Why Mark Suster Is Wrong About Maker But Right About YouTube

/ Sep 17, 2013

MakerStudios

By Jeff Koenig

I’m no Mark Suster. The one area where I’m willing to venture a comparison between us is that we’re both smart people who know a lot about online video, so it’s not surprising that I agree with many points he raises in his extensive and insightful post about Maker Studios and the YouTube/MCN ecosystem.

In the post, Suster makes a case that YouTube is an undervalued opportunity for business, while simultaneously trying to make the case that a company he invests in, Maker Studios, can thrive beyond YouTube to become a significant media entity in its own right. He outlines a plan that includes original content strategies, diversification of distribution and revenues, and technology development, and paints a rosy picture of how Maker can continue to leverage YouTube without simply being a middleman between content creators and YouTube’s distribution. When Maker Studios inevitably sells to a larger media company, it will be on the promise that multi-channel networks like Maker can expand beyond YouTube and avoid the “Zynga trap” of over-dependence on a single platform.

I believe that Suster is right, and the strategies he outlines will work — but not for Maker. As with other large MCNs currently bucking against YouTube’s 45% ad revenue share, Maker faces two significant challenges that will likely prevent its legacy business from adapting to a new, larger model, despite its recent acquisition of video platform Blip and the technical expertise Suster has injected into Maker.

On a base level, YouTube MCNs are as the name implies: a network of multiple YouTube channels. A YouTube channel is basically the equivalent of a social media account with its own content and followers. MCNs bundle large groups of channels — thousands or tens of thousands of them — and sell advertising against the aggregate audience. The channel owners and YouTube itself take a majority cut of that revenue. Maker’s 4.4 billion monthly views are, in reality, thousands of individual audiences, some big (Epic Rap Battles, Tobuscus), but most relatively small.

The first challenge Maker faces is that it doesn’t really own any of those audiences or the content that draws them, and no original content strategy can replace the hundreds of millions of videos and billions of views those channels bring. Maker contracts its channels for terms of a year or two, trying to gather as many together as they can, and channel turnover between networks is a constant problem. When small, easily replaced channels leave, there isn’t very much impact on the bottom line. However, when a large channel with a significant audience exits the fold, such as the departure of former #1 YouTuber Ray William Johnson from Maker, the audiences they take with them do have an impact. MCNs are forced to devote tremendous resources towards the largest channels to keep them happy, leaving nothing of significance left over for the thousands of smaller channels, which generally receive little personalized attention. In short, Maker depends on the collective numbers of thousands of small channels to support its bottom line, without being able to offer any significant value to those channels. Since the company neither owns the content nor the audiences of those channels (they only lease them), unhappy channel owners slow the ability for Maker to fully leverage its assets and reach.

A bigger problem for Maker is the nature of those channels, that content, and those audiences themselves. In his post, Suster compares Maker on YouTube to a candy maker selling bars at Walmart, painting it as the distribution behemoth you need to be in for scale. The point he makes is that a candy seller can distribute through Walmart at a lower profit while pulling higher margins from other retail outlets. Where this analogy utterly fails is that the hypothetical candy maker does not have to tailor its product specifically for Walmart’s customers. YouTube, on the other hand, is its own entity and, like all social platforms, has its own rules.

Suster has never tried to build an audience on both YouTube and Blip, so perhaps he can be forgiven for missing the distinction. With few exceptions, creators who have tried quickly learned that both platforms have very different audiences, and its nearly impossible to simply port the same product from one to the other. The vast majority of channels in Maker’s network (and, indeed, the vast majority of successful channels on YouTube) are engineered to work specifically on YouTube. Founded by YouTubers Lisa Donovan, Ben Donovan, and Danny Zappin, YouTube is in Maker’s DNA, from the subjects of its network channels’ content to the audience calls to action that fuel the network’s growth. And, perhaps most importantly, Maker channels’ audiences are YouTube audiences. It’s not as simple as Suster’s candy maker analogy; a better take is the difference between American chocolate and European chocolate. The candy companies that survive in both markets offer a fundamentally different product, and Maker’s network lacks the talent and experience to adapt to any other platform without significant wholesale changes.

Taken off of YouTube, the 4.4 billion views Maker’s content generates decrease by a couple orders of magnitude. I suspect that had we been given the opportunity to see how Ray William Johnson’s content performed on Blip (Johnson signed a deal with the distributor after leaving Maker, but before Maker’s purchase of Blip), we would have gotten some meaningful (if discouraging) insight into how YouTube’s biggest stars translate to non-YouTube audiences.

Suster’s post is one of the most knowledgeable descriptions of the significant opportunities and challenges that YouTube represents in recent memory. As advice for future networks, he has written perhaps the definitive overview of the landscape, and if Maker were starting from scratch today under those guidelines it would no doubt quickly meet the ripe promise he posits.

However, Maker’s rapid growth and extensive reach is entirely fueled by YouTube content on YouTube. They are a victim of their own success; too big, too much capital raised, too many cats to herd to be anything other than what they are: despite Suster’s statements to the contrary, Maker Studios is very much a YouTube network.

 

Jeff Koenig Bio ImageJeff Koenig is a self-described web television evangelist and ninja monkey. He is the co-founder and CEO of Digiriot, Inc., the parent company of Scifiriot, a recently launched YouTube-based micro network for original sci-fi content.

Tags: , , , , , , , , , ,


  • Wow. Is it possible we agree? 🙂 I’ll be interested to see the degree to which Maker artists and content are (or aren’t) able to expand their audience demographically “off YouTube” and what that discovery process will look like. Begs the question: Is YouTube’s native audience more loyal to the channels they watch or the platform itself? I suspect it’s the latter.

    • BroadcastAssassin

      I think we do, in fact, agree on this one. 😉 I just don’t see a mass exodus of a YT audience to follow YouTubers to a different platform, especially when the main driver for that exodus is something they couldn’t care less about (MCN ad margins)

      • Not to beat a dead horse but the point I tried to make was that there wouldn’t be a mass exodus. I specifically said “YouTube is Walmart” as in that’s where people want to go every day so put your content there. American’s spend 8% of every dollar at Walmart and in online video 63% of all videos consumed are on YouTube. My point was that as an online network you have to ALSO have some off-YouTube inventory. I was trying to advice young MCNs to have their on YouTube and off YouTube strategies. That’s all.

      • George Strompolos

        This is an important point. There is no significant user problem happening here. I run a major YouTube Network. It’s critical that we don’t confuse our concerns as a business with the concerns (or lack thereof) of our users.

        • BroadcastAssassin

          Thanks for the comment, George. To reinforce your point, I’d add that while the online video industry may have a monetization problem, it should be remembered that it does not have an audience problem – especially on YouTube. The eyeballs are there, in numbers that have execs across all media paying attention. The trick, industry wide, is capturing the monetary value of all those eyeballs, and I think MCNs – Fullscreen and Maker especially – are important steps in exploring how to do that.

    • loyal to channels vs. platform? Yes. I agree. It’s mostly platform. It’s why YouTube will remain the powerhouse it is for ages.

      But obviously talent (and I hope in the future networks) also have strong fan bases. What I tried to argue (perhaps unsuccessfully) is that the primary audience will stay on the platform while the ardent fans will follow the talent and/or network. The trick as a media company is to enable both.

      I can’t see it’s easy or we have all the answers but it has sure been interesting to watch the innovation and successes up front.

      continued success to you, Wilson. when you’re in LA come grab a coffee.

  • Interesting and well-argued take. A couple of thoughts:

    – I agree YouTube audiences are YouTube audiences. To build content off of YouTube you have to cater to the different formats. The good news is we know this. The bad news – it is hard to do.
    – We don’t intent to migrate en masse. We love YouTube and the ecosystem works. But we plan to build an online video business not a YouTube business. YouTube is our most important distributor
    – Most of our talent is just that – talent. They own their own production and content choices and we respect that. Our tools have statistically proven improvement in viewership & subscribers. Our bet is that if we provide the best tools in the industry enough talent will want to work with us repeatedly.
    – We also produce our own content and will always do so.
    – BTW, considering candy bars … of course they need to tailor candy bars to the respective market needs. In the US most consumers prefer candy bars with low cocoa solids (around 10%), in the UK much larger (20-25%) and in continental Europe it’s often 40%. How do I know this? I lived in Europe for 11 years. American chocolate sucks ;-0

    I look forward to a continued debate and trading info. Feel free to contact me directly if you’re ever interested in engaging in some of the data. I can’t post it publicly. It’s much more compelling than many observers think. In the end, I guess it’s up to us to prove it. I’m obviously betting we can 😉

    • BroadcastAssassin

      Among the many things that we agree on is the idea that American chocolate is inferior. 😉 Thanks for responding. I’ll follow up off-line, but I hope the the points where we agree came across as prevalently as those where we don’t. I do think your article is excellent advice for companies (mine included) working on new evolutions of the original MCN model, a point I tried to stress in my closing paragraph.

  • kevinyen1

    A quick comment given what I saw during my time at YouTube (including managing MCNs) and working directly with talented, passionate, hard working content creators…

    1. My head/history agree with the challenges Jeff and Wilson describe.
    2. My heart/hope are with Mark and the entire creative community for large scale, replicable success.

    Best of luck to the creators! They deserve it!
    Kevin

    • BroadcastAssassin

      Mark’s point was that you can have both, and I agree with that, even while questioning whether or not Maker is too big and too entrenched on YouTube to be the ones that pull it off. Whether through an existing MCN, some new form of network, or an independent production/entertainment company, I think we all agree that YT ad rev neither can nor was meant to scale all forms of content as the sole revenue stream.

  • J. Sibley Law

    While it’s true that if you’re a candy company (or any consumer packaged goods company), you can sell essentially your same product at Wal-Mart. But, to be sure, you better get ready to offer unique pack sizes, special branding and promotions throughout the year, and advertising dollars if you want to be successful in the Wal-Mart platform. Additionally, you better plan on opening up a significant operation in Bentonville, AK complete with category managers, product managers, and lots of other staff just to manage your Wal-Mart business and service Wal-Mart the way they want to be serviced. So, if you’re a company like Hershey’s, sure you can offer the same candy at Wal-Mart that you do in other places. But, if you want to take your knowledge of the confectionary category and compete against Godiva and other premium chocolate brands, you end up acquiring something like: Scharffen Berger Chocolate.

    Big applause to Maker for deciding that they don’t want to sell their product only at Wal-Mart. My guess is that there is a much bigger strategy at play and Maker has a case to make that it can compete with premium original content. So, I’m holding my judgement until they start shipping special pack sizes to service a different market.

    What I find interesting is that this whole line of dialog makes constant comparison between YouTube to Wal-Mart. Wal-Mart is the most demanding of the big box stores. But, I can’t think of a major player in the consumer packaged goods company that doesn’t see Wal-Mart as key to retaining and/or growing their market share. If YouTube can remain a central player in the distribution of video content, it will be interesting to see what they demand from the companies that put product on their shelves and how that impacts the rest of the industry.

shomi

Plug Pulled on Canadian SVOD Service Shomi

 
Twitter

What’s Trending on the Twitter Sale

 
Machinima Logo

Machinima Teams with SiriusXM for Daily Esports Radio Show

 
Hearst

AwesomenessTV, Vice, Complex to Power New HearstLive...

 
Industry Tickets Selling Fast!
Click above to lock in your registration for VidCon 2015!
 
dirty-30-hannah-hart-mamrie-hart-grace-helbig

VIDEO: ‘Dirty 30’ Confessions with Stars Hart,...

 
facebook-thumbs-down

Facebook Says It’s Sorry It Vastly Overestimated Video...

 
craig-piligian-pilgrim-media-group

Pilgrim Media Group CEO Craig Piligian (‘The...

 
youtube-heroes-for-change

Heroes or Rats?: YouTube Unveils New Program for Creators Who...

 
Vessel says it's doing well in its first month

Why Verizon is Pursuing Vessel, the...

 
jared-feldman-and-sam-hui-ph-d-at-the-2014-canvs-launch

How Canvs Media is Harvesting Emotional Insights on YouTube,...

 
marlon-wayans

Marlon Wayans Getting ‘Naked’ for Netflix with Regina Hall

 
huffpost-ryot-aol

HuffPost RYOT Launching Virtual Reality Comedy Series and News...

 
youtube-vote-irl

YouTube Launches #voteIRL Campaign Targeting Digital-First Generation

 
tyler-oakley-camp17

How Top YouTubers (incl. Tyler Oakley & Meghan Rienks)...

 
charlie-sheen-anger-management

Charlie Sheen to Star in Crackle Feature ‘Mad Families’

 
filmbuff_videoink_300x250

Gunpowder & Sky Buys Distributor FilmBuff As Vision for...

 
toy-freaks-youtube

Toy Freaks Top Viewed YouTube Channel in August According to...

 
jeffrey-tambor-transparent-amazon

Emmy Wrap-Up 2016: Jeffrey Tambor (‘Transparent’)...

 
Twitter

Twitter Scores 2.1 Million Viewers for Thursday Night Footall Kickoff

 
youtube-sad-face-error

Vloggers Not Unique Snowflakes: 90 Million Flag YouTube Videos...

 
Mode Media

‘Billion Dollar Startup’ Mode Media Shuts Down

 
raised-firsts-branded-tv

Who Is Winning The Marketing Revolution And Why?

 
shes-gotta-have-it

Netflix Orders ‘She’s Gotta Have It’ Series...

 
swedish-dicks-peter-stormare-keanue-reeves-viaplay

What Is ‘Swedish Dicks’ and Who Is Selling It?

 
seamlessly-she-monica-potter-aol-partner-studio-gmc-acadia

How GMC is Using the AOL Series ‘Seamlessly She’...

 
Netflix_new

Liberty Global to Put Netflix on Set-Top Boxes in 30 Countries

 
vincent-cacace-vertebrae

Getting to the Spine of VR’s Monetization Challenges with...

 
meredith_brandfront_videoink_300x250

Meredith Hosted Its Own “Front” Stacked with 20 New Series

 
complex-networks-hearst-verizon

Verizon and Hearst Move RatedRed.com and Seriously.TV Under...

 
Twitter

Twitter Launches Live Streaming Apps for Amazon Fire, Apple TV...

 
YouTube Community

YouTube Fights Back Against Social Media Rivals with Community Feature

 
Casual Hulu

Vimeo Opening Television Store with Lionsgate Content, Launching...

 
A Perfect Day in LA Tastemade Jaunt VR Virtual Reality

From Donuts to Malibu, Tastemade and Jaunt Get Immersive in...

 
Defy Media

Defy Media Close $70 Million Series B Funding Round

 
YouTube Space LA Halloween Set 2016

YouTube Spaces Team with Jason Blum (‘The Purge’)...

 
Yahoo Esports

‘Yahoo Esports Live’ Serves Up Reeses Puffs with...

 
univision

Univision and Lionsgate Team for SVOD Movie Service for U.S. Hispanics

 
People Entertainment Weekly PEN

People/Entertainment Weekly Ad-Supported OTT Service Preps for Launch

 
George_Kliavkoff Jaunt VR

Jaunt VR Hires Hearst Exec George Kliavkoff as CEO

 
Making a Murderer Netflix

‘Making a Murderer’ Scores for Netflix at Creative...