4 Alternative Models To Advertising That Are Working Right Now
Advertising shouldn’t be the only way for content producers to make money. Luckily, it isn’t – plenty of reputable organizations fund themselves without ads, online and off.
You, the readers, had a few things to say when James called AdBlock evil and when Chris asked AdBlock users to whitelist us . Many of you understood their point of view, but one recurring theme in the comments was alternatives to advertising. A few people said any alternative model to advertising is a red herring because people in this era simply won’t pay for content under any circumstance.
That’s not true. HBO, NPR, Netflix and iTunes all show that people will pay for high-quality content, especially if it’s free of advertising. So let’s examine those organizations, but first let’s talk about Facebook. That site arguably sets the standard for any ad-based site with its 800 million active users who spend an absurd number of hours on the site. It earned $3.71 billion in 2011 revenue, or around $4.64 per user. Let’s compare that to a few ad-free services.
If there’s a medium known for advertising, it’s television, but one channel has gone without showing ads since the 1970’s – HBO. The premium cable channel – which shows a combination of Hollywood movies and original content ranging from Game of Thrones to Real Time With Bill Maher – has 29 million paid subscribers in the USA alone. Exact revenue figures are hard to come by, but according to SNL Kagan HBO earns an average of $7.27 per subscriber every month, which adds up to $223 million monthly or $2.6 billion annually.
And that’s just in America. HBO content is available in 151 different countries and last year earned 1 billion dollars internationally on the strength of shows like Game of Thrones.
There’s no way around it – the revenue HBO makes from cable companies would be impossible to match with online advertising alone, because advertising itself would diminish the value people see in HBO to begin with.
It would also, it should be noted, be extremely difficult to match with an online streaming service. HBO currently doesn’t provide phone support, relying instead on the cable companies to do that, and the model that makes HBO’s revenue stream work depends on people paying for cable. Besides, why roll out an online-only option when your cable-based one is so incredibly profitable?
The online video streaming service is similar to HBO – it offers movies in exchange for a subscription and shows no advertising whatsoever. It’s also similar in terms of revenue: last year the company netted $3.20 billion in revenue.
Netflix has a bad reputation online after some high-class screw-ups last year, but thanks to an ongoing global expansion the company continues to convince more and more people that access to TV shows and movies are worth paying for – even on the Internet.
It’s even begun to pay for its own content: this fall new episodes of popular sitcom Arrested Development will be on Netflix before they’re anywhere else. The company sometimes has trouble offering the selection its users would like, the result of ongoing negotiations with media companies who see more profit in models like HBO’s, but Netflix continues to grow regardless and insists advertising would diminish, not enhance, its revenue plans.
Time will tell whether Netflix is viable long-term, but the site’s already replaced piracy for many people.
The funding of public radio is complex, but a major chunk of it boils down to this – people appreciate the shows they can hear on the radio free of charge and willingly donate to keep their favorite stations alive. This chart,, shows that a large part of NPR’s total funding is donations from individual people:
Corporate donations make up another chunk of funding, and are often tied to “underwriting”. This means companies get a brief on-air mention, typically no longer than a sentence. Is that an advertisement? It’s an argument worth having, but public radio’s listener-supported model is an example blogs and other website should think of as an alternative to subscriptions or advertising.
Don’t believe people online will willingly pay for high-quality work they like? Browse Kickstarter.
Apple makes so much money sell hardware it’s easy to forget that it also sells a lot of commercial-free programming directly to consumers. The iTunes store accounted for $6.3 billion of Apple’s revenue in the fiscal 2011 year – only 6 percent of Apple’s net sales but a huge number nonetheless.
With iTunes, customers only pay for the TV shows, movies and music that they want. Apparently there’s an audience for that, even though there are plenty of free, advertising-supported entertainment options on the web.
All of these models have flaws, and none of them could be applied universally on the web. But the idea that non-advertising revenue streams don’t exist in this day and age is simply false. There are other ways for content creators to make money, and these major entities all point to different options.
Some of these companies come close to Facebook, others don’t. All of them offer access to high-quality information for a price, which people are willing to pay.
Advertising online isn’t going anywhere, but it’s also not the only option – which is good, because the value of advertising per user goes down each year. I think every company should at least consider exploring an ad-free model.
What do you think? Let’s talk about it in the comments below, but remember: the discussion isn’t about whether ads are evil, it’s about what sites can do to avoid resorting to ads. I look forward to your thoughts.
Image Credit: SCOTTCHAN