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Why YouTube will continue out-competing Hollywood

Over the entirety of YouTube’s existence, its huge popularity as a platform hasn’t been a secret, but it’s only relatively recently that the entertainment industry at large — i.e., traditional Hollywood — has begun to grapple with just how big of a cultural force it’s become.

For those still in denial, Nielsen recently released two separate data points that prove YouTube’s dominance. The first, revealed last week, showed that it’s the most-watched TV streaming app, ahead of Netflix and every major Hollywood studio. Then this week the WSJ reported on Nielsen data that shows YouTube only trails Disney when you zoom out to all TV viewing, including linear broadcast and cable channels. And to clarify, that only includes YouTube viewership on TVs; I’m guessing it would surpass the House of Mouse if you also incorporated desktop and mobile audiences.

This new data only underscores the point I made briefly in last Friday’s newsletter: that YouTube is “quickly becoming the most powerful media platform in the history of humanity.”

I said “quickly becoming” because we’re still only in the early innings of its rise. YouTube has a number of distinct advantages over traditional Hollywood studios that will allow it to continue out-competing them in the coming years. 

The first has to do with how it pays for content. It revealed recently that it paid out $70 billion to content creators over a three-year period — so at least $23 billion a year. That’s far north of the $17 billion Netflix spends every year for its own content library.

But nearly all of YouTube's content budget is paid out as a revenue share based on the ads that run against individual videos. This not only has created a direct correlation between content success and remuneration, but it also generates a feedback loop in which the most successful creators are able to invest more and more resources into their content production, thereby further increasing their reach.

Compare this to the studio model of funding content: executives are pitched on potential projects and then spend upwards of tens of millions of dollars to produce a show or film. In some cases, those projects turn out to be hits — your Squid Games or Game of Thrones — but in plenty of instances they end up as complete duds that fail to recoup their costs. As such, Hollywood collectively wastes billions of dollars a year on unsuccessful content.

This expensive production process also hinders Hollywood in serving niche audiences. On YouTube, a creator can produce relatively niche content and still make a decent living. The channel Watch It Played, for instance, produces videos about board games and has amassed over 300,000 subscribers. In its ability to serve millions of niche communities like this, YouTube can amalgamate a loyal audience in the billions. A large studio, on the other hand, could never mine these micro niches very efficiently, which is why they remain largely focused on producing huge hits that appeal to broad audiences.

The third — and perhaps greatest — advantage YouTube has over the major content studios is its frictionless discovery. Not only does it have a powerful recommendation engine on both its homepage and apps, but any consumer can easily embed and share YouTube videos across blogs, text messages, email, and social media, and they can be consumed on any web-connected interface, from your TV to your computer to your mobile phone. This makes it so much easier for content to reach its intended audiences.

Hollywood content doesn’t have this level of discoverability, hence why even highly-rated shows still regularly get canceled after failing to find an audience. How many times have you heard big directors complain about poorly-executed marketing or that a show was canceled before it had a chance to find its audiences? Those are signals of inefficient discovery.

The interesting thought experiment, for me, is to extrapolate what these advantages will lead to five to 10 years down the road. Currently, Hollywood still out-competes YouTube when it comes to hiring veteran top-tier filmmakers — the kind that make our prestige TV shows and movies. But what happens once those same filmmakers can make just as much money or more on YouTube? Given the amount of creative freedom the platform provides, I can’t imagine that star talent won’t find it enticing. 

In fact, YouTube CEO Neal Mohan published an op-ed just this week arguing that the Emmy Awards should expand their eligibility to include YouTube videos. “Creators are the new Hollywood,” he wrote. The platform has solidified its dominance across every metric that matters, and whether the industry’s traditional old guard recognizes that truth is becoming increasingly irrelevant by the day. For billions of people across the world, YouTube is synonymous with television now, and no amount of Hollywood studio consolidation is going to halt its growth.

What do you think?

Quick hits

With the coming death of third party cookies and platforms downgrading link clicks, we're quickly entering an era in which every premium publisher will become extremely aggressive at collecting first party data — both to target ads and capture email addresses for direct distribution. [Adweek]

The Verge is expanding more into paid niche newsletter. I like this strategy much better than when publications simply slap a paywall onto content that was once free. This allows it to maintain its influences as a free, ad-supported media outlet while also providing an avenue for revenue diversification. [The Verge]

The streamers can bundle all they want; it's not bringing back the flush profit margins from the cable days. [Puck]

Dan Abrams says Mediaite is profitable. "Our audience has grown exponentially with the site often drawing a whopping 80 million page views per month with a still comparatively small team. Maybe most significantly, about 50% of that traffic comes in via the front page " [Mediaite] From what I can tell, Mediaite mostly relies on clickbait news aggregation. My guess is that the site saw success by remaining extremely lean and cramming its pages with programmatic ads.

This is a fun read about that time in the 1990s that JFK Jr launched a glossy print magazine. [The Ankler]

I honestly believe Google traffic was always a huge distraction for most publishers. It caused them to place so many resources toward attracting drive-by readers that didn't stick around. Now, I'm not saying that Google traffic is worthless, just that it's overrated. Its pivot to AI-generated search results should hopefully force publishers to focus on producing can't-miss original content that engenders true brand loyalty from audiences. [WashPo]

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