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The New YouTube Economy

How YouTube created a new economy for content creators.

Portrait for Envato By Envato
Posted 9 Feb 2015
Video and Audio

When YouTube launched in 2005 it became the main hub for amateur home videos featuring pets, babies, budding musicians, “fails” and everything else in between, producing many a viral superstar in the process. More recently, the now Google-owned YouTube has emerged as an online destination where people can share high-quality content and earn a serious living, with the top artist estimated to be earning anything from US $4 million each year.

Some of the early YouTube videos to go viral were unsophisticated low-resolution home movies, such as the young brothers featured in ‘Charlie bit my finger’. Videos like these could still turn into money-makers, with YouTube allowing some popular videos to share in advertising revenue from as early as 2007. In 2012 YouTube opened up their Partner Program to users in 20 countries. The new, more transparent approach allows users to opt in to receive a share of advertising revenue once one of their videos has been successfully monetized. Those with 75,000 cumulative watch hours over the last 90 days can earn additional privileges, like access to YouTube recording studios in Tokyo, London, New York, Los Angeles and Sao Paulo. Since the original launch of the Partner Program in 2007 YouTube claims ‘thousands of channels are making six figures a year.’

One of the best known current YouTube content makers is Felix Arvid Ulf Kjellberg, AKA PewDiePie. Kjellberg reportedly earns $4 million in advertising annually from millions of views of videos featuring himself playing video games while narrating in a distinct, raucous, and animated style that has captivated his viewers. His videos are also helping others to earn money off the back of his popularity. PewDiePie’s YouTube videos helped drive sales of games such as Flappy Bird, Goat Simulator and Slender: The Eight Pages catch on, a boon for the games’ creators.

While earning millions to play video games sounds like a great way to earn money, viewers are not always positive toward YouTube content makers. Last year Kjellberg disabled commenting on his videos after finding he was unable to connect with his audience (his “bros”) due to the spam, self-advertising and provocations posted. “I want to see what you bros say… but I don’t see that because it gets blocked out by all these things,” he said in a video explaining his decision in August 2014. With the effects of trolling well documented, it is perhaps unsurprising Kjellberg decided to turn off the commenting option, instead of turning to Twitter where he has had more success connecting with his viewers.

The stakes are high for YouTube’s biggest stars. In order to be profitable and attract advertisers, videos need to be high quality. Jason Calacanis, who once produced content for YouTube before becoming an outspoken dissident, says that in order to create content that is up to scratch, or ‘advertiser-friendly’, top-quality videos with professional-level production values could cost as much as $25,000 to $75,000. This may explain why many successful YouTube stars, such as Olga Kayclaim to put so much of their money back into their videos. For those yet to attain lucrative advertising money for their offerings, there are plenty of tutorials on YouTube with tips on how to professionalise videos on a shoestring budget. With programs like Adobe Premiere and Final Cut Pro readily available, YouTube stardom seems within reach for budding content makers. This could explain the 100 hours of content uploaded to YouTube every minute.

With new content constantly being uploaded, there is a growing number of savvy talent agents scouring YouTube for potential clients. Sarah Penna, cofounder of Big Frame talent agency, was inspired to manage YouTube talent after seeing the business potential in YouTube partnerships and witnessing what she believed to be bad branding deals taking place. Big Frame acts on behalf of YouTube content makers, helping grow their audience and connect them with brand deals and advertisers, helping them to find appropriate partners for their products. Their website lists collaborations with YouTubers and brands ranging from Virgin Mobile to Covergirl to Pepsi. Last year Big Frame was acquired by Awesomeness TV, itself a product of the YouTube revolution, for $15 million.

YouTube claims to have more than 1 billion unique user visits to the site each month, and reaches more US adults aged 18-34 than any cable network. This could explain why celebrities who have come up the ranks of more traditional media are also exploring the platform, though they may not always experiencing instant success. UK celebrity chef Jamie Oliver admitted that last year he lost more money than he made on the YouTube channels he launched — FoodTube in 2013 and DrinksTube in 2014 — despite the latter securing a three year sponsorship from Bacardi.

The growing profitability of YouTube’s top content-makers has provided a boost for other businesses as well as the stars themselves. Envato’s stock music marketplace AudioJungle, which recently announced an annual run rate of US $10 million, says it has seen an increase in audio purchases made for use in YouTube videos. AudioJungle supplies royalty-free music which can legally be used for commercial purposes, listing popular YouTube pranker Roman Attwood as one of its customers. In addition to post-production elements like music, camera company Giroptic has released the first 360 degree camera which YouTube will support natively, allowing video to be uploaded directly to the site.

Popular video-game streaming platform Twitch was inspired by the rise in video games as a spectator sport, a movement that began on YouTube. What began as a spin off to Justin.tv, a now-defunct video broadcasting site, grew into a behemoth purchased by Amazon in 2014 for $970 million. Twitch makes revenue from advertisements and sponsored games, which is shared with users who can nominate how much advertising content they want on their pages. Viewers can also donate money directly to the user uploading content.

One downside of posting popular content, particularly when it is unclear who the originator is, is the risk of intellectual property theft. One Australian tourist, Phillip McNamara, only learned that the holiday footage he had uploaded to Facebook ended up on YouTube after it reached 14 million views and had someone else claiming the generated revenue. In this case McNamara was able to employ the services of a video licensing company to help identify him as the rightful owner of the footage and was able to collect the advertising revenue, a portion of which was donated to charity. As McNamara learned, videos can easily be taken from Facebook or other websites, then uploaded by another user on YouTube. YouTube has a Content ID system that can settle disputes when content is taken from and re-posted to YouTube, but this does not help if the theft or re-posting takes place on another video sharing site. Copyright laws are catching up with digital media — users in the USA can file a Digital Millennium Copyright Act (DMCA) if their property has been stolen — however, it requires the originator to know when their content has been stolen, which is not always the case.

In his public online criticism of YouTube, entrepreneur Jason Calacanis claims that another downside for content makers on YouTube is the 45% of advertising revenue the platform takes from monetised videos. He claims this is too high and unfair on the people who are driving traffic to the site with their videos. While official financial results are not released for YouTube, it was estimated the company netted $1.96 billion in advertising revenue in 2013.

While YouTube has become a game-changer in the world of technology and entertainment, sparking a number of opportunities for profitable businesses, there is a dark side to this success. As reported in WIRED late last year, it is estimated over 100,000 people are employed, mainly in Asia, to watch hours of YouTube content to ensure it meets the company’s content guidelines. Companies like Open Access BPO and TaskUs are based in the Philippines, where contractors are paid a fraction compared to their US counterparts to view hours of disturbing, graphic and often illegal videos. One ex-employee claimed he was paid just $500 per month to view countless hours of highly confronting material. A psychologist consulting for the businesses that provide content moderation says workers exhibit signs of post-traumatic stress disorder when repeatedly exposed to sinister content.

YouTube has invigorated a whole economy thriving from the popularity of online videos, channels and a new breed of superstar. In the process it has unearthed a dark underbelly of trolls and malicious content; albeit one that most consumers are blissfully unaware of. It remains to be seen whether the YouTube of the future can continue to showcase new and existing talent as well as inspire new businesses and markets with fair remuneration, benefits and opportunities for all.

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