Is Google Squandering YouTube’s Potential? Yes, So…

“YouTube’s future is being held back is the typical innovator’s dilemma, or rather, billionaire’s dilemma,” writesAshkan Karbasfrooshan is CEO of WatchMojo.com. I included some of Karbashfrooshan’s pieces in Beyond Viral, and he’s one of the authoritative writers about the online-video industry and media monetization.

Google's Mansion and its YouTube Slave House

Indeed YouTube is but a toy kiosk in the Google “Mall of Americas.” Before I provide my 2 cents, here are some important highlights of his recent piece (with my comments in italics). His article was spawned, in part, by a “Video Forecast 2011” piece by AlphaBird’s Alex Rowland.

  • Google is generating way too much money from its “traditional” search business ($30 billion) to care about radically owning the new video space (which is a small portion of the $2.5 billion Google counts as “display”).
  • While YouTube commands 45% of the video streams in the U.S., it is unlikely that it will generate $600 million from video ads in 2010 (or 40% x $1.5 billion). (Hulu, he says, did $240 million… and with a tiny percentage of streams).
  • YouTube correctly identified ad agencies and Fortune 500 marketers as those who would turn YouTube into a billion-dollar business.   However, since Google had little experience in selling to ad agencies before it acquired YouTube, growing video revenues took a lot of time to scale.
  • But instead of allowing content partners set prices based on actual market dynamics (demand and supply), YouTube implemented a set of obstacles and requirements that have made selling one’s YouTube channel all but impossible. YouTube did this, I believe, in an attempt to thwart content producers from owning the relationships with media planners and buyers.  After all, if YouTube opened up its site, it would lose contact with advertisers and become a mere dumb pipe. (Indeed Google has been known to dismiss the role of the media buyer as somewhat useless intermediary… however the “dumb pipe” of Google’s paid-search network isn’t so dumb).
  • Some would argue that if leading YouTube content provider Next New Networks’ indeed sold to YouTube (a rumor that spread in recent weeks, such as with this LA Times piece), it would be more of a capitulation than coup, for NNN relies so much on YouTube that it cannot possibly remain a going concern if it was not part of YouTube.

Now the WatchMojo CEO is a YouTube content provider, and has reduced the percentage of his company’s own inventory via YouTube from 45% to 15% in just the last past few months (by expanding his distribution beyond YouTube, since his YouTube audience has not contracted). He says YouTube is creating an “opening for others to win the bigger ad dollars,” and names DailyMotion, Metacafe and Facebook as potentials.

Now my thoughts: this isn’t a lone voice. I’ve heard this or similar perspective from content creators, advertising agencies, industry watch dogs and even some variations from YouTube/Google employees.

I would contend that Karbasfrooshan is more correct than controversial, and that Google is perhaps even “strategically ignoring” online-video’s near-term growth potential because it has far more critical business “levers.”

  • Google has a cash cow in search-engine advertising, and is broadening into other mediums especially mobile. I expect YouTube’s growth to continue (it’s usually the case with the market leader), but its share of online-video display dollars will decline dramatically.
  • Still, YouTube will continue to flourish via the middle market, lower maintenance, and “self serve” portion of the marketplace. This is almost certain without a significant “course correction” that does not appear imminent or within Google’s DNA.
  • If Facebook begins to display video and share advertising revenue with content creators, I would imagine most — from Discovery to Annoying Orange — would start posting on Facebook quickly, migrating their audience, and even staggering/delaying content to YouTube (the way some providers like The Onion and College Humor do… first posting on their own sites, then weeks later posting on YouTube).
  • Just as I don’t think my own content cannot survive and flourish outside YouTube (at least alone, hence my signing with Next New Networks), I do not believe Google is poised to grow or even maintain YouTube’s share of the online-video advertising budgets even remotely in relationship to its percent of video streams.
  • The exception will be small companies and middle markets, or advertisers who are prone to buying via Adwords. Currently the vast majority of YouTube advertising dollars (with the exception of individual campaigns and homepage takeovers) are almost entirely driven by Adsense Adwords. You heard me correctly, and that’s a sad statement about Google/YouTube’s ability to sell direct to brands and/or via partners and agencies.

Large content creators and brands will and should want a strong platform partner which puts the audience needs and preferences first, but theirs at a close second.

So the answer to this post’s title is “yes… Google is squandering YouTube’s potential right now.” It is almost inarguable truth that YouTube is not leveraging the strength of Google and its global salesforce, and not winning the hearts and minds of Madison Avenue. It follows, therefore, that the stewards of large digital media budgets are now seeking — and will continue to pursue — alternative online-video advertising options for innovative programs beyond prerolls.

I’d expect to see AOL and Yahoo, if not Facebook, knipping away at Google’s online-video Achilles heal. Google, after all, is not a media property at heart… it’s a sleuth of engineers producing innovative change. Given that identity, Google can’t be underestimated as a bold market force that will continue to shake the online-video industry in ways far more interesting than hundred-million-dollar media buys, which are akin to vending-machine revenue at a casino.

In the meantime, content creators should:

  • Ask YouTube to facilitate and encourage them to prevent agency buyers from feeling YouTube’s thorns. Likewise they need to aggregate to achieve sufficient strength to command the interest of digital buyers unless their niche is remarkable.
  • Maintain good relationships with YouTube people, recognizing that many of YouTube’s shortcomings are out of their control.
  • Diversify their distribution to include some of the smaller properties… especially those that grow. YouTube’s incentive to innovate for advertisers depends on market competition.
  • Derive income directly via sponsorships… which is no longer discouraged by YouTube, a video platform.
  • Pay close attention to what Google is doing with online video that has far greater potential than YouTube or any individual media property alone.

YouTube Plus “Next New Network” Equals “Huh?”

First- the disclaimers. I share in advertising revenue from YouTube. And I’m a content partner for Next New Networks, but not an employee or quite the size of these guys. I’m just some marketing clown with a video camera, no writing staff, but 175 million views. Big deal. My blog’s still ugly.

YouTube Rumored to Be Buying Next New Networks... Perplexing But Interesting

So I’m not privileged to any discussions between YouTube and Next New Networks, and know nothing more about the alleged acquisition than I’ve read here. While I have been aware of rumors of someone acquiring NNN for a couple months, I didn’t even seriously consider the possibility that Google/YouTube would buy it. So it was fresh news to me when I got a text from ZackScott today (he wanted to brag about his recent GoogleTV gift, and how he’s become a bigger sellout than me).

My thoughts on the potential of a deal. First, “Why It Makes Little Sense At First Glance”

  • YouTube took Google far out of its core competency (from search machine to platform)… Next New Networks is another dangerous stretch. A real stretch. I worked for an Internet agency that was accidentally purchased by a telecommunication firm. That kind of stretch.

I can only imagine some of the conversations between the right-coast, roight brained NNN gang and the left-coast, left-brained engineers. It could be like a toaster trying to talk to a boom box.

  • YouTube already has deals with many content creators, so I’m not sure what it’s getting beyond some bright leadership, a library of content to monetize in new ways, and some production/marketing experience.
  • The relationship is strong between YouTube and NNN, so how is this strategic enough to offset the perceptions that Google is now encroaching on the content space? Could this send the networks a signal that Google is now a competitor to networks and studios?

Why It Makes Great Sense

  • I’ve written before that Madison doesn’t like YouTube (click to read “How Madison Avenue is Killing YouTube“). And there needs to be a buffer between creators and agencies. NNN could play a valuable role in buffering agencies from touching the YouTube rose’s engineering thorns… if YouTube/Google allowed it.
  • The control of NNN content will give YouTube a sandbox to try new content-delivery models via phone, television and mobile. It’s a sandbox but with real humans.
  • There’s a name for this. It’s called vertical integration, and it can be healthy as long as it’s not creating a monopoly (which clearly isn’t the case here).  Owning a network can help YouTube engage with other networks more effectively. A simpler example: if I run a line of beauty products, its worth owning one salon… I get real-world experience that rivals laboratory R&D, and it can inform my products.
  • This provides YouTube a presence on the East Coast (where most of the budgets originate) that is more meaningful than a sales office. Sponsored content, I believe, will be bi-coastal.
  • It could be a step toward better content partnerships. CEO Fred Seibert is a producer of some of Cartoon Networks greatest shows, and a former MTV creative director. So he’s got some clout in the entertainment world that can make/break YouTube. Having network experience inside Google will help Google be less aggressive with the advertisers YouTube needs to court. Oh, and by the way… NNN is one of the few web studios that has endured the implosion of the “New Establishment” (the name I used in my book to refer to emerging studios).

I think I sufficiently hedged this post so that I retain rights to say “I told you so” if this deal is a great success, and hires me… or if it flops insanely.

What do you think? Or don’t you care? See this is my  problem… when amazing news like this breaks, nobody in my IRL circle cares. Folks at my client and in my family don’t give a rats ass, so I need to work it out here.

Online-Video: One-Man-Band to Brat Pack


This week I officially joined Next New Networks as a content creator (not employee), and the above video is by the amazing Justin Johnson. Read the NNN blog for more, and check out Liz Shannon Miller’s NewTeeVee article on this news…This WVFF bloggedy post puts that decision into context, since the move was a non trivial one for me.

Upon the introduction of any new medium, the early notable talent are often independent, persistent and multi-taskers. The “one-man bands” who cracked radio, film and television first were charismatic (Lucille Ball, Charlie Chaplin, Jack Benny, Merv Griffen, Jack Paar), but also savvy at promoting themselves. Parenthetically, I’m not comparing myself to these folks, and I’m distinct from a lot of NNN shows in that I really don’t have a show. My 900 plus “Nalts” videos are far more random, and NNN hasn’t asked me to change that model (though I might).

Just like other mediums, online-video’s early players have been individuals who lacked agents, deep pockets and connections. But the early YouTuber solo acts (who still dominate the most-viewed and most-subscribed channels) cracked the code… which was less true for the better financed and higher-quality web shows, backed by networks, production companies or even advertising agencies.

In the past 9-18 months, we’ve seen that shift dramatically. Here are the trends that attracted me to a “rat pack” or “brat pack” model. By that, I mean a collection of individuals who collaborate to build something bigger then they could be individually.

7 Reasons I’m Joining a “Creators Club”

  1. Cross Pollination: YouTube’s most-subscribed channels remain individual acts. Most of the top creators have increased their audiences by appearing in each other’s videos, or forming collaboration channels. BarelyPolitical, one of the most successful Next New Networks shows, is among them. What started as Ben Relles’ Obama Girl has since brought attention to numerous shows, individuals and performers
  2. YouTube &  Beyond: Increasingly the convergence of television and web content will offer new distribution opportunities. I believe there’s strength in numbers. While YouTube was once able to maintain relationships with individual creators, that isn’t scalable. So an intermediary is important for both the “platform” (a term YouTube uses to describe itself) and individual creators. On television we call those “networks.”
  3. Following the Leaders: I’ve watched with curiosity what other individual creators are doing. Some fly solo. Others get “agents.” And still others decide to build informal collaboration channels… some that last and others that fade (7AwesomeWhatever series). I took special interest in HotForWords and BlameSocietyFilms signing with Next New Networks, as I have a lot of respect for those shows… both their style and tenacity. I’m a huge fan of the “auto-tune the news” Gregory Brothers (who go by the absurdly forgettable “Schmoyoho” on YouTube). Relles and NNN helped put them on the map, and they appeared just this week on NBC’s Today Show.
  4. Old and New Media: The companies that will manage the pending evolution of media will be those who have people who’ve managed previous transitions… but also the flexibility to depart from the past when it’s not applicable. NNN’s founder, Fred Seibert, was MTV’s first creative director and the producer of many of my children’s favorite television shows — from Fairy Odd Parents to Adventure Time With Finn and Jake. Meanwhile Ben Relles is the only other prolific video creator I know who also has a marketing background.
  5. East Coast: Many creators feel compelled to move west, where indeed most films and movies are grounded (not to mention software firms). I’m inclined to believe that in the next few years, there’s an advantage of staying closer to the likely source of income: Madison Avenue. Next New Networks is distinct, but even when compared to other players of “The New Establishment” (described in my book, Beyond Viral), it’s one of only a few based in NYC. Furthermore I’m close enough to the company and many of its creators to collaborate. Proximity is turning out to be more important than in 2004-2009.
  6. People: Ultimately people “sign” with networks, agents or employers more for the people than anything else. NNN has a good team with a bold mission, and it’s already turning out to be exciting to be part of something bigger than me. I’ve known Relles for years, and he wrote a chapter in my book. Seibert is a trip. Mark makes me shoot milk out my nose. Even Justin (who did my spotlight profile) taught me more in 2 days than I’ve learned in months.
  7. The Logo: Sorry. I’m superficial like that. NNN has the most bad-ass logo and outro. Sorry, Jim Louderback (revision3).
The little cartoon robot was one of my reasons. It's cute.

Teleporting Fat Guy Returns

How many views does it take for a video to be defined as going “viral”? It’s not 1 million, and it’s not 2 million… read on.

I’m a big fan of Smosh’s Teleporting Fat Guy (see original video seen more than 4 million times). So I was thrilled to see the adorable chubby guy return in the recent episode below.

By the way, I was chatting with Mark Douglas (KeyofAwesome) last week at the Next New Networks office…Oh sorry, did I name drop? While in NYC I also saw iJustine, MysteryGuitarMan, ShaneDawson, ShayCarl and CharlesTrippy (see video proof).

Anyway, Mark and I were discussing what “viral” means anymore, and the number 4 million seems about right. Only a few videos hit that number in the month they’re posted. So let’s go with 4 million as 2010 viral, but that means 4 million views right away- not cumulatively over months or years.

I need to clarify again that my book proclaims “viral is dead” for commercial videos, I do not contend that viral video will ever end. Ever. As long as we humans like to experience something together at the same time, we’ll have viral hits. It’s just that they’ll rarely be advertising videos… and I don’t like to see brands cede their online-video marketing strategy and tactics to “going viral” due to these low odds.

So here’s the teleporting fat guy appearing again, featuring Smosh’s Ian and Anthony traveling forward and back in time, and meeting their future selves. You gotta love Smosh for persisting and persisting with their comedic duo even when their managers sometimes sell ’em out too much. Smosh could pimp Amway and I’d still love ’em.

Wait- was this post about Smosh or about how many views it takes to make a video meet the definition of “viral”? Oh who cares. Just watch the face of Teleporting Fat Guy when he hears about the sponge bath. Hey did I include Smosh in my book? I can’t remember.

NewTeeVee Tackles YouTube

In a YouTube binge, NewTeeVee writer Liz Shannon Miller is rounding up some major online-video news:

Now what else can Liz cover for YouTube week? Hmmmm… how about a YouTuber getting pulled over by the NJ po-po for videotaping a Geek Squad van? And (in a moment of slight embellishment) got a black eye a week later.