Jason Calacanis wrote a great article about YouTube Partner pay, producing online video content as a YouTube Partner, and MCNs (multi-channel networks) as a threat to YouTube’s current model. He points out the current, fundamental problem with YouTube: making money as a YouTube partner.
There are currently three ways to make money as a YouTube partner:
As a participant in YouTube’s grant program, Calacanis realized that YouTube will not pay him indefinitely to produce content. By analyzing his video views and search traffic, Calacanis came to the realization that his video content won’t pay out enough (via Adsense) to support production if YouTube isn’t paying. Many YouTube partners who were paid by YouTube to produce content have also come to the same realization.
Although Calacanis mentions the three channels he launched as a “HUGE success,” at video views between 2-8K each, this is far from a huge success. Top YouTube channels get 500K+ views per video. Through YouTube’s partner rev share (approximately $1.50 CPM), he nets out between $3 – $12 per video. Even with a premium CPM, Calacanis would be hard-pressed to generate enough revenue to simply cover production costs. A $1.50 CPM on 10,000 views equates to $15. Additionally, because of the massive inventory on YouTube, the perceived lack of production quality by advertisers, and the Adsense ads YouTube offers, these factors drastically reduce the CPM. Furthermore, YouTube takes their 45% tax. All of this is unlikely to change anytime soon.
Jason Calacanis believes YouTube plans on dis-intermediating MCNs (multi-channel networks including Machinima, Maker Studios, Fullscreen, and others). This is unlikely. An MCN’s job is to help talent produce top shows, build audiences, and community engagement. For the amount of support MCNs provide, they just take a cut of the Adsense dollars their curated channels would normally make (a 20% cut is standard). MCNs provide music libraries, account managers, and other supporting services. Again, it’s very unlikely YouTube would desire to take on these services or get involved in day-to-day talent management. Jason Calacanis is strongly off on this point.
In terms of MCNs, siphoning off YouTube’s traffic, that’s simply not a threat to YouTube’s model. Successful YouTube channels (ex. Smosh) do this as part of their business model (they produce ancillary content for a standalone site and make 5X or greater the amount of money per view than on YouTube). It hasn’t and won’t have any effect on YouTube’s traffic and engagement. The primary point of driving audiences away from YouTube is for ancillary content. YouTube is and still remains the primary discovery and publishing vehicle.
At a higher level, bigger-picture scheme concerning the challenges of actually ever making a dollar on YouTube, Jason Calacanis is right. YouTube is a phenomenal discovery tool. However, YouTube as an engagement vehicle isn’t as good as everyone would believe, and it’s engagement tools are still relatively flat to align with Google’s bigger social aspiration (ex. no commenting via Twitter, Facebook, Tumblr, etc.). Here’s where YouTube could stand to make real improvements, but they have continually changed their engagement for years (they seem to do bi-annual format and redesign’s though). This is where YouTube seems to clash with Google’s overall social aspirations. If they increase methods to engage on YouTube (Facebook, Twitter commenting, Tumblr replies, etc.), they dis-intermediate Google’s platform as the social cure-all.
Outside of YouTube’s core demographic (12-24), audience’s don’t watch content on YouTube. This also ties into the overall engagement picture for YouTube. Yes, you may watch the cat video and the occasional interview, but let’s face it, how many check YouTube’s homepage every day, or regularly consume the content of your YouTube subscriptions? YouTube paid a lot of money in their grant program ($100M+) and it’s difficult to think of many resulting successes.
What does this all mean? A lot of participants in the YouTube partner grant program are realizing that it isn’t worth the sheer effort to get 50,000 views a month. Others are skeptical about where the grand program leads. YouTube may be paying them to produce content now, but it’s difficult to imagine how long this will continue? In Jason Calacanis’ case, how long does it make sense to get paid to produce content that gets a mere 5K views/video? In YouTube’s case, how long does it make sense to keep pouring money into small channels and small partners (by way of their partner program)?
YouTube has done a great job of publicizing their successes like Smosh, Annoying Orange, and others but there are a lot of people out there producing content with the idea that they’ll be the next Jenna Marbles. It does takes her level of success to truly make real, substantial money from YouTube.
UPDATE: See Jason Calacanis’ comment below for some more information on his channel’s CPMs and traffic. YouTube does offer some of its premium partners higher CPMs though partners are pretty tight lipped about what those are.