At Snap’s quarterly earnings call yesterday, CEO Evan Spiegel revealed that Snapchat is testing ads on Spotlight, its TikTok competitor. Though Spiegel hedged that this testing is limited, it affirms that short-form video is, of course, one of the ways the company is trying to boost its revenue.
In December, Snapchat also introduced mid-roll ads in select creators’ stories, offering the creator the ability to earn revenue share from the ads.
“We’ve actually [seen a] really exciting sort of phenomenon take off on Snapchat where creators are using Spotlight and posting videos to Spotlight to try to get more distribution and attract more subscribers to their story,” Spiegel said on the earnings call. “So I think this is going to be another great way that we can really serve creators and continue to deepen the content experience on Snapchat.”
Through Spotlight alone, Snapchat paid out $250 million last year among 12,000 creators. Ad revenue share is a clear next way for Snap to increase its revenue and creator payouts alike, but in the TikTok-like video feed format, it’s tricky to determine who gets the cut of the ad revenue.
On TikTok at least, where there is no ad revenue sharing, ads are shown between short videos — so, since the ad isn’t playing directly on a video like on YouTube, how would you know who gets the revenue share? The creator whose video appeared before or after the ad? The nature of the short-form video feed makes it complicated to give creators a cut of ad revenue, which of course means the creator gets the short end of the stick.
It makes sense that Snapchat tested ad revenue share on stories first. If a creator uploads multiple videos to one story, you know that you can place an ad in the middle of the various videos, and it’s clear that the videos before and after the ad belong to the same creator, so they’d get the revenue share.
Snapchat or TikTok could place ads directly in the middle of one short-form video, but that would make for an awful user experience — imagine trying to watch a 15-second video, but seven seconds in you’re served another 10-second ad. Gross. It’s no wonder that TikTok hasn’t tried that yet.
No user wants to see more ads, but if platforms like TikTok, Snapchat Spotlight and Instagram Reels don’t figure out how to give creators a larger slice of the pie beyond a creator fund, they may direct their attention toward the greener pastures of the YouTube partner program, which offers a 55% cut of ad revenue.
Still, ads on Spotlight make sense as a way for the company to make extra cash. Though Snapchat’s revenue increased 38% year over year to $1.06 billion this quarter, the company missed its revenue goals, which CFO Derek Andersen explained by stating that many advertisers temporarily paused their campaigns when Russia invaded Ukraine.
Even though Snapchat is growing at a faster rate than competitors like Twitter and Facebook, which reported its first-ever daily active user loss last quarter, the company still has room to grow when it comes to ad revenue.