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It's disappointing they're going to have ads on these paid videos. Like with Hulu+, I see no point in paying if the experience is still shitty.
Is it so crazy to offer an ad-free option? I see a video interstitial on nearly every YouTube video I watch. Maybe I'm not aware of the costs involved, but I feel like I would be willing to pay whatever the cost of those ads are back to YouTube to avoid them. Same goes for Hulu+.

Does anyone with some more insight know why they don't offer such an option?

At least in my industry (I work with digital media and ads), part of the terms large advertisers insist on is being able to advertise new content on existing content. Part of the reason for that is people's eyes are on existing content, so it makes sense. But part of the reason is to ensure that people know when episode 343 of sing-covers-together show ends that there is another, new sing-covers-competition show ready to watch. How else will you know to keep consuming if you only use the youtube search box and have an ad-free existence?

The ads are there not because of costs (they help, of course), but ironically as a mechanism to ensure you keep coming back.

How else will you know to keep consuming if you only use the youtube search box and have an ad-free existence?

Really? The only way to educate users about other similar shows is to interrupt the viewing experience with intrusive ads?

If I like the video I am watching, I'm going to go to the creator's profile or channel or just click on one of the videos that appear after I've finished watching. Personally, I find these ads annoying and not effective. (I can't remember the last time I clicked on an in-video ad)

There seems to be this idea in marketing that if you promote yourself in a way that forces the user to be exposed to your message, you will be more effective and successful. The more effective companies, however, seem to focus on creating advertising that people want to see and create products that people like to use and will recommend.

The sarcasm may not have been overt enough -- I personally find their reasoning dubious as well.

One point. People who are advertising often aren't the same people who made the existing content. They want you to discover content you otherwise would not have come across. Hence, why they prefer to advertise and interrupt you.

Advertising in general is a very big topic, one I personally dislike, but in general exposure to a message makes a person more likely to purchase something all other things being equal. I recommend you look into brand campaigns and anchoring. There are many successful campaigns done by companies for which consumers hated the ads; we should see one from a minor soda company at the super bowl, for example.

Edit: I hadn't seen the SodaStream ad until now. It clearly fits the 'make products people want' category and is only derided by competitors: http://www.youtube.com/watch?v=tE9U4mMqKP4

Advertisers are very opposed to "pay to get rid of our ads". The people who choose that obviously have more discretionary money and are the exact people the advertisers are targeting.
Still, there's got to be an equilibrium amount that I can pay to release my eyeballs from bondage to the advertisers.
That's a really good point; I think it deserves to be echoed. However, the idea of paying for YouTube and getting ads and still having the cesspool of racism that are YouTube comments, seems not so attractive.
Tip: HTML5 videos don't have ads. I use Safari on OS X, so I use a "ClickToPlugin" extension (linked below) which gives me the option of replacing the Flash plugin with just a plain mp4 video when you click on the plugin placeholder. This has the side benefit of bypassing any ads and also not showing any annoying annotations that've been added to the video.

http://hoyois.github.com/safariextensions/clicktoplugin/

Actually, the HTML5 videos do have adds (although they seem to occur less frequently than flash. Maybe becuase I right-click and 'pop-out' to get an HTML5 player). However, looking at the source, the video tag with the actual content is populated onload, and the add has its own tag, so even a naive attempt at automaticly replacing the flash player with HTML5 would accidently bypass the add.
YouTube has gotten really bad with ads. They have a higher proportion of ads than regular TV. Want to watch a 3 minute music video? here is an ad.

I am against using ad block, so I just quit going to Youtube as much.

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> they're going to have ads on these paid videos

Please read the article; that is not what it said. Ads will be at the discretion of the content provider.

This means there will be within-Youtube competition between ad-free and ad-supported content providers. Which should hopefully help the free market establish the standard premium for an ad-free experience.

There is a price discrimination opportunity here, as well as the opportunity to take advantage of parental paranoia. "Subscribe to Facetube for only $49.99 per month and ensure that your kid's viewing habits won't end up in some employer background check in the future!"

I'd buy it.

But those links don't give the immersive YouTube experience. Interstitial ads are the core of the experience.