When YouTube revealed YouTube Red, the long-awaited ad-free subscription version of its popular Internet video service, people were intrigued. They were also confused.

Viewers wondered whether they would be forced to pay to get access to their favorite videos. Video creators who had come to rely on revenue from YouTube advertising wondered whether they would make less money. And, well, there was the name.

YouTube, now a ten-year-old service, is a sprawling network of creators, advertisers, various middlemen, and 1 billion-plus viewers—a range of players both big and small, all with different motivations. And now that the initial excitement around the launch of YouTube Red has died down, all of them are trying to figure out where they stand on the world’s biggest video platform.

They have reason to be optimistic. If YouTube Red succeeds, it could mean a better YouTube for everyone. Creators could have more control over their content. The middlemen who support them could make more money. Viewers get to watch YouTube without ads. And, it turns out, getting rid of ads on YouTube in favor of $9.99-a-month subscriptions could wind up being better for YouTube itself.

Creator Concerns

All that said, it’s understandable that YouTube’s most important stakeholders, the people who create videos for the site, were wary of Red. When the company announced the service, creators found out that if they didn’t agree to offer their content on Red, their videos would be set to private, leading to concerns that creators were pressured into participating. Pressured or not, very few YouTube creators refused, with the exception of large media companies such as ESPN. In the end, 99 percent YouTube content would also appear on YouTube Red, the company said.

'It’s about time we figured out how to pay for things we use on the Internet.' Ethan Zuckerman, Center for Civic Media, MIT

Suspicion of YouTube’s motives arose in part because YouTube hasn’t always been the clearest communicator when it comes to announcing changes in its terms. Longtime YouTubers might remember in 2012 when YouTube altered its search-and-discovery algorithm to make viewing time rather than number of views the determining factor in what videos to recommend. After the change, some creators’ daily views plunged by as much as 20 percent in a day—a potentially big hit to video makers’ bottom lines. YouTube eventually was able to show to the satisfaction of most that just as many people were visiting the site and engaging with videos. But creators were understandably shaken.

In the case of Red, however, their concerns may be equally unfounded, as YouTube celeb Hank Green laid out in a recent blog post:

“Ads are a kinda shitty model,” Green writes, pointing out that assuming a standard ad rate of $2 per thousand views, even power users who watch two hours of YouTube every day are only worth about $1.50 per month on the platform. A YouTube Red subscriber paying $10 a month is clearly worth so much more, Green argues.

This doesn’t mean YouTube creators will definitely see more revenue now that Red is live. YouTube still needs to get a critical mass of users to pay for it. As creators wait for subscriptions to roll in, they might not see an increase in revenue for months. Even then, they’ll have to see how YouTube’s “watch time” metric dictates how much of that money they’ll see themselves.

The best way to support creators, of course, is still finding a way to pay them directly, through their websites or other funding platforms. But more money in the YouTube system, through YouTube Red, could mean a revenue increase for creators too.

The Shift to a Paid World

In a way, YouTube’s move to add an optional paywall for premium content is an obvious one.

The site is still by far the leader in online video, serving up billions of hours of video each day, many of those to deeply devoted followers. The company says the average YouTube mobile session is 40 minutes long. And YouTube now reaches more 18 to 49-year-olds than any single US cable network. It only makes sense, then, that the company would want to make money directly off of its massive catalog itself. It turns out that many of the other players in YouTube’s economy agree that when YouTube does well, so do they.

YouTube

Without subscriptions, a cappella artist Peter Hollens points out, creators are a bit too open to making endorsement deals with brands for a quick paycheck. “It’s so hard for creators who created things for free to turn down money just to talk about Brand XYZ,” he says. At the same time, a fully ad-supported system doesn’t future-proof his business, he says, since ad money can come in fits and spurts. YouTube Red, by contrast, could provide a steadier, more predictable source of revenue, freeing up a creator to focus on making content he or she actually wants to create—not just content that brands are paying them to make.

Phil Ranta, chief operating officer at Collective Digital Studio, a so-called multi-channel network that operates more than a thousand channels doing more than a billion views on YouTube, says YouTube Red could be a boon for his business, too, even if the studio at the moment relies heavily on ads.

Among its roles, Collective Digital Studio helps match brands with influential YouTubers. The pitch to advertisers is that their message appears more “authentic” when conveyed by these Internet stars. In a world where YouTube subscriptions exist, Ranta says, these kinds of endorsements could be worth more. “YouTube could get scrappier by monetizing in other places, then use the (remaining) inventory to really focus on selling the highest value ads as possible,” Ranta says. In other words, if YouTube already has a reliable revenue stream coming in from somewhere else—subscriptions—it could conceivably stop running those terrible 30-second ads and instead focus on higher-end “native” ads from YouTube stars.

Meanwhile, Jack Conte, founder of the crowdfunding service Patreon and a musician on YouTube, thinks that the move to YouTube Red over many years could “signal a shift in the Web” as we move from ad-supported content to subscription content on the Internet. But he says it’s disappointing that YouTube chose to go all in on this subscription-based service as opposed to, say, pouring more resources in direct fan-to-creator initiatives like its old “tip jar” feature. “YouTube has won,” Conte says. “It wasn’t in a position where they needed a creator at the table helping with negotiations.”

But Ethan Zuckerman, director of the Center for Civic Media at the Massachusetts Institute of Technology, says that even though these huge platforms are the ones who can afford to experiment with their huge user bases—and therefore call the shots—they could help lead the way in getting the larger public used to subscriptions as a new kind of norm. “It’s about time we figured out how to pay for things we use on the Internet,” says Zuckerman.

YouTube’s Unique Content

The unique nature of the content on YouTube also gives it an edge: viral videos, sketch comedies, DIY clips, makeup tips, dance videos, and so much more. And the best of YouTube isn’t anything comparable to the highly polished and stylized films you can see on Netflix or Hulu or HBO Go, like House of Cards or Empire. It’s self-filmed videos from well-known creators who have built up massive followings on the sheer force of their personalities.

YouTube is accentuating that uniqueness by introducing a slate of original movies and TV shows with its biggest native stars. The company might even consider using some of its added revenue to elevate its homegrown content to produce films of a much higher caliber—reaching for the production values of a Netflix or an HBO. “Even if 1 or 2 percent [of YouTube’s billion-plus users] decided to subscribe at $10 a month, that’s a substantial business,” says Richard Greenfield, a media and tech analyst at BTIG. "Funneling that money into original programming could be meaningful over time." Even then, YouTube wouldn’t have to pony up for Hollywood stars, since it’s already created its own.

And ultimately, it’s these stars in whose fate YouTube Red is most deeply intertwined. If their star power is strong enough, viewers are more likely to pony up. If the stars themselves make more money thanks to these subscriptions, they and lesser stars will get behind it. If that happens, the agencies and middlemen who help manage these stars’ careers and content will also get on board. The more support Red has, the more YouTube itself benefits. What’s more, if YouTube Red succeeds, other ad-based sites will have to reevaluate whether they too might benefit by creating a subscription option. As one of the largest media venues on the planet, YouTube is more than just another entertainment option. In the business of media, it’s a sign of the future.