The Future of YouTube Economy
A brief look at MCN, Advertisers and Native Advertising on YouTube by @mhuzaifaali
With over 6 billion hours of video watched per month on YouTube, there is no doubt that the future of YouTube economy is strong.
YT related businesses and startups have a combined worth of $10BN+ and raised over $3BN+ in outside investments in last 2 years. Today there are over 50 multi-channel networks (MCN), with combined reach of 700 M+ YT subscribers, generating billions of views each month.
In 2012, brands spent over $3BN+ in total on online video ads and will be spending 25x of that amount in next 5 years. Apart from ads, brands are using YouTube to engage with its audience in a meaningful way.
For example L'Oreal started its dedicated beauty channel where it invites popular beauty vloggers to provide beauty tips and lessons. Dodge, Lenovo, GoPro and Old Spice (Smell like a man?) are some of the example brands that has done a great job in engaging with their audience on YouTube.
Even though the statistics, growth rate and revenue figures look great, there are problems which are affecting the growth of online video industry.
Problems Affecting the Growth of Online Video Industry
1. Monetization:
All YouTube focused MCNs, are facing a common problem i.e. once you build a massive audience on YouTube how do you monetize it? Popular gaming MCN, Machinima, laid off 10% of its staff, citing monetization problem as the key reason behind their declining growth.
MCN Alloy Digital, has raised $30M to acquire ad-tech companies focused on video monetization tools, indicating that they are also affected by the widespread monetization problem.
While YouTube does provide monetization options through conventional pre-roll and clickable ads, their revenue split of 45/55 makes it hard for content creators to generate enough revenue to keep the network profitable.
In a recent article by Mark Suster, he explains why an MCN needs to establish O&O strategy to increase their operating margins.
“16.5% margin isn't sustainable for a large, growing business (MCN). It’s why many talent agencies or ad networks struggle to get scale advantages.” — Mark Suster
While 80% of the MCN, are following a traditional route towards content monetization i.e. ads, MCN like Collective Digital Studios and Alloy Digital are focusing on producing premium content and IP monetization.
Meanwhile companies like Rightster, Sponsify and VidiQ are developing data driven platforms and monetization tools for MCN, that helps them to increase their revenue and to manage their network analytics.
2. Content Distribution:
Most MCN are relying on YouTube for its video content distribution, meanwhile Howcast, VEVO and Buzzfeed are doing a great job with their O&O strategy.
Mobile & tablet users are spending up to 15 minutes each day to watch video content on their devices but networks are reluctant to adapt mobile & tablet as a distribution medium, mainly due to associated management and development cost. Non-availability of mobile publishing and distribution tools is also an issue that stops a network to go mobile.
Maker Studio’s recent acquisition of Blip.Tv, is a solid indication that more networks will follow the same path for their distribution strategy.
3. Advertiser’s Dilemma:
Advertisers are now more actively targeting their online audience through video and branded content, but due to fragmented state of most networks advertisers are reluctant to directly engage with the networks, like they are used to engage with Facebook and Twitter ads.
In a recent article by Fruzsina Eördögh, an advertiser explains
From a brand standpoint, I've tried so many times to work with a network [MCN], and I can't ever get anything done I just go straight to the talent. — Jeffery Harmon Head of Marketing at Orabrush
While this is true for most networks, popular networks like Base79, FullScreen, Collective Digital and Rightster are using custom developed tools that provide advertisers a semi-programmatic way to buy ads on their respective networks. Combined with advance audience targeting and campaign analytics, it makes ad campaign management and tracking easy for the advertisers.
For example if L’Oreal wants to target popular beauty channels on YouTube, it would have to deal with at least 10 different networks to reach its targeted audience. Too much work for a brand that simply wants to reach its targeted audience through branded content integration and native advertising.
A newly launched startup Sponsify, aims to solve this problem by providing easy way for brands to buy consolidated ad inventory of all networks on a single platform. For advertisers, it simply means that they don't have to deal separately with hundreds of networks anymore.
Apart from direct selling, they are also providing their platform as SAAS to different networks, who do not have enough resources to build their very own network and advertiser management platform.
In next 5 years YouTube economy would face disruption in conventional distribution and monetization model. Startups who would become part of this disruption would turn into billion dollar businesses.
Networks would see positive growth in their revenue, if their distribution scales to different mediums. Advertisers would spend more money on branded content and native advertising.
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Additional Notes:
Big thanks to Muhammad Jehanzaib @_jehanzaib_ for his contribution to this post.
