“How hard is it to really make it into the YouTube business?” I thought to myself.
Well, it seems pretty simple and many would agree that it indeed seems actually quite simple. There are mommy bloggers, food bloggers, comedian bloggers, make-up bloggers, pranksters, pick up artist videos, political videos, social commentary videos and the list goes on and on. These users make an income off YouTube by explicitly allowing YouTube to place advertisements in their videos and in exchange the user receives a 55/45 cut from ad revenues. With reaching over 1 million users being “YouTube Partners,” users that are actually monetizing, there has been a significant rise in partnerships since 2008 when it only had 30,000 and the number of videos watched has increased from 3 billion in 2011 to 6 billion in 2013
“So with the demand rapidly increasing
, how is the YouTube Economy looking?”
Well you can look to Amazon and see that YouTube Strategies 2014 has become the #1 Book at Amazon for Marketing, and that’s not even the punch line. Between 2012 and 2014 the number of YouTube partners increased from 30,000 to 1,000,000. It seems then, that with the increasing number of partnerships and interest that there is more people trying to get a piece of YouTube’s pie. The money.
But the pie can only feed so much. Especially cause the pie won’t be able to feed all the new kids coming down the block.
While the number of users entering into partnership are increasing (through a click of a button), the supply of ad revenue, mama’s apple green pie, has yet to keep up.
“Advertisers paid an estimated $4 billion for YouTube ads in 2012, up 60 percent from 2011,” according to RBC Capital Markets stock analyst Mark Mahaney. However, according to an article by Todd Juenger who takes a critical look on the future of online video advertising, he suspects that an increase in advertising revenue will begin to halt. This turns out to be true, considering that YouTube only brought in 5.5 billion this year according to a Forbes article. That is 25% decrease from the previous year’s growth
Given, the users in 2012 should be very grateful since there were almost seven times fewer partners in 2012 compared to today. Unbeknown, the lucrative and prosperous year of 2012 would also mark the eventual and continual downfall of future earnings ahead.
In the early year of 2012, YouTube decided to restructure their revenue-sharing program to allow more users to enter into a partnership by making the process of entering into a partnership much easier. Now with just a click of a button users are able to immediately become paid partners of YouTube while before that users had to apply and go through a lengthy process to get their permission.
What resulted was similar to your mother allowing all your friends and friends of friends and neighbors and those baked high schoolers from Dazed and Confused to hop over into your yard to have a piece of her seemingly insufficient pie.
Though there is an increase in partnerships there is an increasing plateau of ad revenue — which hurts current partners as they now deal with increasingly more competitors for a limited amount of money.
Basically the number of visitors are rising daily and so are the number of visitors that choose to become partners. Which is a really good thing for YouTube. But the only variable that poses a problem in this YouTube economical equation is they haven’t been able to increase the annual amount of ad revenue. But with YouTube’s increasing number of visitors and the progression of online video viewing the advertisers realize that it’s not a matter of if, but a matter of when.
So to answer the question: The pie of money got official in 2012, but ever since it hasn’t gotten any bigger. But more kids are coming for a slice and they are all aware of what that means. Smaller slices –even for the bigger kids usually are the ones to get bigger portions.
So what’s it looking like for the future?
Since the new program, YouTube has failed to keep up in finding more advertising sponsors to match its increasing number of partners –causing the difference in ratio between number of users and amount of ad revenue to become higher and higher. Therefore, the rate of how much partners get per view is continually dropping as other partners are competing for their views.
In a research analysis by TubeMogul it explains that the rates for the most lucrative pre-roll video ads have dropped from an average of $9.35 per 1,000 views in June of 2012 to $6.33 in April of 2013.
Some might say that is pretty bad, particularly the older ones who used to be making $25 per 1 thousand views in 2010 according to an article by Online Video Marketing Site, Will Video for Food. Unfortunately, veterans will continue to struggle in maintaining their income, because this opens doors for entering newcomers as they give advertisers the ability to look into a more diverse pool of sponsorships. With a more diverse and mediated population, the demand for the most popular videos will decrease as advertisers look to sponsor cheaper partners.
In 2012 a significant portion of ad-revenue sponsorships mainly went to the partners who were the most popularly viewed. However since then, 1/3 of the ad sponsorships left the most popular channels and headed towards the diversified partners (lower tier in popularity but newer and trendy) according to the research firm TubeMogul.
One reason is because with the increasing number of monetizing users there is less of a need to put advertisements in the popular videos. Instead an advertiser can choose to distribute its advertisements to cheaper and trendier channels. Meaning, this allows sponsors to meet their criteria by putting their advertisements in several videos rather than one for cheaper.
While some advertisers and partners are able to see this as a moment of opportunity, most advertisers believe that a majority of the content on YouTube lacks production quality and have therefore lost the incentive to invest further.
The problem lies in the growing number of partnerships.
While the growth of partnerships continues, there is also growing number of non-quality videos that are still able to get money for its views. Therefore, there this creates a higher demand for quality videos which in turn raises the rates for advertisers who want to sponsor those videos.
Some advertisers do not like the idea of having to settle for “non-quality” sponsorships and therefore have chosen to abandon their investment all together.
Here’s what it looks like for a veteran and a newbie according to an article by the site BusinessWeek.com.
Veterans of the YouTube business, brothers Vijay and Antonius Nazareth, a popular channel, saw a 50% decline in their earnings in early 2013. They were retaining the same number of views but their income has continually dropped.
Another popular channel by Hannah Hart, a newer experienced partner, who runs the very successful My Drunk Kitchen, said that her earnings began to decline since mid-2012 –which is right when the new revenue program launched.
So, what veterans and newcomers are doing in response is resorting to a new strategies proposed by “content networks.”
Content networks are companies that take a cut of their client’s advertising revenue in exchange for covering the costs of production, looking for direct sponsors and securing higher ad rates. Content networks have become a very popular way for up-and-coming users and is generally directed towards newcomers although many veterans have resorted to them in response to the changing economy. Big content networks that are able to achieve over 2 billion views a month with up to 5,000 contracted partners can combat against the dropping ad rates. On top of that, content networks have the ability to negotiate a price directly with ad sponsors themselves, which helps more with easing the drop in monetization rates.
Machinima for example achieved over 2.2 billion views in March of 2013 with its 6,500 partnerships and has been able to maintain their rates by directly negotiating with sponsors. Since they specialize in videos for male gamers between the ages of 18-34, whom of which are consistently the top 2 largest audience, Machinima has been able to partially combat against the dropping ad rates for certain users.
A very important and favored alternative to solving this issue is: capping the entry of new partnerships by (re) re-structuring the revenue sharing program, whether it’s by returning the program to its former procedure of application processing or by halting partnerships completely. But this would be very difficult to do. Particularly, because it would be taking a step back from what YouTube had set out to do in the first place –which is to make more money. Regardless of the ad rates for partners, the increased number of ad-revenue increased YouTube’s profits and will therefore continue to allow users to enter partnerships.
Don’t worry the future of YouTube will stay bright as long as it is continues its track in becoming the primary media outlet of the world. But until then, if you are thinking about making a career in YouTube, think twice (I personally still want to). But I think it’s important to keep in mind a common saying by one of YouTube’s most successful partners, Jason Calacnis who explains of YouTube,
“It’s a good place to get started, but not a good place to run a business. Why would you ever give your partner 100% of your ownership?”