Dwindling ad sales. Shifts to subscription models. Who will survive YouTube's future?
Over the past few weeks, three major storylines have emerged surrounding content on YouTube. The first is the viral success of the "Harlem Shake," along with the resulting changes to Billboard's charts and the creative methods used to monetize that meme.
The second is the fact that content makers may have to get creative to make money on YouTube these days, as outlined by Peter Kafka in a piece called "YouTube's Show-Me-The-Money Problem." Kafka writes that while views are increasing for YouTube's biggest programming partners, "the ad revenue YouTube generates for their stuff isn’t keeping pace."
And third, YouTube is now looking to revenue streams separate from its ad-based model. This week, Fortune reported that Google was launching two subscription music services later this year to compete with the likes of Spotify and Rdio, one through YouTube and one through Google Play.
This puts guys like Brandon Martinez in an interesting position. Martinez is the CEO/Co-founder of INDmusic, the multichannel network (MCN) that helped Baauer's "Harlem Shake" along the way to the top of the charts by monetizing all those fan-made videos that just won't go away. On one hand, his company was part of what will surely be one of the biggest music hits of the year. But on the other, things are changing fast in the digital music space. And while Google is in no hurry to shutter the freewheeling democracy of the YouTube we know and love, resources are to some degree shifting from ads to subscriptions. Where does that leave the Machinimas, Fullscreens, and INDmusics of the world?
For Martinez's part, he tries not to focus on what YouTube can do for him, and instead focus on what he can do for artists. "We're coming from sort of a reverse position where musicians simply aren't using the platform to its fullest abilities as is," Martinez says. In other words, YouTube can change its algorithm or ad model or its platform altogether, and INDmusic's mission will stay the same: Help artists figure out the digital landscape any way they can.
"With indie labels often times there's one person who handles digital there, sometimes just an intern. It's hard for them to keep track and learn how to use the platform." INDmusic's expertise ranges from offering simple tips like how to properly use tags to the sophisticated methods used to monetize those "Harlem Shake" fan videos.
Banking on another Harlem Shake obviously isn't a viable business model. They call these things "phenomenons" for a reason. Yet while virality can't be predicted, it can be prepared for, Martinez says, by ensuring that artists get the most out of each video view, either through ad monetization or by sending listeners to an official band site or to another music video.
Acting as a spiritual guide for musicians is all well and good. But one place where MCNs have really added value is their ability to scale. And that depends largely on the ad model YouTube currently has in place. "We're selling across hundreds of channels, millions of views a month," Martinez says. This allows INDmusic to negotiate better ad rates than, say, a band operating solo with only its own discography to back it up. And those ad rates do vary quite a bit: According to AllThingsD, the rates range anywhere between $2.50 per 1000 views and $10 per 1000 views.
That may not sound like much money, and as Kafka's article notes, many publishers aren't satisfied with it. But compare that to the famously low royalty rates offered to artists on streaming services like Spotify and Pandora. In one of the most infamous examples, Linda Perry, who wrote the Christina Aguilera song "Beautiful," earned just $350 for over 12 million Pandora plays. And I thought journalists had it rough. Meanwhile, the substantial money in these transactions usually goes to the labels, though Spotify for its part has pushed to lower these licensing fees.
Some say that despite these frightening royalty figures, services like the ones Google is building can lead to more people listening to music, and thus more concert tickets, merch sales, etc. But if you're like Thom Yorke and Trent Reznor and you think giving away music devalues it, then the shift to Spotify-esque models is troubling indeed. In a sense, that could make the role played by networks like INDmusic all the more crucial, as artists are forced to look for more and more creative ways to monetize. But it could also squeeze out some players, as ad money, which has been the historical cash cow for MCNs, dwindles.
Martinez believes however that by keeping the artists' success and exposure his number one priority, and adapting to changing tides in digital consumption accordingly, that his company can continue to ride the wave started by the Harlem Shake. "It's about understanding the platforms you're using," he says, whether that platform is Facebook, Instagram, YouTube, or whatever music service Google comes up with next.