The Economics of Online Video 2011
Online video and TV content are set to converge on a range of
platforms, from Hulu to Google TV. An Ad Age Insights
on the contenders for consumers' attention and
YouTube execs cautioned that the talks have been exploratory; no
deal has been completed and it's just one of many different
initiatives to help content creators bring their video to YouTube.
But they underscore YouTube's need to attract experienced content
creators and to better package higher-quality content so
advertisers spend more of their growing online-video budgets on the
The question is how to provide initial cash flow to producers
who commit to building channels on YouTube, without actually paying
for the content itself. "They are exploring all types of models to
ignite the system," said Allen Debevoise, CEO of Machinima, one of
YouTube's biggest video producers. "How do you get creative people
to create better-quality programming on the platform to drive a
better user experience and more ad revenue?"
Google, as a rule, is about building platforms and ordering the
world's information with algorithms; it is fundamentally not about
paying for content. But YouTube execs are realizing that video is
different from search or even display and that getting critical
mass of premium content -- for which advertisers are willing to pay
a premium rate -- requires a human touch, and, in some cases, an
open checkbook. Soon there will be more bodies on the case. YouTube
plans to expand its 600-employee workforce 30% in 2011.
While YouTube is still feeling its way in Hollywood, it's
becoming more aggressive about luring the independent video
producers that have long been its biggest source of premium video,
including advancing startup funds against future ad revenue and
even offering $1,000 coupons for camera equipment.
"These types of producers are the backbone," said Tom Pickett,
YouTube's global director of content. "The content gets better and
better." These are video producers like Machinima, YouTube's
fifth-most popular partner; Phil DeFranco, who video blogs as
sxephil; and Ray William Johnson, YouTube's second-largest partner,
whose manifesto says a lot about the size of audiences these videos
are now entertaining: "I don't promote things in exchange for
money, nor do I care to be on television. Thank you."
This economy of video producers didn't exist before YouTube and
probably wouldn't exist without it. They're also YouTube's biggest
source of so-called premium video that they can sell to
advertisers. The goal for all their efforts is to find more talent
and help promote their work. "We have hundreds making over six
figures," Pickett said. "We are literally creating a new industry
here. If you are the kind of person who can create video and build
a sizable audience, then you should be able to make a living on
Last week, YouTube closed a deal to acquire Next New Networks
for its expertise in working with small web producers, as well as
programming channels of content for advertiser-friendly audiences.
NNN will also work on helping guide users to what's already on
YouTube execs stressed there is no single new strategy to bring
higher-quality content into the YouTube ecosystem; rather, they're
trying many different approaches to widen the sphere of prolific
creators who are making money on the platform.
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Contributing: Andrew Hampp