It would be madness to remove the free tier of freemium services – getting consumers directly into a pay model is so so tough. That said, the current balance isn’t right. The quality and quantity of ads is not right, but they possibly also lack a decent windowing strategy.
There’s no reason why you can’t run a successful and profitable advertising model, TV has done this for years. TV advertising has always been a highly immersive and creative and yet ultimately interruptive medium. Despite all of the new tech allowing you to skip ads and the fact (as everyone states) that no watches ads anymore, the demonstrable reality is that people still watch a hell of a lot of TV ads. From my POV, this is in no small part due to the highly creative approach many advertisers take to cut through, which in turn contributes to a better consumer experience.
Looking at the new free digital services (e.g. YouTube, free tier of Spotify), they just haven’t got this right. There’s simply not enough ads for the amount of free content being consumed. On our network of music TV channels, on average we generate about 0.6p for every music video stream. Our content on YouTube (monetised by Google) generates around 0.05p per stream (some aren’t monetised) and then looking at the OpenSlate/VentureBeat data (i’ve used this before) Taylor Swift’s Vevo channel generates around 0.07p per stream. That’s simply not good enough. Common feedback is that consumers don’t like or even won’t accept advertising but they’ll accept what they’re used to and that’s up to us. Just have a look at the differences between the US and UK TV ad market. The UK consumer, spoiled by all the great BBC content without ads ‘accepts’ less ads than the American consumer who will quite happily watch a different experience; nurture not nature.
Google have to shoulder a lot of the blame here. I watched Matt Brittin from Google give a very good speech at the Guardian’s Changing Media Summit last week, he was celebrating YouTube’s 10th birthday which seems fair enough – YouTube has changed the face of culture as we know it, a lot of it for the better – unfortunately just not for many viable advertising businesses. He was explaining the popularity of the ad skipping model they have. Of course this is great for the consumer, and it’s also great (i know, i’ve used it) for the advertiser. It’s just not great for the content owner, at least the professional content owner/producer. Google have never revealed whether YouTube actually makes any money, although it’s fairly widely thought it doesn’t. Clearly this has implications on the rest of us who don’t have deep enough pockets to not make money and undersell/underload our content with no or non-monetisable advertising, This is where the content owners need to stand strong. The major (and big independent) labels have a strangle hold on great/popular music content and they have the ability to force a change in this. Forcing a better (more lucrative) ad experience on YouTube and the other free services would not only improve the economics, it would also drive more consumers into the pay-tier. Get your ad-load right and work with the advertisers to improve the quality and creativity of the advertising.
There’s also the point on windowing. There’s no shame in holding back some of your premium content. Again, TV has built a layered model that drives premium customers into pay services for premium content. Even if you don’t hold back content completely, then possibly do it through functionality limitations (e.g. limited plays on demand). I know there’s a lot of resistance to this from some of the music services but at the end of the day, if they’re throwing their weight around a bit, then the labels should play them at their own game.
But free is definitely not bad, it can make you money and it draws consumers in so you can upsell them to a higher value service. Just keep tinkering until you get that balance just right.