New Money and the Growing Internet Market Place

By Javin Dana ’17

“We talked for a bit about our idea, edited our clips together, and then uploaded our video,” explained Ben Waitches-Eubanks ’17 when asked about his experience producing, and making money from, content on YouTube. “The way things worked, we posted our video on our channel, and we only got a few views at first. Then [Jonah] posted the video to Reddit, and we got a ton of views. We messed around for a while with the ad revenue and AdSpace, and then after a few months we had collected hundreds of dollars. As more money came in, we just kept gradually taking money out.

Started in 2005 by entry-level PayPal employees Chad Hurley, Steve Chen, and Jawed Karim, YouTube has since grown into a company that estimates claim is rated at billions of dollars. In its early years, YouTube operated as a landmark video sharing service that offered internet partons opportunities to both freely view and create content for the general public. However, with an onslaught of copyright infringement lawsuits from Los Angeles News Service by July of 2005, YouTube forerunners were forced to sell their company to Google for $1.65 billion.

The tumultuous playground of intellectual property disputes and copyright infringement lawsuits persisted well into Google’s buyout of the company. Weary of their legal position, Google actively initiated video ID technology that could compare uploaded content with a database of marked copyrighted content.

Grabbing more than 60 percent of all video streaming traffic each year, the decision to maintain safeguards against video piracy and copyright infringement became a necessity. However, YouTube content creators and company officials still struggle with perpetual property disputes and infringement as a result of the constant flood of uploads to the site.

It is estimated that around 300 hours of content is uploaded to the video sharing site every minute, and that the over 1 billion users on YouTube produce about 4 billion views per day.

Things become a touch more complicated, however, when taking into consideration all of the potential money involved in these videos and their vast viewership. YouTube made about $4 billion in ad revenue in 2014, but was reported to have merely “broken even” because of the immense costs of maintaining high speed video streaming servers and the uncertainty of maintaining a “cost per impression” market.

Cost per impression, or the amount paid based on individual retention to advertising content, is one of the primary sources of income for YouTube staff and creators. When an individual viewer clicks on a user’s video, if the user has a partnership with YouTube, then the video can be monetized through sponsorships and ad placement.

Although the YouTube market claims to espouse an open marketplace through ad revenue sharing, in fact the complicated system of monetizing videos has the opposite effect. At the end of signing onto contracts with AdSense, a video sharing program closely connected with YouTube, users will find themselves losing a flat 45 percent of their ad revenue directly to YouTube. For many YouTube content creators, the prospect of losing more of their revenue to video piracy and seemingly-random copyright infringement strikes poses a very real threat.

In the last five years, many have begun to pursue jobs simply living of YouTube ad revenue. Currently, tens of thousands of channels are maintained with financial gains in mind. Philip DeFranco, a YouTuber with 3.8 million subscribers and 1.5 billion video views, explained the risk-reward structure of the market during a public outreach event known as an “AMA” (Ask me Anything).

“People have been able to make 100k a month” through ad revenue and sponsorships on YouTube content, says DeFranco. Many YouTubers, DeFranco included, have turned the burgeoning business of video content sharing into a personal business. “My companies make some nice revenue,” explains DeFranco. “I pay myself 60-100k though [and] most of the money is reinvested.”

Some see the capacity for individuals to pursue their own business opportunities as one of the evident benefits of maintaining a free market on YouTube. However, the financially uncertain and risky nature of making a living off of YouTube content has led many to feel conflicted about the freedom of YouTube’s marketplace.

The Bureaucracy of Youtube (Credit: Javin Dana '17).

The Bureaucracy of Youtube (Credit: Javin Dana ’17).

“Yeah, I mean, we made a fair bit of money, and it was all pretty easy, but there was a chance we could have made a lot more if not for reddit users using ad-block and stuff like that,” explained Waitches-Eubanks when discussing a video he produced on YouTube that gathered over a million views.

Waitches-Eubanks effectively laid out a central problem for many content creators: the minutiae of how individuals on YouTube view content can have lasting impacts on the livelihood of those living off of YouTube. If even one tenth of the viewers on a larger channel decide to use Ad-block when watching the user’s content, that user can lose tens of thousands of dollars in income in a single month.

The conflict between users and content creators recently became intensified as a result of attempts to monopolize both content premises and concepts under copyright law, essentially circumventing the right to free intellectual property on YouTube. In 2015, the Fine Bros, attempting to expand their own market of “reaction videos” and fight back against blatant format copyright infringement by Buzzfeed and “the Ellen Show,” proposed a new trademark called “React World.”

In introducing “React World” the Fine Bros attempted to copyright the format of “reaction videos” in order to create, as they title it, a “global market to connect users from across the world.” Essentially, the Fine Bros attempted to put in motion franchises for a type of video.

If this sounds in any way legally dubious and convoluted, that’s because it is. Videos were deleted and channels stricken by the tens of thousands following the initial proposal of react world, and the Fine Bros channel suffered as a result of the massive bad press they received in its wake. Eventually, the Fine Bros pulled their “React World” proposal, realizing that they could not repair the damage done through bad press.

Unlike their counterparts in television and film, YouTube stars have to rely on a constant influx of good press to maintain their viewership. Not all press is good press for YouTubers, and a wave of controversy can sweep YouTubers off of the relevance charts as others claw their way in.

As expected, the high-stress, low-security nature of YouTube makes it a prime location for assaults from both internal and external competition. Just as small YouTubers often find themselves losing viewership, and by extension ad revenue, to larger YouTube companies and enterprises with far more resources and larger operating team, YouTube’s major players have recently come into conflict with major television figures.

After critiquing the popularity of “Let’s Play” channels, which encourage users to watch content creators talk as they play video games, Jimmy Kimmel came under fire from a number of internet sources. In order to mitigate tension and glean some benefit off of all of his bad press, Kimmel brought famous youtubers “Markiplier” and “MissesMae” onto his show to talk about internet gaming.

Markiplier, a YouTuber with a net worth of over $2 million sat across a couch from Kimmel, explained how “let’s plays” are essentially the modern equivalent of “sitting on a couch, watching your friends play games.”

The distinct difference being that “your friends” likely were not making upwards of six figures from having other watch them play games.

As of now, Jordan Maron (CaptainSparklez), Felix Kjellberg (PewDiePie), Markiplier, and Toby Turner (Tobuscus) stand as just a few of the many YouTube gamers who have amassed millions of dollars a result of a continued supply of ad revenue, sponsorships, and intense marketing of their own company products, ranging from shirts to video games of their own.

A great deal of the success of “Let’s Players,” and by extension YouTube personalities in general, has to do with the demographic makeup of YouTube users. Not to any surprise, 15-26 year olds make up the majority of YouTube users, according to YouTube’s annual site statistics. The increased time spent online also lends itself to the immense monopolization of content on YouTube.

With all of the varying content in place, “it’s easy for smaller channels to get lost among the immense amount of ‘sheer stuff’ out there,” explains Felix Kjellberg (PewDiePie), the YouTuber who currently holds the most subscribers.

If YouTube’s top content creator is to be trusted on this matter, then in the solidification of YouTube as a money making environment, it in large part lost its ability to maintain a free, fluid marketplace. Instead, the continued problems with internal and external legal disputes, bad press, and cold-hearted monetization means that YouTube is no longer a free sharing market, but a business–and a growing one at that.