What Is YouTube Premium & What Does It Mean For Advertisers

Post by 
Somachi Egejuru
March 10, 2020

udging by statistics, I assume the majority of you reading are regular users of YouTube. I'm sure that all of you have been exposed to their recent big marketing push, promoting their new offering - 'YouTube Premium'. This is their attempt to get users who consume hours of content on the website, to pay a subscription fee, which is currently the go to business model and an excellent move on their part.

YouTube's push of their Premium offering can drastically change their relationship with advertisers

One of the key features they highlight that would convince you to start paying for a service you have utilised for free over the last decade is that videos and music will now be 'ad-free'. That sounds great, but wait a minute - aren't the ads what allowed the platform to expand and evolve into a position where they can fund a new 'premium' service? What effect will this have on the brands that enabled YouTube to gain enough revenue to take such a big step? That is the big picture I'm looking to address now.

What is YouTube Premium?

A few years ago, YouTube launched 'YouTube Red'. This allowed users to watch content ad-free within the below countries:

New Zealand
United States

Those who were subscribed to this also received free membership to Google Play Music, their audio streaming service. Essentially, YouTube Premium is the rebrand of these two offerings, with a heavy marketing push to increase user adoption. In addition to this, the service is now available in more countries, including: Canada, United Kingdom, Ireland, Germany, Austria, France, Italy, Spain, Russia, Sweden, Norway and Finland.

The full YouTube Premium offering: Ad-free music and original content.

Other key features include the ability to play music and videos offline (negating the need to download those dodgy apps that get removed from the app store every couple of months!), as well as access to exclusive content - YouTube Originals.

YouTube Originals

Can they compete with Netflix? They currently don't think so

This is YouTube's attempt to enter the premium, subscription video market. The likes of which Netflix dominate. Teaming up with creators who have built large and engaged followings on the platform, largely fuelled by the ability to create content full-time, they create highly professional, 'TV-like' series. YouTube supports them with the access to production crews and budgets to create award-worthy content. You can find an example below of the F2, who have created one of the largest football specific channels, through their unique freestyles and collaborations with elite footballers.

Jeremy Lynch and Billy Wingrove have gown their channel to such a great height to place them in an opportunity to create legacy content like the example above. A large part of this can be attributed to advertisers. They are willing to pay to place themselves wherever there is attention, their videos attract significant attention, therefore they have been able to monetise. This has helped pay for equipment, facilities and support a very comfortable lifestyle.

Their supporters are eager to view what they produce, YouTube often let them view the first episode with a free trial, whetting your appetite, but require you to subscribe to view the entire series.

Why are they doing this?

The subscription business model is huge and cannot be ignored. This is guaranteed revenue from your user base. Mentioned previously, Netflix saw $20.1 billion in revenue during 2019. It's pretty simple, you charge a nominal fee to each user - when they get paid, you do too. We see this across many verticals, content, music and in personal care. After all, Unilever acquired Dollar Shave Club, who use this model for personal care products for $1 billion. In the B2B sector, this is highly popular with many software-as-a-service companies utilising this model as standard.

Credit: Google

Of course, the key to this is accumulating a large user base. $11.99 isn't doing much for you - but from hundreds of millions of users? It adds up. Let's breakdown exactly how much it could add up to.

Total users: 2,000,000,000

Let's assume 60% of the total users are from the countries premium is available in = 1,200,000,000. That is the potential audience.

Now, let's assume that 8% of these users feel highly disrupted by ads and would like the ability to watch offline and view unique content from their favourite creators = 96,000,000. This is the potential user base.

At $11.99 a subscription, that is potentially $1.15 billion revenue per month, $13.8 billion per year.

Obviously, the figures above are estimates and do not account for their acquisition costs, production, staffing etc. But the point stands, you can see the potential. Compare this with their revenue from ads, which generated $15.15 billion in 2019.

Remember, we only looked at potential revenue from subscriptions - which had around 20 million users by the end of 2019. They are still able to pull large revenues from the users that do not sign up to the premium service.

What does this mean for advertisers?

Advertisers rely on marketers. Marketers gravitate towards where the attention is. YouTube attracts a significant amount of attention, around a third of internet users consume video on this platform. You can see why companies have been pouring their marketing budgets into the various ad formats to reach people who are likely to be interested in their products/services. However, I believe YouTube really received a large reality check early 2017 when advertisers were threatening to pull spend over brand safety concerns.

Also, users are growing extremely frustrated by the amount of ads they are faced with, as creators look to get compensated for their efforts and YouTube seek revenue growth. This has resulted in an increase of users who browse the web with an 'Ad-blocking' software.

Brands know extremely well who their products are aimed at. By encouraging users to pay for an 'ad-free' experience, this marks a complete change in direction. With the fee being so small, it is likely that those from high income households will purchase a family subscription - removing ads for different generations, from baby boomers, to millennials and Gen Z. Whilst a win for Google, an advertiser has to look at exactly who will be able to purchase the products or service they are showcasing. If they lose access to those who have the most purchasing power, they will have to rethink their entire video strategy.

Let’s take a scenario, if you’re an automotive brand ($35.5 billion ad spend), or someone who offers luxury products - it is highly likely that your ideal customers use YouTube. You are already probably running ads in an attempt to catch their attention.

Consider your price points and average order value. For $143.88 a year, one of your potential customers can put themselves in the position to completely miss your attempts at communicating with them. $215.88 kills your ability to reach a family of 6.

This concern is very real, if this rebrand becomes highly successful, your reach will decline. Not because the users are not there anymore, but because you will no longer have access to them.

What can you do?

It is time to be more creative. We are living in a continuously evolving landscape. The ways in which people consume content is changing. In the UK, streaming subscriptions have now passed those of Pay-TV. More than ever, it is important to be present within the actual content, not just in pre-rolls or mid-rolls.

We knew this trend would occur. With massive companies such as Netflix, Spotify and Apple adopting the subscription business model, it would be about time before Google joined. With this move, they are gaining more control over their platform, removing it from the advertisers hands and placing it within the consumers hands. Now, major advertisers are faced with the huge possibility of losing the ability to reach their valued audiences. Audiences they have spent millions to build, segment and reach over the last few years.

At Limitless, we realise it’s becoming increasingly difficult to engage with millennials, who are less receptive to digital ads and spending more time on platforms like Netflix, YouTube and Disney+ where ads aren’t a prevalent part of the experience. We develop strategies for YouTube, where we take an unconventional approach to brand-created video to deepen and enrich the direct relationship consumers have with brands.

By aligning the goals of your organisation to the viewing behaviours of your customers, we create exceptional digital experiences through YouTube. Whether a company is new to or has explored YouTube, we work with distinctive businesses to clarify their purpose, understand their customers and unlock their value to the millennial audience.

Contact us

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