‘A smoke-and-mirrors model’: Why YouTube networks feel forced to change

Fullscreen maintains that its creator business remains important. It’s how they got started, after all. But with big Hollywood agencies and managers clamoring to sign the top stars, talent management is not necessarily the primary focus any more. They’re still happy to provide various tools and services to the middle-lower tiers, because there is some money to be made there while the businesses focus on other, potentially more money-making areas.

Indeed, Fullscreen’s ad business will pull in as much money this year as its creator-services business does, according to Fullscreen COO Andy Forssell. And in the next five years, the creator business is expected to double, whereas the advertiser side could multiply by five or six times. “We’re not pulling off the pedal with our creator business, but as we look to grow even more, we’re going to move into other areas,” said Forssell.

Diversify or die.
Simply put, the big YouTube networks are diversifying. Fullscreen now calls itself Fullscreen Media. And its business is no longer just selling YouTube ads. It still has a creator division focused on talent management for top stars and various audience-development and monetization services for smaller ones. But two newer divisions include Fullscreen Entertainment, which oversees the company’s subscription streaming networks and live events, and Fullscreen Brandworks, its agency services and influencer marketing arm.

Similarly, Maker Studios, now owned by Disney, has made a significant push into creating original content of its own. It has produced shows on Verizon’s Go90 platform and YouTube Red. Later this month, it will premiere the mockumentary film “Internet Famous” on iTunes. With its parent company, Maker has a program to develop original programming for digital platforms, with the potential of the “best of the best” to make it to TV, the companies have said.

The reason for the scramble to develop new business streams is as clear as it was inevitable: YouTube pre-rolls do not a business make.

“[The old MCN approach] was a smoke-and-mirrors model: amass as many channels as possible and then when we report numbers, we are reporting an aggregate number of people who signed contracts,” said an executive at a top YouTube network.

This helped sway investors and media companies, which poured a lot of money into Fullscreen, Maker Studios and other YouTube networks. But even with hundreds of thousands of subscribers across a network of channels, the margins make it an impossible business. The YouTube networks take home only 17 cents on every dollar generated from pre-rolls.

Hence the drive to launch new business initiatives that go beyond YouTube ad sales.

“They are taking care of themselves right now, which is not a crime,” said a web video veteran who has worked with many of the major YouTube networks on various content and distribution partnerships. “All of these guys are now owned by bigger companies, and they’re being pushed to show the growth they promised. That doesn’t come from the pure MCN model.”

For most creators, the story hasn’t changed.
As YouTube networks focus on their new businesses, there are no guarantees that most creators — especially those without millions of subscribers and Hollywood agents — won’t end up as collateral damage.

Take, for instance, Maker Studios. It no longer accepts anything under $250,000 for work it produces with a client and a creator, said a source. For talent that it represents exclusively, it will sometimes book smaller-sized deals, but those creators, as well as others in the network not exclusively represented by Maker, are free to find their own.

Every YouTube network now has a minimum price for branded content deals. It’s given rise to a new crop of influencer marketing firms and platforms like Izea and FameBit, which also promise to match smaller creators to brands. (Internally, Maker and Fullscreen have similar platforms.)

Fullscreen, meanwhile, is open to buying shows featuring talent from rival networks for its fledgling streaming service. In fact, it offered the Maker Studios film “Summer Forever” upon launch.

In this environment, a majority of creators in the large networks might be less inclined to remain loyal to their network.

One executive at a vertical-focused YouTube network said his company has seen a lot more inbound interest from creators looking to defect from the larger networks. “I don’t want to remind the bigger networks — who sometimes hire us for campaigns — that people are defecting,” he said. “The amount of switching creators are doing from network to network is at a constant churn now.”

Which means the traditional YouTube network model — one which made them out to be more talent management firms — no longer applies. They’re trying to be studios or networks (or both) now.

“If the MCNs were created to find a way to significantly reward all digital creators, then they didn’t do it,” said the web video veteran. “The problem is not solved. If Fullscreen is successful, Fullscreen’s problems are solved; the problems of MCNs [as a whole] aren’t.”