The film and television industries generate billions of dollars in revenue each year, with costs of similar magnitude for the studios that produce the content. Major studios comprise a significant portion of the industry with highly trained and talented creative minds driving costly content creation among a handful of production companies. Some indie film studios exist as well, but content creation in Hollywood has largely been driven by a very small group of people with the means to craft technologically and creatively masterful works of art. Yet who is to say that an Adam Sandler comedy years and millions of dollars in the making is any more entertaining than an adorable British baby biting his older brother? (Spoiler alert: it’s not.) There are billions of people on earth with the potential to capture a hilarious moment on their smartphone or act out a funny sketch with friends. How can this inexpensive creative energy be harnessed? Enter YouTube. Over a decade ago, YouTube was launched as a platform where anyone with video recording capabilities and an internet connection could instantly become an artist, actor, comedian, or musician. By developing a sophisticated search and recommendation engine based on machine learning, YouTube also enabled simple, tailored content viewing experiences for its millions of users. This has led to massive worldwide growth over the last decade as well as YouTube’s acquisition by Google.
Critical to this growth is YouTube’s ability to incentivize creators to upload entertaining content — the platform is only as good as the content it hosts. YouTube has a few strategies for accomplishing this. First, they run ads before many videos and split the revenue with the creator. Some of the most popular creators, such as Swedish gamer PewDiePie, make millions of dollars a year from this ad revenue. Relatedly, many YouTube creators have generated such loyal fan bases that they are now bonafide celebrities. The knowledge that anyone can become a millionaire superstar by merely uploading amateur videos incentivizes many new creators to join the community and see if they too can accomplish this. More creators lead to more viewers, which leads to more ad views, and ultimately more money for YouTube. This cycle is self-reinforcing — the best creators want to publish their content where it will be seen by the most people, and people want to view the best content they can. YouTube also provides analytics tools as well as marketing and branding education to creators to enable them to grow their fan base even larger.
This has been a very successful strategy for YouTube up to this point, even beginning to erode watch time of traditional television. However, with new competition from Facebook’s video product, YouTube must continue to innovate to maintain and harness the power of the crowd it has built. This past week, YouTube announced its newest offering — YouTube Red — a paid subscription that provides a premium YouTube experience for users. They can view content without ads, in the background while using other apps on their smartphone, and can even save videos to their device to watch while offline. The final piece of the value proposition is YouTube Originals, an upcoming collection of premium content starring YouTube’s top creators and funded directly by YouTube. This new product offering serves to reinforce YouTube’s crowd strategy from both sides. First, it offers a long-awaited premium ad-free experience for users who might otherwise go to a competitive product like Spotify. It is also likely to increase the total watch time for these YouTube Red members, a key metric that translates to overall product health and creator satisfaction. Secondly, while actual numbers have not been released, the $10 subscription fee will translate to higher revenues paid out to creators compared to the ad-supported product. Lastly, self-made star creators now have access to the incredible budgets and technology previously available only in Hollywood. By leveraging the power of crowds and continuing to invest in both sides of the platform, YouTube is disrupting the film and television industry one cat video at a time.