Over the weekend, Twitter went a-buzz at the hand of serial angel investor and internet entrepreneur Jason Calacanis’ lastest rant against YouTube.
In a blog post titled “I ain’t gonna work on YouTube’s farm no more” Calacanis tears a hole in YouTube’s business model and how it affects publishers and content creators. Essentially, Calacanis discusses how media companies “have no chance of breaking even” because YouTube collects a 45% tax on all ad-related revenue. Combine that with pretty much no marketing support, an in-house sales operation that isn’t even entirely devoted to YouTube (which Calacanis believes is a way for YouTube to control the relationship with advertisers by distancing them from the publishers), and massive individual overhead, the potential for real business revenue on YouTube is nearly impossible. Ultimately, these reasons are why Calacanis claims he turned down YouTube’s funding renewal.
“Since YouTube doesn’t have to create any content, just aggregate it, they don’t need to worry about the individual profitability of any one brand. Things can be dying and soaring and going sideways throughout their ecosystem, but as long as they have a ton of traffic and control the relationships with advertisers, they win,” Calacanis notes.
While the post is certainly a knife to the YouTube jugular, the points Calacanis raises actually signal a tipping point for YouTube and a massive opportunity for the other platforms gaining strength like Blip (which just acquired Ray William Johnson’s production co.), Revision3 (which just acquired Phil DeFranco’s production co. + IP), Yahoo!, Hulu, and even Dailymotion (which was recently close to netting a pretty nice acquisition by Yahoo! if not for the French government).
His points also unearth a significant problem for the “MCN’s” who are building their businesses essentially on, around, in, and on top of YouTube.
“Sure, it can *feel* like you’re making money, but when you look across the landscape of YouTube businesses — and we won’t call anyone out here — it’s very, very clear they are losing millions and millions of dollars a year,” he adds, which makes the deals that Revision3 and Blip have made with top creators like Phil DeFranco and Ray William Johnson all the more important for the future models.
At a dinner series published by PandoDaily, Jason Hirschorn makes an excellent point regarding VC apprehensions about the media businesses that are reliant on YouTube. According to Hirschorn, VCs are telling the MCNs that are looking to raise money that “[they] need to have a fragmentation strategy, [they] need start thinking about maybe not how you’re moving off YouTube but how you’re not dependent on them.”
“In summary, if you are a content company trying to build a ‘YouTube business,’ you are investing in your own demise. You must stop and think, ‘How can I reduce my YouTube footprint to 1/3rd of my mix of revenue and views?’” says Calacanis. “Every time you invest $1 in YouTube, you’re building their power base and leverage over you. How can you invest that $0.66 of that dollar in an asset you control? At least then you might have a fighting chance over Goliath.”
Which is why in the last year or so, top creators like DeFranco and Ray William Johnson have started siphoning their audiences off of YouTube. Big Frame has launched multiple verticals (geeky girl brand, Wonderly, and urban-centric Forefront), starting to migrate their businesses to platforms where they control the ad revenue, the consumer, and the content creators — three categories Calacanis marks as the most important for any business to control as well as the same three categories that YouTube seems to be going after with its business strategy.
There will be a day when some of these MCNs band together and create a worthy competitor to YouTube; we’ve already heard rumors that a coalition of MCN’s is forming to fund and co-produce content.
And who knows, YouTube co-founder Chad Hurley’s new online video project, MixBit could end up being a YouTube competitor, regardless of what he said at SXSW.
YouTube needs to realize it’s no longer at the center of the online video universe. The other premium video sites — the Blips, Hulus, Yahoo!s, and AOLs — have the chance to grab a significant market share in online video if the right acquisitions happen and creators are wising up to the stranglehold YouTube has over them within the current system.
Do you think Calacanis made the right call in turning down YouTube’s $$? Any predictions on who will win the platform race? Share in the comments below!