GigaOM » Subscription Services

Pay to play: Can YouTube succeed with its paid channel subscriptions?

Janko Roettgers — Sat, 11 May 2013 15:00:47 +0000

Are you ready to pay for YouTube? Earlier this week, YouTube launched paid subscriptions in cooperation with a few select partners, resulting in a total of 53 subscription channels that can be accessed for as little as $0.99 per month. The move had been rumored for at least two years, and it’s just the beginning of a much more ambitious strategy that will eventually give every qualifying publisher a self-serve option to launch a channel subscription.

There may admittedly not be an easy answer to the above question, given the nature of YouTube’s subscription model. The site isn’t charging users for an all-access package, but isinstead turning individual channels into paid subscriptions. Some of them will likely fail, while others may well succeed. But you can learn some lessons from YouTube’s past to get a sense of how this paid future will play out.

To succeed on YouTube, you need to understand YouTube

It’s especially worth looking at YouTube’s other ambitious monetization plan — the site’s premium channels, which received sizeable advances from Google to produce higher-quality content in late 2011. YouTube’s initial lineup included a lot of A-list celebrities and big-name media brands. Madonna, Tony Hawk, Ashton Kutcher, Reuters and Lionsgate all were part of the initial lineup. They were joined by genuine YouTube-born celebrities like Phil DeFranco and Cenk Uygur, who launched new channels with additional content as part of the content push.

Guess who succeeded? Here’s a hint: DeFranco’s SourceFed channel clocked more than 345 million views to date. Reuters TV, on the other hand, only got 11 million views. Many of the outside media brands simply didn’t know how to talk to YouTube’s audience, and as a result failed to get enough traction on the platform. That’s why quite a few of them didn’t make the cut to get additional funding when YouTube renewed its commitment in November. Only 30 to 40 percent of the original channel lineup was part of a second round.

That’s a lesson that may be true for paid subscriptions on YouTube as well. Brands and personalities who already have a dedicated fan base on the platform will have little trouble asking them for $2 or $3 a month, provided that they come up with an interesting value proposition. Outside brands that want to use YouTube as an additional platform to sell their content may have a much harder time — which is why it was so surprising that the first slate of subscription channels largely consists of outsiders.

Sure, there’s a market for some of them. But in many cases, that market may not be on YouTube. A sales pitch like “discovering movies you’ve never heard of is part of the fun,” as used by the $5-a-month channel BigStar Movies, may just not fly with YouTube users when the site also hosts tons of movies we’ve never heard of for free.

People do pay for niche content, if it’s done right

The contrarian argument to this is that there is a proven market for niche content, and there’s no reason that this couldn’t extend to YouTube. In fact, the site already has a subscription success story: Long before YouTube announced its subscription plans, it started offering a subscription package for Indian cricket games in cooperation with Willow.tv.

It’s part of Willow’s online subscription service, which is available on a variety of platforms, with Google doing the billing for users subscribing on YouTube. And Willow.tv seems to be doing really well, because it delivers content unavailable elsewhere.

Other niche players have shown that people are willing to open their wallets as well: Two months ago, Crunchyroll announced that it now has 200,000 paying subscribers for its Anime-focused video service. There’s no reason this kind of content wouldn’t work on YouTube as well.

And people may not just want to pay because of scarcity: Sesame Street videos are widely available online, including on PBS Kids, Sesamestreet.org, YouTube, Netflix and Hulu. But especially on YouTube, it’s often just one click from a cute Elmo video to one of someone setting an Elmo doll on fire. Giving parents an option to access full-length-episodes, and keeping kids glued to the official Sesame Workshop channel, may get quite a few of them to pay a few bucks a month.

It’s not whether YouTube succeeds, but who about who succeeds on YouTube

In a way, if YouTube can succeed with its subscriptions seems almost to be the wrong question to ask. It’s more about who can succeed with subscriptions on YouTube – and I suspect that we are going to see many failures and quite a few success stories.

And if you ask me, my money is on Cenk and Elmo.

Image courtesy of Flickr user sushi♥ina.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Rhapsody exec: splashy ads and free streaming promotions don’t work

Janko Roettgers — Mon, 22 Apr 2013 19:03:55 +0000

How do you convince people that they don’t need to own music anymore? That’s a question that streaming music services have been struggling with for years. Both Spotify and Rdio have been ramping up their ad spending in recent months to attract more subscribers to their respective services — but they’re doing it all wrong, says Rhapsody VP Product and Content Jon Maples.

Rhapsody has been offering music subscriptions since 2001, much than any of its competitors, and Maples said in a blog post Monday that the company has made many of the same mistakes that he believes Spotify and Rdio are repeating now. One lesson Rhapsody learned the hard way is that ads for a music subscription service should be about the service, not artists or emotional connections:

“We tried the emotional connection to music with our Droga5-produced bubbles ad early on. The ad featured a woman who dove off a building into a bubble that immersed her into music. She dove into another bubble, and the music changed. Nice idea. Hard to understand in terms of product. Or value proposition. Or pretty much anything outside of diving off high rises, which we neither condone nor recommend.”

In case you’re curious, here is the Rhapsody ad in question:

Compare that to this much less artsy Rhapsody ad, which performed much better, according to Maples:

And here’s one of the ads Spotify is running right now:

But Maples didn’t just criticize his competitors’ ads. He also voiced some doubts about the benefits of giving away free music to promote subscription services. In particular, he took issue with a promotional campaign run by Rdio, in which the company secured exclusive content to stream for free on Rdio.com. Guesstimating the conversion rate for that promotion, he concluded:

“Rdio and Rhapsody are in the business of sourcing, identifying and enticing fans who are willing to pay for music. How you go about that is the hard part. My belief is that streaming companies have to sell the value of a music service and the benefits to customers instead of relying on an emotional connection to music, giving songs away or buying exclusive rights to a band’s new release.”

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Spotify hits 6 million paid users as market for music streaming heats up

Jeff John Roberts — Tue, 12 Mar 2013 15:13:20 +0000

Music subscriptions services, which provide an alternative to purchasing songs on sites like iTunes, continue to gain in popularity. One example is Sweden-based Spotify, which is expanding rapidly across the globe and has now added another 1 million paid subscribers in the last three months.

According to figures reported by CNET and confirmed by Spotify, the company now has 24 million active users and 6 million paying subscribers across the world. Spotify is also growing rapidly in the United States, where it arrived in July 0f 2011 and is this week hosting musicians at its “Spotify House” at the SXSW festival in Austin, Texas.

Despite the hype, the underlying economics of Spotify’s business model remain uncertain. The service is beholden to musicians and studios, which request a 70 percent cut, and it must contend with a growing list of competitors that include Pandora, Rdio and SoundCloud. Meanwhile, YouTube is expected to launch a subscription service of its own in coming months and even Apple is expected to get into the streaming game too.

This competition validates the underlying premise of Spotify — that people want access to a giant catalog of music instead of buying it piecemeal through iTunes — but the arrival of deep-pocketed rivals may hurt Spotify’s ability to compete in the longterm.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Rdio expands global footprint, Spotify reportedly extends free mobile offering

Janko Roettgers — Tue, 12 Mar 2013 00:00:48 +0000

Rdio, the music subscription service backed by the founders of Skype and KaZaA, is expanding to Austria, Ireland, Iceland, Italy, Mexico, Latvia and Lithuania. That brings the total number of countries with a Rdio presence to 24. The announcement of the expansion comes on the same day as a Bloomberg report stating that Spotify is negotiating to bring its free, ad-supported mobile service tier to all of the countries it is operating in.

Rdio, just as a refresher, is a subscription service that tries to set itself apart from market leader Spotify with a different take on social music curation. The company offers limited free music for up to six months, but doesn’t do ads.

That’s different from Spotify, which launched a free, ad-supported mobile radio service in the U.S. last summer. The company is now looking to expand its free mobile tier to all of its 17 territories, Bloomberg reported Monday. Deals for such an offering are still under negotiation, but Spotify could start with its free streaming as early as April.

Spotify’s free mobile service is more like Pandora, offering users limited interactivity with the hopes that some are going to subscribe to a full-service offering. And the interest in music subscriptions is definitely growing: Industry association IFPI’s latest Digital Music report (PDF) claims that worldwide, 20 million consumers paid for music subscriptions in 2012. And in Europe, subscription services made up for 20 percent of all digital music revenues during that time period.

That number was largely driven by a strong showing in Northern Europe, which is Spotify’s home turf – but services like Rdio seem to bet that this success story can be repeated in countries like Austria as well.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

The future of streaming video – four predictions for 2013

Kun Gao, Crunchyroll — Sun, 16 Dec 2012 18:30:52 +0000

Last week’s multi-year licensing agreement bombshell between Disney and Netflix was a capper to an already dynamic year for streaming media. Clearly we’re at an exciting crossroads, fueled by “make-ups and break-ups” that constantly reshape the industry. Given the activity of the last four quarters, here are a few things to look for in 2013.

Globalization of professional content

The act of taking premium content across borders to reach new audiences has proven to be a boon: It generates meaningful incremental digital dollars through subscription services; it legitimizes a content experience that previously had been dominated by online piracy; and it builds momentum for content and brand equity for the coming years.

Ironically, it is the home market that sometimes moves the slowest. While not all territories are equally profitable, content is traditionally sold in a segmented manner siloed by language and country. Being able to slowly unfragment these rights through global expansion provides scale and future upside that is worth investing in today; this de-fragmentation will continue the efforts to globalize more professional content at an increased pace.

Monetization via subscription

Subscription will continue to be the dominant business model. Viewers have demonstrated that they recognize significant value in having access to premium content across their continuingly connected digital lifestyle – and are much more willing to pay for convenience of access on devices. This month’s retail activity showed all-time highs in consumer spending towards a personal device experience. Monolithic subscription services such as NetFlix and Hulu, which generate $8 ARPU per month, will be challenged in a market where DirecTV and DISH generate on average $80 ARPU per month.

What hasn’t changed is the demand for professionally produced content, which still costs just as much to create. Today’s market data has proven that users are willing to pay top dollar for traditional Hollywood quality content – but a mere $8 a month simply isn’t enough to support creating it in the same volume as we do now. One of the ways to reach a happy medium then is through targeted channels of in-depth content.

Channels of in-depth content

Channels will become much more targeted and personalized. Over 60 years ago, broadcast television introduced channels 1-10 in the U.S., and, furthering this momentum, channelization provided channels 11-1,000 via cable and satellite in the 1980s. As this decade is earmarked by seismic technology and media changes, the next few years will be laser-focused on creating the next 100,000 channels – delivered across a mix of broadcast, cable, mobile and smart TV apps – each tailored for a set of unique lifestyles.

Do you enjoy fly-fishing, building replica battleships, or perfecting your Portuguese? The next 100k channels are all about delivering a deep and targeted experience that was previously not possible, because the audience was fragmented geographically, the high fixed costs of creating a new cable channel were prohibitive, or the behavioral targeting was not possible. Viewers of highly targeted and in-depth content experiences are more than willing to dive in and pay. These experiences are much more than simple online video delivery and make up a unique social and lifestyle experience.

Redefining e-commerce

There will be significant progress made towards a new monetization model beyond the traditional ad-supported and subscription service ones. The American household spends, on average, nearly five hours per day watching video content. As such it is one of the best methods we know for generating product interest.

However, the one-way push model also happens to be grossly inefficient. Online streaming has the opportunity to revolutionize the way products accompany content, and are ultimately introduced to viewers. The opportunities are boundless when one thinks of how awesome an experience it would be if we can realize the full potential of combining streaming video and e-commerce – a next-generation Home Shopping Network layered on top of any content. After all, what is video but a medium for the aspiration of product, lifestyles and experiences?

Kun Gao is CEO and co-founder of Crunchyroll, Inc., a global video network for Japanese anime and Asian media.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Rhapsody releases new Android app, shows you all the songs you already know

Janko Roettgers — Tue, 06 Nov 2012 21:41:03 +0000

Subscription music pioneer Rhapsody released a new version of its Android app Tuesday that comes with an interesting twist: Instead of just focusing on the discovery of new music, it is highlighting some of the tunes you already know, at times you might want to hear them.

Rhapsody’s Replay functionality analyzes a user’s listening patterns and then suggests their favorite tunes based on the time and day. So if you like to wake up with your favorite Swedish pop tunes, then Rhapsody will pick up on it after a couple of days and suggest those songs in the early morning. And the service takes a very literal approach to recommendations: It doesn’t recommend songs that are somewhat like your favorites, but instead are the exact tracks you previously tuned into.

Sounds a bit like good old radio programming, doesn’t it? However, it’s also a good indicator of a problem that all of the music subscription service have to deal with: A catalog of millions of songs may be great for active choices of curation – but it doesn’t by itself provide a great leanback experience. That’s why Spotify and Rdio have been working on adding Pandora-like radio functionality to their services, and that’s also why Spotify apps such as Soundrop have proven to be so successful.

Rhapsody’s Replay approaches that problem from a bit of a different angle, but the idea to surface familiar content might just work: After all, music works very differently than video, and people tend to go back to the songs they love over and over again.

Rhapsody was one of the first companies to offer subscription music in the U.S., but it has in recent years being overshadowed by newcomers like Spotify. The company made a number of acquisitions over the years, and most recently acquired the assets and customer base of Napster a year ago.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Try-before-you-buy YBuy subscription services raises $1M from Eric Schmidt

Ryan Kim — Thu, 05 Jul 2012 13:30:55 +0000

One of the biggest hurdles to buying stuff online is the inability to try products out first hand before knowing whether you want to purchase it. But increasingly, companies are getting around that by offering a try-before-you-buy option for online goods, something Warby Parker has done successfully with glasses. YBuy, a Southern California company, has built a monthly subscription service around the try-before-you-buy model for gadgets, appliances and other products and it’s getting a big name backer in Google Chairman Eric Schmidt.

Schmidt’s TomorrowVentures is leading a $1 million Series A round that also includes funding from David Hanna, Chairman and CEO of CompuCredit Corporation, and Jim Patterson, Chief Product Officer at Yammer. The money will help YBuy scale up to handle a waiting list of 50,000 people, who have signed up for the service. YBuy exited public beta in January but it has been limited to a smaller group of users so far.

YBuy users pay $24.95 to try out a curated list of products, things like the iPad 3, the Xbox 360, the Jawbone Jambox or the Withings Wi-Fi Body Scale. Users have up to 30 days to try out the product. If they decide to buy it, the $24.95 gets applied to the purchase price. If they don’t, they just send it back and try out something new. Shipping is free both ways. The service curates a list of products based on the tastes of a user. In addition to gadgets, it also offers appliances, such as coffee makers and blenders, and sporting goods, such as golf drivers.

The Manhattan Beach, Calif.-based company was started by Stephen Svajian and Kevin and Tim Wallin in 2009 and previously raised $750,000 from its founders and other angels.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Should Netflix buy Spotify?

Janko Roettgers — Mon, 18 Jun 2012 23:37:31 +0000

Netflix and Spotify are a bit like two peas in a pod: Both are championing all-you-can-eat subscription packages over transactional models for online media. Both are trying to establish themselves as global leaders. Both have the potential to disrupt traditional business models. Both want to be on as many devices as possible. Maybe they should just join forces, with Netflix buying the smaller Spotify?

A quick but important preface: This story isn’t based on any rumors, and it’s definitely not meant to start one. To be honest, I don’t think Netflix is in the market of buying up companies like Spotify, especially after last year’s Quickster debacle. Netflix’s stock currently trades at $66.73, down from a high of $304.79 last summer. Endeavoring on an online music adventure would be suicide at this point.

The soundtrack to your favorite movie

Instead, this story is purely meant as an academic exercise, albeit prompted by real-world conversations. A few weeks ago, I met with Michael Aragon, Vice President & General Manager, Global Digital Video and Music Services at Sony, who showed me some of the things his company has been doing in the music subscription space. One of the things that particularly caught my interest was that Sony is going to put a bigger emphasis on the possible synergy effects between its music service, its transactional VOD offering and its gaming business.

One example Aragon ran by me went something like this: Imagine you’re watching a movie, and your music subscription service automatically compiles a playlist with all the songs that are part of the soundtrack. Sony could obviously take this even further by adding games to the mix, but there’s also plenty of potential for synergy just between a music and a video service. Which made me think: Maybe there are actually some very good reasons for a company like Netflix to hook up with a company like Spotify. Reasons like these:

Media recommendations. Subscription businesses like Netflix and Spotify generate tons of data. Combine them, and you’re likely to get even better recommendations. Some of these use cases are pretty straightforward: Viewers of Glee may want to be reminded of all the original songs that were covered in the latest episode they watched. Other linkages may be much more subtle – but if Netflix has shown anything, then it’s that it is very good at making sense of lots and lots of data.
Device footprint. Spotify’s biggest asset in its quest to convert free users to paying customers are its mobile and connected device apps. However, the company hasn’t exactly been quick to expand in this realm. We waited forever for its iPad app, and the number of connected devices with Spotify on board can still be counted on one hand. Netflix on the other hand is now available on over 800 different devices, including virtually any connected TV and Blu-ray player. Tapping into that expertise could help Spotify to get a lot more paying users.
International expansion. Netflix has halted its international expansion until its return to global profitability, and its foray into South America has been below expectations. Spotify on the other hand has been adding new markets at breathless pace. Seems like Netflix could actually learn something from the smaller company here – and of course use some of its office space around the world as it resumes its own expansion plans.
Business models. Netflix is on the road to recovery, but there is no profitability in sight for Spotify. Some even claim that the company will never be profitable – at least not as long as record companies, who are also shareholders, dictate huge licensing fees. If Netflix has shown anything, it’s that it can get deals with media companies done, and Spotify could use some of that expertise to figure out deals that work for both sides.
Network infrastructure. Netflix recently unveiled its own CDN, and it only makes only to use that kind of infrastructure for other services as well. Spotify on the other hand has been using P2P to offload some of its network costs, which could be an interesting model for Netflix, if only as a threat in its talks with operators that complain about too much traffic coming from Netflix’s network.

As I said, this is really just a thought experiment, but I think it’s an interesting one. Media subscription businesses have a lot of similarities. In theory, it makes a lot of sense for companies like Netflix and Spotify to join forces. Of course, both businesses also come with huge risks – and combining risks those might be more than either can stomach.

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Flattr: we’re victims of an ‘app dictatorship’

Bobbie Johnson — Tue, 29 May 2012 16:14:24 +0000

The founders of micro-payment service Flattr say they — and the people that use their service — are victims of monopolistic behavior, after an app which used their system was blocked by Apple.

Flattr’s Peter Sunde and Linus Olsson

The company went public on Monday with the news that a third-party podcasting app, Instacast, had been rejected by Apple for its integration with Flattr. The iPhone maker apparently told Instacast that the integration broke its rules for the “collection of donations”, which it says must not happen in-app — only via the web or by SMS.

But talking to me earlier from Malmo, Sweden, founders Peter Sunde and Linus Olsson said that this was basically misunderstanding of how Flattr works — because the integration does not actually result in money changing hands directly. In fact, they said, the way it works is much the same as other very popular apps that have been approved by Apple.

“Basically there are a lot of different apps that are prepaid, like Spotify and Readability and so on,” said Sunde.

“There’s even a PayPal app that lets you send money between different accounts, and subscription services where you can only use the app if you’ve paid outside of iTunes,” added Olsson. “When you get a rejection you can submit further information to Apple, which we did for Instacast — but we have no clue if they’ve even read it.”

Apple has not given any further information on why Instacast was rejected, though some have speculated that it may be because it potentially challenges iTunes 30 percent cut of in-app purchases. However, if that is the case, it seems to be based on a confusion about how Flattr works.

The Swedish startup — which pitches itself as the “like” button that actually means something — effectively turns Kickstarter-like crowdfunding into a subscription service. Users pay in a fixed sum each month, and each time they like a project or service online they press a Flattr button on the site. At the end of the month, their pool of money is distributed evenly between all of the different things that the user has liked.

In this way, Instacast’s inclusion of a Flattr button is not actually encouraging a donation — except to those with Flattr accounts, who (in any case) do not send the recipient any money directly. And the Flattr setup is done outside the app.

Sunde said it means Flattr — which has struggled to get traction but recently signed a significant deal with video website Daily Motion — has just become just the latest in a long line of services to fall foul of Apple’s opaque rules and procedures.

“People are really upset,” said Sunde. “It happens all over.”

“This is a borderline case where it’s not clear if it’s a donation service, a payment service, a bookmarking service,” said Olsson. “We’re looking at a workaround, but it’s really affecting what we want to achieve.”

Sunde — who, as one of the men behind The Pirate Bay has significant experience of the law — said that it felt as if he had been handed a sentence without ever really understanding what the evidence was against him.

“We have no clue. It’s like a jury that judges you but doesn’t explain why,” he said. “It’s an app dictatorship, or a monopoly. The problem is that we’re centralizing all of our communications… big corporates say they want a free market, but they really want to lock people up. It’s not just Apple: Google is going this way, Facebook is definitely going this way.”

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.

Spotify, MOG demonstrate digital music flux

David Card — Mon, 26 Mar 2012 17:50:37 +0000

If the on-demand music streamer Spotify is worth $3 to $4 billion, why is MOG, a similar if much smaller service, reportedly being sold for $14 million? The digital music industry is in flux, but it’s showing positive signs of growth. Are those two players really so different?

Related research and analysis from GigaOM Pro:
Subscriber content. Sign up for a free trial.