The Current YouTube Economy Is In Peril

When you ask the average net citizen what they think will happen to YouTube in the next couple of years, the response is optimistic. And why wouldn't it be? At face value, the YouTube ecosphere—with its growing sectors of talent managers, brokers, production companies, advertising agencies and marketers, tool and analytics developers—is the new, digital Hollywood with a tech startup feel, and it can only get better from here. When you ask the industry insiders and business executives who’ve set up shop in this new YouTube economy the same question, you get a more pragmatic, if not a tad pessimistic, prediction. YouTube-centric CEOs and digital leaders peered into the crystal ball of the immediate future at this year’s unofficial YouTubers' conference VidCon in Anaheim, California and what they saw—or think they saw—involved peril and even bankruptcy. YouTube has massive potential to revolutionize the entertainment industry and redefine storytelling, but in order to do that, the industry has to first start making money. This can happen by either YouTube charging less money for its services and the arrival of a competitor, or big brands injecting capital. If neither of these happens soon, much of "new Hollywood" could go out of business. And maybe that's not such a bad thing. Trouble In MCN Land Multichannel networks, or MCNs, are a weird hybrid of production studio, ad network and talent management that operate independently from Google while existing mostly on YouTube. They've managed to raise large amounts of capital from investors like Google and Time Warner, but quite a few are still struggling to make a profit. Although technically "new Hollywood," MCNs are rather reliant on traditional business models and do very "old Hollywood"-like things like having contract disputes with talent or asking teenagers to sign four-year contracts. One MCN is currently being sued by both a former top talent and a former CEO for two entirely different reasons. Scandals aside, the current MCN business model that's reliant on ad revenue is, well, “screwed” and “unsustainable”—especially the MCNs that have hundreds or thousands of channels. These words were spoken by three different business executives: entrepreneur Mark Suster (one of the first investors in the MCN Maker Studios) in his keynote, Jim Louderback the CEO of the rare profitable MCN Revision3 in his talk as well as a later interview, and entrepreneur Jason Calacanis in his closing keynote. First-time VidCon attendee Peter Bray, the director of digital at the global ad agency Saatchi & Saatchi, predicts the “MCNs that don’t appear to be making money” will “be swallowed” in a impending period of “aggregation,” among themselves and by traditional media companies. In some ways, this is already happening: Discovery Networks purchased Revision3 in March, and then shortly thereafter acquired the portfolio of Revision3’s top talent Philip DeFranco. Just last week, Maker Studios announced it would be purchasing the professional video platform Blip. Mike Bienstock of Semaphore, the business management and tax company that helped broker the deal between DeFranco, Discovery and Revision3, believes the deal he worked on will serve as a “template for future deals” for other YouTube celebrities reaching that “crossroad.”