What if I said that the better you understand the mechanism behind YouTube’s business model, the higher your streaming rate will be on YouTube? Yes, that means reading this article could improve your YouTube rates — maybe even double or triple them. Get ready for a major change in the way your content is valued.
If your business currently revolves around retail models, whether iTunes or brick-and-mortar stores or subscription services like Spotify or Netflix, you may not be aware of the primary driver of YouTube’s unique business model, which is projected by Citi to generate $3.6 billion in gross revenue this year. What’s incredible about their model is that even as YouTube integrates more and more pre-roll ads, which should reduce viewership, traffic grows 20% a quarter according to comScore.
The fundamental difference between the industry built around YouTube (arguably “the future”) and the industry music and film rights owners are accustomed to (a little too early to call it “the past”) is the difference between an auction and a retail store. Music and film rights owners have built their businesses around a retail model, where rates are set and their ability to drive revenue is tied to their ability to sell units or get streams. YouTube’s model works more like a TV network, where the value of the product is only as big as advertisers are willing to pay to advertise against it, so the networks are always looking for the highest bidder, like an auction. For a TV show that auction typically happens by the season, but on YouTube that auction runs by the split second.
So YouTube is an auction, which makes your new customers (the buyers) the brands and advertisers. While fans control your traffic, which is equally important, the brands control the value of your content (the price) in this new ecosystem.