Instagram Will Help Its Stars Make More Money, Taking On YouTube

(Bloomberg) -- Instagram will let creators profit directly from their videos, helping popular users generate more revenue during the Covid-19 crisis, while moving into more direct competition with YouTube.

Starting next week, Instagram will show ads before clips that run on its IGTV service for longer-form videos. The company plans to share 55% of the revenue with creators, the same portion that YouTube gives its stars.

The company will also start testing a way for users to sell digital badges in their live videos. If viewers buy a badge, their names will stand out among fans' comments, designating them as supporters. The video host will receive all the money directly for the first few months of the test, until Instagram starts taking a share of the revenue later this year or in 2021, Instagram said.

Influencers with large fan bases typically make their money from deals with brands to post about their products or events, negotiated without Instagram's involvement. But some of that business has dried up during the pandemic lockdown. Travel influencers, for instance, aren't being paid to stay in resorts while using certain brands.

“This has been a trying time, where creators have been there for their fans,” said Justin Osofsky, Instagram chief operating officer. “It's a time of uncertainty with less paid work generally.”

But the move isn't just to support influencers -- it's for Instagram and parent Facebook Inc. to make money off a surge in attention. As people shelter in their homes, they're on Instagram more than ever, with views of live videos surging 70% from February to March, the company said in a blog post. Still, stars had less incentive to create interesting clips, because there were more ways to make money on YouTube. Now Instagram will have a new way to retain this digital talent, while building another source of revenue.

The video ads start after users click a 15-second video preview in their main Instagram feed and are taken to IGTV to watch the full clip. This design gives creators an incentive to make more compelling videos to entice users to jump over to IGTV.

The effort could make Instagram a bigger contributor to Facebook's overall sales. In 2019, Instagram's advertising accounted for about a quarter of Facebook's revenue, or roughly $20 billion, people familiar with the matter have said.

Instagram, founded almost 10 years ago, long debated whether to become a direct source of income for its popular users. But now, with much of the world sheltering in place, it has become even more obvious that some users are building businesses from their Instagram content -- without the company's help. Creators have turned to the app to recreate experiences they might have otherwise hosted in person, some accepting tips via Venmo, or relying on outside services like Patreon to make money from their fan bases.

Instagram sees an opportunity to handle some of this commerce itself. Food influencers are doing home cooking classes; illustrators are teaching followers how to draw; music artists are going live from their living rooms. Now, their audiences can pay to support these efforts with badges at three different price points: 99 cents, $1.99 and $4.99. The badges only last for the duration of the video.

“We're hoping badges will be a tool to support a broad range of uses,” Osofsky said. But, he emphasized, it's a test and the plan could change. “We're definitely in the early days.”

©2020 Bloomberg L.P.