Monetizing through Virtual Currencies: What Video can learn from Social Games

As an amateur video maker who works in social games, I find it extremely surprising that Social Games, once derided as having no possible profit potential, are able to generate powerful revenues. Because in the video world, 'monetizing content' is still a far-away dream.

As an amateur video maker who works in social games, I find it extremely surprising that Social Games, once derided as having no possible profit potential, are able to generate powerful revenues. Because in the video world, ‘monetizing content’ is still a far-away dream.

Specifically, when we look at the web, we see daily episode viewership in the millions for independent video-makers like Philip DeFranco, and the audience for this type of content is growing. I’d make the case that this is similar to a small games developer attracting a lot of hits to their game. Imagine an early version of Mafia Wars, where the page views were high but the monetization was low.

Social games overcame this through the use of virtual currencies, offers and other unique monetization efforts, but video has yet to break through. I mean, you’d expect profits and advertising to follow suit with video’s massive traffic (Wikipedia has Youtube at 1.2 Billion videos watched per day), but it’s well known that this isn’t the case. Google is still attempting to recoup their half a Billion dollar investment into Youtube, and have been pouring tremendous energy into new types of video ads to prove it.

Here is an idea of how video could possible take the Virtual Currency lesson from Social Games and start monetizing better.

Imagine you had 100 Youtube coins, valued at 1 cent a piece. Would you be willing to drop 5 coins to watch the end of a really good video? You might, and with independent daily videos reaching a million views in a day, that could translate into $50,000 for a viral video, with a percentage split for creator and Youtube.

This is exactly the type of thinking that went on in the Social Games industry, when Zynga pushed this type of model onto Mafia Wars and Texas Hold ‘Em in early 2009. Mafia Wars allowed users to purchase a small, special currency, and dole out small amounts for small bonuses within their game while Texas Hold ‘Em allowed users to get more chips to play with every day. With these new models, they were able to dramatically boost their ARPU (average revenue per user) by enticing their most active users to make a lot of small transactions using virtual currency.

While Zynga has continued to remain tight-lipped about specifics, reports from 2009 indicated that they pulled their yearly revenues up to $80 million, based mostly on those two leading games. Specifically, people were putting their ARPUs at up to $2/month.

This is a real opportunity for video. People were very inclined to spend their virtual currencies on small entertainment choices, and if this fits the quick nature of Social Games, this could definitely work for Youtube videos. The argument that Facebook games provide a more social element than video is certainly valid, but the truth is that early games like Texas Hold ‘Em and Mafia Wars didn’t rely as much on the social elements as newer games do. They were more about the quick thrill, and the monetization was based on simply gaining more power or chips rather than interacting with others. This is a more simple form of entertainment than complex social interactions, and video is that same sort of simple: it’s a light, quick form of entertainment.

In conclusion, video does monetize, but while companies like Youtube currently implement a program to allow advertising on videos with approximately 40,000 views, the clickthrough-rates are quite low, and in fact, 70% of viewers close a video when they see a pre-roll ad. This is making advertisers reluctant, and CPMs are dropping. The example of the social game industry’s answer to this challenge just might help video start connecting the dots, and perhaps we’ll start to see virtual currency appear in Video.