<videovortex> Nicolas Carr on the YouTube economy

[Geert Lovink]

http://www.roughtype.com/archives/2007/01/youtubes_strate.php

YouTube's strategic sharing
January 27, 2007

The BBC reports that YouTube founder Chad Hurley is confirming that the 
Google-owned company will begin sharing advertising revenues with the 
people who upload videos to its site: "The system would be rolled out 
in a couple of months, [Hurley] said, and use a mixture of adverts, 
including short clips shown ahead of the actual film." Hurley says the 
plan is intended to "reward creativity." That's true, I'm sure, but 
it's not the real story. There are deeper strategic reasons for the 
move. Here are the four most salient ones, so far as I can see:

1. First, and most important, it provides a way to greatly expand the 
advertising on the site without instigating a community rebellion. To 
justify the huge amount of money Google paid for the site, YouTube 
needs to begin incorporating ads into videos on a large scale. By 
sharing a fraction of the resulting revenues with its members, it makes 
the expansion of advertising feel like a gregarious move, aimed at 
benefiting "the community" rather than exploiting it.

2. Second, it's a defensive move that will help prevent the shift of 
popular videos, and their producers, to competing sites that offer 
revenue-sharing programs. As Liz Gannes points out, "Revenue sharing is 
something an increasing number of YouTube competitors, such as Revver, 
Metacafe, and Break.com, have used to differentiate themselves from the 
front-runner." If it turns out that revenue-sharing is their only 
meaningful differentiation, they're going to be in big trouble once 
YouTube initiates the practice. Their only recourse will be to offer 
contributors a bigger slice of the ad take, and a payment war against 
Google is a losing strategy. They'll get killed.

3. Third, it spurs competition among contributors to create videos that 
get viewed a lot and hence generate more ad revenues and larger 
payments. Reward "creativity" (ie, the production of videos that 
attract a lot of viewers) with cash, and you get more of it. Social 
production's fine, but when $1.65 billion is involved, crasser 
incentives are sometimes necessary.

4. Fourth, and most speculatively, it prepares the way for YouTube to 
exact greater commercial control over users' videos. Here's the current 
language in YouTube's official terms of use: "You retain all of your 
ownership rights in your User Submissions. However, by submitting the 
User Submissions to YouTube, you hereby grant YouTube a worldwide, 
non-exclusive, royalty-free, sublicenseable and transferable license to 
use, reproduce, distribute, prepare derivative works of, display, and 
perform the User Submissions in connection with the YouTube Website 
..." The bold type, added by me, highlights the key points. Currently, 
you don't receive any royalties from YouTube but you also don't have to 
give the site exclusive rights to your video. You can post the same 
video on other sites. What will be interesting to see is whether, as a 
prerequisite for participating in revenue-sharing - for getting some 
royalties -YouTube will require that a member give it an exclusive 
license, precluding the posting of the video elsewhere. If we assume, 
as I think we can, that a relatively small number of videos and video 
producers will receive a disproportionate percentage of views and 
generate a disproportionate amount of ad revenues, then "locking up" 
that content and those producers will become increasingly important in 
the years ahead. Controlling the "stars" will be as critical to YouTube 
as it is to any media business. I would bet that, perhaps not 
immediately but at some point in the not-too-distant future, YouTube 
will demand an exclusive license in return for payment.

This is a smart strategic move on YouTube's part. It's an even smarter 
move on Google's part. As for the users: Don't quit your day jobs, 
guys. The money's in aggregation.