close its doors or Yahoo decides to close down Flickr, photographers with followings on Patreon can use the platform to inform their fans they’re moving their artwork elsewhere. It creates a direct conduit between creators and their fans, and allows funding from just a few people to support an artist being able to provide their work, potentially advertising free, to everyone.
This Video Made $2,573 at Auction. How Ads Work on YouTube. (Post-Adpocalypse Updated Estimate). 5 Apr 2017. CGP Greg. (Video) ↩ ↩2
Seattle Conference on Scalability: YouTube Scalability. 23 June 2007. Google Tech Talks. (Video) ↩
Exclusive: YouTube hits 4 billion daily video views. 23 Jan 2012. Oreskovic. Reuters. ↩
YouTube CEO Says There’s ‘No Timetable’ For Profitability. 18 Oct 2016. Rao. Fortune. ↩