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The big question from last week’s earnings is how Snap, Google’s YouTube and Meta’s Instagram will catch up to TikTok. which reported 150 million monthly active users (MAUs) in the U.S. back in March. It also reported 150 million MAUs in the European Union in February. It shared back in September 2021 that it has as many as 1 billion MAUs globally, so presumably that number has gone up since.
The question they face is whether the consumer demand for short-form video has “started to cool”, as The Information’s Kaya Yurieff wrote last week. Both YouTube Shorts—which saw 70 billion daily views in Q3 2023, up from 50 billion in Q2— and Snap’s Spotlight—its entertainment platform for creator content that saw time spent watching Spotlight clips in Q3 rise 200% year-over-year —have delivered rapid growth since their launches in late 2020. Meta reported its Reels product—which launched in early 2022—has delivered a 40% increase in time spent on Instagram. Despite all this, Yurieff writes that none have “successfully unseated TikTok’s popularity and cultural relevance.”
There is another question lurking in the background that was framed rather bluntly by creator YouTube Ali Abdaal in his interview with YouTube creators Colin Rosenblum and Samir Chaudry: “I feel like there’s a lot of people these days, especially with the advent of short form content, they have millions of followers millions of views and are completely broke.” To which Samir responded, “Completely broke or not, it’s like [they have] millions of views, millions of followers but they could not fill a room if they had an event. Like nobody really cares.”
This statement raises the question that’s emerging as we head into 2024: What exactly is the business model for short-form content?
Key Takeaway
To date, the more a short form platform relies on creators, the more volatile both its supply and demand are. But the more the platform relies on its proprietary technology and operational model to be the “creator”, the less advertisers seem to want to be on it.
Total words: 1,200
Total time reading: 5 minutes
The TikTok Precedent
The takeaway from both the call and the quotes from Ali Abdaal and Samir Chaudry is that, broadly speaking, the stories about short form content these companies are telling investors are meaningless to creators. This is particularly true for TikTok. Its owner Bytedance generated $16 billion in revenue overseas in 2022 from TikTok but also smaller international businesses such as videogames and enterprise software. That was up from $6.5 billion in 2021 and $1.2 billion in 2020.
The challenge with that number is that many TikTok creators still rely on brand deals for the bulk of their earnings despite TikTok’s tests in ad-revenue sharing and a variety of different payment programs like the TikTok Creator Fund, TikTok Pulse and a contextual-advertising program called TikTok Pulse. Right now, creators only make around $0.02 and $0.04 for every 1,000 views from the TikTok Creator Fund.
YouTube Shorts is reported to be not much better. Fortune recently reported that “the pay from YouTube Shorts is much better than that of Instagram or TikTok, [but] it still doesn’t generate “enough revenue for a liveable wage.” Meta’s attempts at imitating these problems have hit a few roadblocks over the past two years. Creators initially saw healthy payouts. But, in 2022, some creators reported that payments had been shrinking and that it was becoming harder to make the same amount in bonuses. There is little public data on Snap’s payouts, though creators are reported to be happy with the economics.
YouTube Shorts: The Best, But...
YouTube is regarded by creators as the best platform for monetizing content. Colin and Samir have shared in multiple podcasts that, from their own experience, Shorts has produced millions more views than their long-form content but less revenue. In their experience, they have found Shorts more valuable for driving traffic to their e-commerce and merchandise than they have for marginal ad revenues. They have cut back on investing in the format in 2022 and bet on making their long-form content longer in 2023.
They recently asked YouTube CEO Neal Mohan about whether Shorts monetization is “a realistic future for creators to be able to monetize at the same scale as long-form monetization.” [NOTE: I wrote about this interview previously in “AI Is YouTube's Frenemy”]. Mohan’s response is that Shorts is one format that creators can monetize on the platform—alongside longer form content and podcasts—but payouts from the YouTube Partner Program have “increased every month” since Shorts launched. They told Mohan that the most viewed Colin and Samir shorts on YouTube are made by other people using the Remix Tool, allowing users to download and cut the content their own ways. For them, that scenario is not ideal if content ID cannot track their content and compensate them for the use of it.
YouTube Shorts usage has remained flat at 2 billion logged-in users per month since Q2, though engagement has continued to grow, up 40% from 50 billion in February 2023.
What Is Everyone Chasing?
Mohan told Colin and Samir we are still in the early innings of Short form content and YouTube’s attempt to catch up to TikTok’s dominance. Something Samir said in the Ali Abdaal interview suggests this is not the competitive dynamic YouTube would have us believe it is:
“When I'm watching TikTok you are watching TikTok. TikTok I'm scrolling the “For you” page so TikTok is the creator. You take the top 10 creators off of Tik Tok, TikTok is still TikTok. I believe you take the top 10 creators off of YouTube it's a very different place.”
I think this point from Colin and Samir is key to understanding the business model dynamics in short form video. The framing that TikTok has solved for the volatility of creators coming and going when they like is key. TikTok’s model relies less upon its individual creators than YouTube does. But neither seems to be supporting creators monetization from short form as well as YouTube does from long-form. YouTube told investors that it is increasingly relying on its Artificial Intelligence to help advertisers “find as many people as possible in their ideal audience for the lowest possible price.”
As for Meta’s Reels and Snap’s Spotlight offerings, those seem to suffer from the volatility of creators coming and going. They have not said so, but nor are capturing creators at scale or having an obvious impact on the marketplace. This dynamic was captured in Samir’s point about taking the top 10 creators off of YouTube, “it’s a very different place”. Meaning, the platform will still work, but the most popular content will not be the same. Whereas on TikTok, the platform is ensuring that the experience is consistent.
The ultimate question for the short form video business model is what advertisers and consumers want. The odd dynamic is that users prefer TikTok to YouTube Shorts but advertisers still prefer YouTube to TikTok, though that is slowly changing in 2024. The more a platform relies on creators, the more volatile both its supply and demand are. But the more the platform relies on its proprietary technology and operational model to be the “creator”, the less advertisers want to be on it.
These are confusing dynamics that make it difficult to imagine where this is all headed. Perhaps the clearest outcome will emerge if TikTok will be banned in the U.S. Because without its competition, there are weak business rationales for its short form competitors to exist.
Must-Read Monday AM Articles
* Having just announced a deal with TikTok to feature bespoke Disney content and further “experiences”, Disney Advertising Chief Rita Ferro told a sports leadership conference in London that short-form content apps have become “platform[s] where we tell stories.”
* Several top TikTok creators are reporting that some of their videos are “disappearing,” apparently taken down randomly without any explanation from the platform.
The demand for “premium content” is being redefined by creators, tech companies and 10 million emerging advertisers.
* Hello Sunshine co-founder Reese Witherspoon explained to an audience at its Hello Sunshine’s Shine Away conference why “Women’s stories are good business."
* Without much fanfare, Apple TV+ has accomplished something that has eluded its streaming competitors — creating a recognizable brand for its titles. Be it through visual markers or a commitment to style and thematic intention, the streamer has built a pedigree of content that’s more unified than anywhere in the streaming landscape.
* How Fire TV became a money maker for Amazon
* Netflix is considering stepping into the boxing ring with its first livestreamed match. ($ - paywalled)
* Netflix is giving subscribers of its ad-supported plan a reason to keep binge-watching its content, as the streaming giant announced it will soon roll out a new perk: the chance to enjoy an episode, free of ads after binge-watching a certain number of episodes.
* But, as Hollywood screenwriter Van Robichaux noted: "Netflix’s challenge with ads is programatic advertising pays higher rates per ad impression for users with large disposable incomes—the exact users who currently pay to avoid ads. Netflix really wants to coerce high income users to switch & wants to keep ad tier users on ad tier."
In the shift from wholesale to retail models, there are many business models that delight consumers but no single, dominant one.
* Amazon's Twitch and Alphabet's YouTube are phasing out big-money content deals with top livestreaming gamers after years of making seven- and eight-figure offers.
* This article on why "Disney Buying EA Would Be A Disaster For Everyone" is a good companion to last Thursday's "The Plumbing & The Poetry vs. Balance Sheets"
* The infiltration of video games into the hearts, minds, and reflexes of young people is a process that’s been building for decades (just like the rise of comic-book movies). Could we only now, finally, be entering the sweet spot of video-game cinema? If so, it would make the Age of Marvel look like the Italian Renaissance.
* With a scenario of competitive studios giving Disney a run for its money, the question should be how to outrun them in terms of innovation.
* In Europe, the wider narrative has been that the continent’s big commercial beasts have focused far too many resources on retaining their aging linear audiences and, as a result, had left it too late to catch up with the global streamers in their local market.
* After decades in which sports leagues garnered ever bigger piles of money for the rights to show their games, there are signs that media and technology companies are under increasing pressure to justify the exorbitant amounts they spend on broadcast rights. Interest rates are high, Wall Street is demanding profitability over growth, and streaming has reconfigured the entertainment industry.
* The NFL and sports media company Overtime—which boasts that boasts that 83% of its audience is under 35 years old—announced a partnership that will give Overtime behind-the-scenes access to make content at key events, including the Super Bowl, Pro Bowl, Combine, and Draft. It's the brand's first content deal with one of the four major US leagues.
AI-meets-the-creator-economy business models are emerging.
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