Mark Suster, a venture capitalist and serial entrepreneur, has written extensively about YouTube's evolution from "dogs-on-skateboards" to its current status as an entertainment medium rivaling cable television networks. "Many people perceive YouTube as "dogs on skateboards" and don't realize that it is now professionally produced content that is driving billions of video views each month," Suster writes.
YouTube has over 800 million monthly unique visitors who consume "over 4 billion videos each day." Its evolution has resulted in a new class of entertainment entrepreneur, the creators of professional YouTube content, affectionately known as YouTubers.
"Note that the logo of YouTube used to say, "Broadcast Yourself." It no longer does. YouTube is the new Comcast. It is the new distributor of video. Yes, it's lower quality than network, primetime television. But many network shows cost up to $100,000 PER MINUTE to produce. Maker Studios costs about $500 per minute. Guess who has a huge advantage in the future of the medium," Suster stated.
Google's continued oversight and backing, combined with professionalized content and ongoing ad optimization, will ensure that Internet TV will eventually eclipse its legacy brethren, allowing you to store your cable television in your garage, right next to your landline phone. Soon Cable & Satellite TV package will become music albums.
During the latter half of 2011, Google awarded a number of leading YouTubers and nascent Internet TV networks grants of $1 million to $2 million. Earlier this month, Google announced that it'll spend an additional $200 million to promote YouTube content.
Despite the rumors that Google's content development program was poorly managed at its outset, the majority of the funds were properly deployed by the emerging community of professional YouTubers. In fact, all of the most prominent Internet TV networks were recipients of such grants, including: Maker Studios, Big Frame, Machinima and FullScreen.
Before the creation of YouTube networks, a handful of leading YouTubers were generating over $100,000 in revenue per year, simply by running run-of-site YouTube ads. Networks have significantly increased YouTubers' advertising revenue by negotiating sponsorships and large ad purchases with major brands.
Internet TV networks offer their talent a number of differentiating advantages which are difficult for YouTubers to secure on their own, including:
- Critical Mass - Even though some of the most successful YouTubers routinely generate several million views per video, large advertisers are challenged to spend efficiently within the medium, because even millions of views results in a relatively small advertising spend. This paradox is aptly illustrated in the following graphic, courtesy of Big Frame.
By allowing advertisers to purchase ads across a cadre of YouTubers, Internet TV networks can achieve their efficiency and reach goals.
- Cross-Promotion - The rap industry has proficiently utilized cross-promotions since its inception. Similar opportunities exist on YouTube, in which YouTubers with large audiences can introduce and promote up-and-coming artists.
- Better Content -The average YouTuber is chiefly interested in creating engaging content, not negotiating insertion orders, trafficking ads or tracking down delinquent advertiser payments. Thus, Internet TV agencies not only increase a YouTuber's income, they also free them to focus on what they do best - create engaging content. The additional revenue generated by each video allows the YouTubers to leverage better (and more costly) special effects, which beget better quality content. Better videos engage more viewers, which attract additional advertising dollars.
- Subscriptions and Social Sharing - The last century phenomenon where magazine and newspaper subscriptions drove readership, by selling print ads - the same is true in the YouTube ecosystem, but with a social media twist.
"YouTube allows viewers to subscribe to their favorite channels. Each time a new video is posted by a YouTuber, its subscribers are immediately notified. Although the shareing settings are configurable by user, when most people Like or Tweet a video, the action is broadcast within their social graph. Such YouTube subscriptions are the engine of a virtuous circle of views, which leads to social sharing, which, in turn, generates additional subscriptions."
- Better Ads - Product placement ads have been around since the 1800's when notable novelists, including Jules Verne, were lobbied by business people to mention their products and technologies in their books.
The effectiveness of product placements was reduced dramatically in the mid-1990s when the practice became so overt and numerous, especially in major motion pictures, it became distracting and, in some instances, outright laughable. Learning from the mistakes of the past, YouTubers have created clever ways to embed advertising messages into entertaining content.
Climbing A Mountain With No Hands: Once you create a hit game, it is much easier to replicate the initial game's success by launching related titles. The same phenomenon is true in the YouTube ecosystem. With a little help from Google, and a lot of hard work, today's leading Internet TV networks have reached the summit and are in the process of launching new YouTubers who will benefit from the networks' high-velocity virtuous circles.
Here is the PowerPoint version of Suster's presentation: