Advertisements & Donations: The Debate

As free online entertainment becomes ubiquitous, there is a great deal debate surrounding how content creators ought to be compensated. Everyone from advertisers, social media companies, audiences and the creators themselves has an opinion. We think it would be interesting to examine the pros and cons of each model and potentially put an end to the debate. Let’s take a look at the two main forms of creator compensation: advertisements and donations.

Firstly, we have the traditional advertisement based model which has been around since television commercials began in the 1940’s. This model involves placing advertisements and product placements in and around the content that audiences consume; forcing them to watch. This model has evolved with the internet as companies are now able to collect and utilize user data to present more relevant ads in real time. This model is often praised for “enabling free entertainment” but an argument can be made that neither a person’s time nor personal data is free.

On the other hand, we have the donation based model which allows audience members to directly support their favourite content creators. Donations can be delivered in a variety of ways and are particularly popular within the live streaming community. This model allows for a few adamant fans to support each creator while leaving the content free and unaffected by third-parties. The donation model has been a point of contention due to the fact that it disrupts the very well established and protected advertiser driven model. For this reason, we seldom see large platforms facilitating these donations. Even on platforms which do support donations, the features are underdeveloped and have fees levied against them.

It is important to consider which parties take a cut from each model and who is benefiting the most.

With the advertisement driven model, there are far more parties involved in providing a creator with compensation. Companies who wish to have their products sold are at the forefront of the advertiser model. These companies have user data sold to them by the large social media platforms. They purchase ad space on the platforms and target users based on their demographics, recent purchases, or even online searches. The content hosting platform then awards the creator with a fraction of the advertisement revenue depending on how many views and conversions their content can garner. At the end of it all, the audience member still pays with their time to watch the advertisement.

In a donation based model, there are far less parties involved. An audience member sends a donation to a content creator which is facilitated by a donation platform. The platform takes it’s fee and the rest is distributed to the creator. This makes the donation model far more transparent. An audience member interested in sending a donation can access the fee, determine if the services by the donation platform warrant that fee, and know exactly how much is reaching the creator. With Vodra, this is made even more clear as creators receive 100% of the amount donated to them.

The content delivery and compensation pipeline between the two models.

Not only does each model produce different rewards for creators, they also facilitate different outcomes of content quality.

With the advertisement model, a creator’s content must fit a certain set of criteria to be considered eligible for monetization. Advertisers are always considering what kinds of content their ads are being displayed with. A creator who uses profanity or covers adult topics is clearly ineligible to advertise a children’s toy brand. The better a creator’s content fits the needs of an advertiser, the more an advertiser will pay to have their ads displayed with that creator. This means that in the advertising marketplace, a creator must keep their content generic enough as to attract a wider range of advertisers, but also specific enough in other ways to fit well with product promotions. This can lead to some content being needlessly generic in some instances and outright deceptive in others. A great example of this is swarm of strange children’s content that has flooded YouTube in the last few years as advertisements directed towards children are highly prized. On the other hand, advertiser pandering and hidden promotions reached such a high level that YouTube decided to include a “Contains paid promotion” option for creators. Certain countries prohibit the practice of purposely deceiving an audience by withholding a promotion, so this appears to be YouTube’s attempt to begin addressing the issue. The advertisement model’s proclivity for watering down and manipulating content is probably it’s most heinous feature.

A creator’s obligation lies with who they receive their compensation from. In the ad based model that is clearly damaging, yet with the donation based model, the opposite is true. When a creator receives their compensation directly from their audience, they are only beholden to their fans and supporters. This creates a dynamic which is far more conducive for creating superior content that will be more greatly appreciated by audiences. Instead of focusing resources on trying to game an algorithm or appease advertisers, a creator only needs to keep their audience in mind when making a piece of content.

From a creator’s perspective, how much a given model pays is quite an important consideration. While either model’s results will vary when it comes to total compensation, there are certain innate features that need to be contended with to access that compensation.

The most compelling case that the advertisement model makes is probably the sheer amount of resources advertisers have at their disposal. Companies from all industries engage in advertising and are willing to pay generously to have their messages featured. Creators can therefor sustain themselves and earn a living based on this compensation. Certain companies and other large entities have sprung up and derive all of their revenue through advertisements and promotions. There is clearly a lot of ad revenue to go around, but there are many people competing for it as well. Ad revenue is accessed through impressions and conversions. Impressions are when an audience member views or clicks on an advertisement. A creator is therefor incentivized to tailor their content in a way that allows for as many advertisements as possible to be shown, as that is how they get paid. When creator compensation is viewed through the lens of impressions, it is clear to see why so many spam uploads and create clickbait thumbnails. The second way to be compensated by an advertiser is by driving conversions. A conversion is when an audience member clicks on an advertisement and actually purchases something. This is tracked through promotional codes but also by programs that track what audiences click both on and off of the content platform. Conversions are far more lucrative than impressions and thus creators are incentivized to push products directly and to persuade their audience. All things considered, while advertisement revenue can be very lucrative, there are many hoops a creator must jump through to obtain it.

On the donation side, it is clear that individual audience members do not have the same resources as large corporations. Creators also might not like that certain audience members pay nothing at all under the donation model where they would at least provide a fraction of a cent with the advertisement model. With that said, a single $5 donation is worth thousands of views, and there are many willing to provide those donations on a monthly basis. The strength of the donation model comes from building a fan base/community and through the power of crowdfunding. This means that if even a tiny fraction of an audience donates, they can be far more impactful in terms of compensation when compared to ad revenue. There are almost 10 million active Twitch streamers who are all proving the efficacy of compensation by donations. Most importantly, a creator does not need to “sell out” or degrade the quality of their content to solicit donations. In fact, the opposite is required as audiences are more likely to reward authentic and high quality content. Audiences understand that creators need to be compensated for their work and have proven time and again that they are willing to contribute.

While there is money to be made with both models, what a creator has to do to obtain that compensation is a very different question. Creative types throughout history have been reluctant to compromise their craft in the name of making a living, and online entertainers are no different.

As mentioned previously, the advertisement based model necessitates that a creator tailors their content to fit the advertisers needs. Platforms are partly responsible for this as their business model revolves around advertisers so they are not eager to provide other solutions. Each content platform has a clear way that it is intended to be used, while this may be efficient for delivering content, the same cannot be said for providing fair compensation. A creator therefor has two options under the advertisement model: hope that their content genre fits with advertiser expectations or contort what they produce to try and game the algorithm to stay “relevant”. It is sufficient to say that diverse forms of content do not prosper under a model which promotes conformity.

The flexibility offered by the donation model is unparalleled. As long as there are audience members who want to see more, there will be support and donations provided for all kinds of content. Having compensation directly sourced from audiences also opens up the opportunity employ new tools. When compensation is not tied to advertisements, it can be bound to other things such as votes, rewards or interactions. As an example, the Vodra Platform will enable audiences to cast a ballot with their donation, allowing them to vote on which kind of content they would like to see next while also supporting the creator. This makes the donation model more win-win as audiences can be rewarded for their support instead of simply having their time and data stolen with advertisements.

Here at Vodra, we are working with a 100% donation based model. We believe that donations offer a more flexible, transparent and lucrative route for creators aiming to make a living producing content online. Creators are able to utilize both methods at the same time, which enables both models to be tested without and risk to the creator. Regardless of which side of the debate one falls on, it is safe to say there is a lot of change to come in the creator economy.

For more on how the Vodra Platform will facilitate donations, check out our platform features overview. We also interviewed some of our pre-launch creators which can be found here.

Official blog of the Vodra Project and team.