YouTube's ascent as a dominant media channel is nothing short of mind-boggling. Where there are eyeballs, dollars will follow, of course, and boy does YouTube have the eyeballs. It's created a new gold rush. And with it, a rush to take advantage of the miners.
Anyone with a passing interest in digital media knows all about Disney's acquisition of the MCN, Maker Studios, in early 2014 for half a billion in cash and as much as $450 million in performance-based earn outs. If evaluated on the basis of revenue, the deal is madness. But Maker boasts a massive audience reach through the YouTube channels it represents-- some 5.5 billion monthly views and 380 million subscribers.
So it seems it's the eyeballs that drive that valuation, and Disney must be betting it can turn them into a lot more revenue. If that's true, will the consumer experience improve, making the whole project sustainable? And will the YouTube talent under contract stay put?
Traditional media companies seem to think they can grab a large chunk of YouTube value and somehow skim it off for themselves. There's no doubt the space is white hot. However it shakes out, we think they're all fighting a losing battle-- applying industrial-age strategy to a new media model that needs more flexibility to last.
Total Media Fragmentation
When anyone with a computer and a web cam can establish his or her own media property and publish to it without restriction at extremely low cost, the media landscape does more than fragment. It shatters into a billion pieces. That's not hyperbole; YouTube now claims over one billion users each watching their own self-selected sampling of videos.
Over 300 hours of video are uploaded to YouTube every minute. Hundreds of millions of hours are watched daily, up 50% year-over-year. Half of views are on mobile devices, across 75 countries and 61 languages. YouTube is everywhere. And as we discussed in a previous article, YouTube creators enjoy more influence among American teens than mainstream celebrities.
On the one hand, YouTube's ubiquity makes it a powerful media channel when viewed as a whole. On the other hand, it's the messy conglomeration of millions of mostly unknown creators who made it so. The gold rush wasn't a single "thing," and neither is the ecosystem that's built on top of YouTube. Like the would-be miners who headed into the hills without much skill and few resources, but loads of gumption, YouTubers are out doing their own thing, prospecting for views.
A little gold fleck here, a tiny nugget there, finding an audience as a YouTuber is hard work. Your potential viewers can just as easily find your channel as they can a million others. Who's going to point you in the right direction? Who's going to look out for you?
Filling a Void
In the absence of other options, multi-channel networks offer strength in numbers, resources, advice, analytics and social support. They put structure around tiny media businesses that otherwise had none, with the promise of greater prosperity for all involved.
On its face, that's not a bad idea-- many YouTubers have benefitted greatly from the help of their MCNs. Miners need shovels, boots and headlamps, after all. They find safety in numbers and efficiencies in sharing knowledge and effort. The assumption with MCNs, of course, is not just that they can help YouTubers go find the audience that's scattered across the mountain, but that they can actually build the sluice channels and drive audience to them.
Helping YouTube talent to produce more and better content, while also driving audience and business deals is a labor-intensive process. It takes a lot of people to do that work. Because MCNs are also high growth businesses trying to bundle up as much YouTube talent as possible, they tend to run at a deficit, in anticipation of future rewards, so they need to protect their investments.
Putting Up Walls
Most MCNs lock their creators into contracts that stake a claim to a specified portion of ad revenue. In exchange for access to their resources, multi-channel networks usually take about 15-20% of gross advertising revenue for their member channels, regardless whether they helped to generate that revenue. That's after YouTube takes their 45% share, leaving less than half of gross revenue for the creators themselves.
There are two problems with this contractual revenue share. First, MCNs must work to continually improve their offerings for creators to justify the revenue they give up, something they can't do for thousands of their member channels which are just too small to warrant attention.
Second, YouTube's share comes off the top of all Adsense revenue, so in order to keep more profits, MCNs have to look beyond Google-served ads to sponsorships and product placements that don't flow through Google's purse. The trouble is, these kinds of deals are hard to scale, making them more expensive to pursue.
Wanting in on a piece of the digital video action, old media companies, like Disney, are hoping to apply their production and monetization expertise to this incredibly fast-moving industry. A recent report by Strategy&, however, underscores the difficulty of that prospect:
MCNs' success with advertisers and large media companies remains to be proven, as does the long term viability of their business model. Traditional media companies looking to play in this area will need to make the right strategic choices... going forward. There will be challenges-- most notably in the effort to grow revenues and expand margins...
While large media companies seek to gain protected assets, they could end up quashing their value by slowing down their evolution and further burdening already-stressed business models. The real issue here is that YouTube became such a force in the first place precisely because it put up no walls. Now, for some reason, MCNs and the media companies courting them think walls are the solution to extracting the value they want.
Perhaps Disney sees a lot of potential in the private video site, Maker.TV. At an Alexa rank of over 50,000 (it's the 50,000th most-visited site on the web), it's unclear how it will ever grow into the upper echelon of sites without investing heavily in promotion. Why do they think walling off the content in a location outside YouTube will help?
Think about it this way: There's a hugely popular public farmer's market in town. Anyone can come and set up a booth. Then a big grocery store chain swoops in, buys the rights to the most popular booths and moves them to another location down the street, where only the people they choose set up a business can offer their goods. What do you think happens to the public market? It keeps growing anyway. What happens to the businesses down the block? Does that fancy little curated market somehow grow, or do people continue to stop at the public market first to see what's fun and new today, eventually deciding they don't need to make that second trip down the street?
Tearing The Walls Back Down
Jeff Jarvis, in his highly influential book, What Would Google Do?, provides a number of key prescriptions for new business models in this age of Google. None of them involve more middlemen or protected assets, like big companies of the 20th century (and old media models).
YouTube works (and Google bought it), because it's open, free and dynamically created by millions of people. It's fast, engaging and unfiltered. Is Disney any of those things? Are any traditional media companies?
To survive and thrive in the decades ahead, companies can't expect to turn the new media model back into an old one. They can't put layers of management and production value between YouTube creators and their audience. They can't wall them off and own them like they do their sound stages.
Big media companies are ignoring the fact that while they want to focus on helping the most popular creators become even more so, the majority of videos on YouTube average just 2300 to 9800 views each. Of course, those numbers are skewed upward, too, with very few videos capturing tens of thousands to millions of views, while many times more videos receive only hundreds or fewer. Are they built to handle this incredibly diverse "mass of niches" that powers YouTube's popularity? No. That's why they ignore it and try to bet only on the winners.
Content BLVD's model is doing what none of the traditional media companies can figure out: helping thousands of businesses and thousands of creators work together quickly and efficiently, without a permanent tithe to YouTube, and without needing an expensive management staff.
As we discussed this fall, that's why we're building a marketplace-- not an agency, network, or ad platform. To win in digital video, you don't need more consolidation. You need more distribution.
Companies that succeed with digital video in the future won't do so by ignoring the success of mass creation, or by layering expensive resources on top of it. They'll win by embracing it-- by learning how both to deliver and extract value from small audiences across millions of videos. Multi-channel networks that go against this concept by design, are not built to last.