Welcome To YouTubeWood

The business of YouTube.

On July 25, I attended the Special Olympics World Games opening ceremonies at the Los Angeles Memorial Coliseum. Some 60,000 people, including our First Lady Michelle Obama, showed up to celebrate and support more than 7,000 Special Olympians. 40-minutes south on the I-5 Freeway, the 6th Annual VidCon — YouTube’s unofficial gathering of content creators and their fans — was in full swing, an event that has swelled to 20,000 attendees (mostly teenaged). The contrast between the two events couldn’t have been any more different; on the one hand today’s YouTube stars attend VidCon to celebrate themselves whereas tradtional celebrities came together at the Special Olympics to promote the acceptance and inclusion of others. The race to gain more YouTube subscribers is a much different reward than the race to win gold at the Special Olympics.

This comparison doesn’t mean YouTube isn’t worthy of being celebrated of course, because YouTube is very worthy. For many years, YouTube has been a home to “the disenfranchised”. YouTube has given a platform to talent, who otherwise did not have one, including the Asian-American and LGBT communities. Journalist Jeff Yang covered the Asian-American YouTube phenomenon on YouTube as early as 2008. I have witnessed first-hand the power of YouTube’s ability to propel niche talent, having personally acted as the talent manager to groundbreaking Asian-American YouTube stars HappySlip, KevJumba, David Choi and Michelle Phan. But YouTube, like the shy geek that suddenly becomes popular in all those Hollywood movies, has changed. A one-time niche community has gone mainstream, and in the process raised expectations for what YouTube should or shouldn’t be.

THE NEXT WAVE OF YOUTUBE STARS

I recently read a flawed Variety report stating that YouTube stars are eclipsing traditional stars in popularity among U.S teens. While that may be true, the report compared some of YouTube’s brightest stars against a long list of aging Hollywood stars. Only two of the “traditional Hollywood” stars on the list were under 40 years old — Taylor Swift and Bruno Mars. The problem with this list is that it’s no surprise that teens today are more familiar with YouTube stars Smosh and Pewdiepie, and unfamiliar with actors Morgan Freeman (age 78), Jim Carrey (age 53) or Jennifer Aniston (age 46). As well, I would argue that Taylor Swift IS a digital star — no YouTube star can claim the number of followers Swift counts on Facebook and Twitter, or the billions of views her music videos receive on YouTube. One VidCon event is equal to a single tour stop on Swift’s tour.

In the non-YouTube world, talent popularity is measured in box-office receipts and concert tickets sold. YouTube hasn’t had a bonafide individual cross-over success since Justin Bieber in 2009, but YouTube will have many soon. As YouTube becomes more and more mainstream, even more talent will flock to its platform, and sooner or later, another mega star will rise up from YouTube. Several YouTube stars have already found success in the traditional world however, including John Green, Grace Helbig, KevJumba, Harley Mortenstein and others — but none have amassed the same level of fame as Bieber has. Does it matter? You’ll have to ask each individual YouTuber. My money is on Eva Gutowski.

(Update: Tori Kelly and Charlie Puth are blowing up.)

I was recently asked by a reporter whether YouTube stars have a shelf life? My response was that all talent whether in entertainment or sports has a shelf life. YouTube is no different, evidenced by the wave of YouTube stars throughout the years. Eventually, YouTubers will evolve, get burned out or their audiences will move on to other things. Like in all media, talent needs to strike while the iron is hot.

SO-CALLED YOUTUBE KILLERS

In the 9 years since I have been working in online video, the more things have changed, the more they have stayed the same. Digital studios, and so-called “YouTube Killers” have come and gone. Will Facebook or Vessel challenge YouTube for online video supremacy? Again, does it matter? There is a surplus of content and content creators today, and it’s virtually impossible to serve an ad against every single video view or cater to the needs of every single content creator. Every day, Facebook and YouTube are giving birth to emerging talent and businesses because there is no barrier to entry. It’s impossible for either company to make a land grab, when there’s endless amounts of real estate online. Healthy competition between mutliple video platforms will benefit the content creator long-term.

WHAT’S NEXT FOR MCNS?

YouTube is a beanstalk of opportunity. No one knows that more than the Multi-Channel Network (MCNs) operators and the investors who poured money into their multi-channel operations. Soon after the MCN trend began, multi-channel aggregators learned what YouTube has known all along — selling advertising against short form content is difficult, even at scale (especially at scale). Like YouTube, MCNs primarily sell metrics, not necessarily high-quality content. Only the best content ever makes it to the screen in television and film, which is what makes those products valuable. There is high-quality content on YouTube made by very talented content creators, but even the greatest content on YouTube can’t justify a huge ad spend if the content is only 3-minutes long.

In my experience, advertisers have been willing to pay between $25,000 to $75,000 to sponsor a single piece of short form content from a popular YouTube channel. That’s pretty good money, but by comparison, advertisers paid $400,000 per :30 second spot to advertise during the finale of Breaking Bad, a show on basic cable. Of course, an ad spend that size can be justified in traditional television where an episode of Tosh.0 costs a mind-boggling $400,000 to produce.

Today, there are over 1,300 channels with more than 1 million YouTube subscribers, collectively responsible for billions of daily video views. More than 1 million channels have opted-in to YouTube’s revenue-sharing partner program. There simply isn’t enough quality advertising to go around for everyone, making an MCN’s job of selling out ad inventory very difficult. Which is of course why many MCNs have began to diversify their business — from investing in feature films starring YouTube talent, to packaging music tours to merchandising. The strategy now is for MCNs to adopt a “studio model” in order to own/exploit/control as many rights as possible, opposed to simply sharing in the revenue of the thousands of channels in their network.

DEFT OF A SALESMAN

2 years ago at YouTube Brandcast, YouTube’s Robert Kyncl famously admitted that he “got it wrong” referring to YouTube’s $100 million investment into original content produced mostly by Hollywood talent (two of the premium channels a part of this program I produced — FAWN and The Warner Sound). I understood what Kyncl admitted to, but I also applauded him for trying to lure Hollywood talent to YouTube. The press coverage following this year’s VidCon was a bit mixed — while some in the media come away enlightened by their experiences at the convention, others couldn’t be bothered. Is VidCon a big enough showcase to dramatically shift advertising dollars from television to YouTube? Or do advertisers still prefer chasing Hollywood stars as Kyncl decided to do in 2012? Personally, I have sold a lot of advertising on YouTube, but never Jay-Z size deals.

I remember back to the Brandcast after party in 2013, following a performance by Macklemore (who closed out the event), I asked a member of Google’s sales team what they thought of Macklemore’s performance. The sales person, who was likely in their late 40s, had no idea who Macklemore even was. That left me thinking “how can a sales person from Google’s ad sales team effectively sell YouTube if they have no idea who Macklemore is?” After all, Macklemore’s career took off because of YouTube and today he is one of the hottest artist in music. It’s not the sales person’s fault that there is too much content on YouTube for any one sales person to familiarize their self with. YouTube content will become valuable when it becomes memorable. Answer this question — what is your favorite YouTube video of all-time (not your favorite channel)? Let me know in the comments.

Richard Frias is the CEO of Mighty Fresh, Inc., and award winning talent management and production company. He co-founded the beauty community IPSY.com and executive produced the Google Original Channels FAWN and The Warner Sound. Over the course of his career, Frias has worked with several successful YouTube stars including Michelle Phan, KevJumba, iJustine, Bethany Mota, David Choi, Swoozie, Rhett and Link, Jessica Sanchez, Esmée Denters and more. Follow him @richardfrias

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