Netflix and YouTube: The Two Pillars of Online Video Couldn’t Be More Different

/ Jan 25, 2014

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As we head into this year’s NATPE conference, the digital content world seems closer than ever before to finding sustainability, thanks to years of experimentation with business models — some successful, many less so. What’s interesting, though, is how on this path to sustainability, the two pillars of online video — Netflix and YouTube — are helping creators find success in completely different ways.

With just a few original series under its belt, Netflix has evolved to become the admiration of many within the industry. What is happening on Netflix today, though, is what’s been happening in the premium cable industry for a while — it’s still television, just delivered through a different pipe. Delivering content on Netflix is essentially a bet on the popularity of subscriptions — to the exclusion of all else.

“From strategy to execution, everything about Netflix’s approach makes sense to me. Like HBO, Cinemax or Showtime, Netflix is a subscription service and therefore has zero reliance on advertisers to fund or monetize its original programming; and the absence of ads also makes for a better viewer experience,” “Leap Year” producer Wilson Cleveland said via email.

That emphasis on subscriptions is backed up by a focus on technology — both bringing the service to every device under the sun, and using viewership data to drive discovery.

According to producer Brett Potter in a phone interview, when Netflix decreased their acquisitions budget to focus on its data and technology departments, the benefits were huge — even for producers. “It’s in theory bad, getting less money for your film, but instead Netflix is investing in new ways to get your film in front of audiences. I think it’s a great model, one to continue.” For Potter, the ability to licence a film to Netflix for a flat acquisition fee is only one source of revenue — but it’s a simple one that doesn’t demand much innovation on the filmmaker’s part.

By refining its algorithms, Netflix is closer to solving the issue of discovery — an advantage YouTube doesn’t have.

But that’s not to say YouTube isn’t excelling in its own way. While YouTube has made major overtures in the last two years to become a home for premium content, it remains an incredibly diverse platform. Thus, to talk about YouTube is to talk about those who make content for the platform, for whom one factor is fairly universal — a reliance on multiple revenue streams.

While most YouTubers are view-obsessed — it’s what drives the AdSense rates, after all — “Lizzie Bennet Diaries” showrunner Bernie Su is less interested: “I don’t want them to be zero, but I’m not worried about getting views.”

Instead, he’s focused on creating what he referred to as “legacy content,” content that can be consumed later.

While he’s happy with “Lizzie”‘s critical success, Su’s focus in developing spin-off series “Emma Approved” was to create a series that could be “a model of the business franchise.”

Thus, “Emma” contains several different streams of revenue: On top of its basic advertising revenue, “Emma” has incorporated product integration (the Samsung Galaxy), merchandising, iTunes distribution, and affiliate links to products featured in the episodes.

The affiliate marketing has proved especially profitable, comparable with the show’s AdSense income in terms of revenue. In November alone, Su said, the show made $15,000 from affliliate links to ModCloth. “And we don’t even mention the brand,” he added.

The multiple revenue stream approach is found everywhere — it’s why broadcast television is struggling with the collapse of the syndication market, and why HBO doesn’t care if you share your HBO Go password. But YouTubers have truly embraced the concept.

And why is that? Su’s response was immediate: “Because YouTube doesn’t give you enough. If you do take all the revenue from ‘Lizzie,’ YouTube is the largest source [of revenue] but it is not the majority. It’s maybe 35 percent of the total revenue.”

What drives audiences to these services, on both counts, is the ability to watch something they can’t watch anywhere else, which has been a big factor in Netflix’s success over the last year with its original content. In an interesting twist of fate, Su pointed to Netflix chief content officer Ted Sarandos as an inspiration, specifically a talk he gave at NATPE 2011 about how Netflix was positioning itself for the future.

In that talk, Sarandos called Netflix the “content community’s friend,” and championed the idea of exclusivity, something he said HBO had done exceedingly well.

In 2014, when Netflix is racking up nearly as many Emmy nominations as the pay channel, that comparison doesn’t seem quite as ridiculous.

YouTube, meanwhile, isn’t garnering the same sort of awards attention, but it is a destination site for viewers because of the loyal fanbases it’s been able to build. “The reason that we at YouTube have this focus on engagement is that what’s really unique to the platform is the ability to build a specific presence. There’s an actual identity and fanbase, and it all feeds into that,” director of content partnerships Malik Ducard said via phone.

The YouTube system also rewards topicality and trends, which Netflix is less able to do. Instead, Netflix trusts that its subscribers will always be able to find something to watch on its service — because the day it doesn’t is the day it’ll need to find a new approach.

Both approaches are clearly working, and both approaches should have legs going forward; but is there any potential for a middle ground between them? Cleveland doesn’t think so: “The two couldn’t be more different, and that’s just fine.”

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  • This is an excellent piece on web video, one of the best I’ve read in a while. Well-researched and reasoned. Good interviews, too. Thanks for writing it Liz.

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