JCal's 2014 predictions: Intense competition for YouTube and a shake up in online video economics

By Michael Carney , written on December 27, 2013

From The News Desk

2013 was a seminal year for YouTube, which set records for audience consumption, surpassing 1 billion monthly unique visitors and 6 billion hours of monthly video consumption. Two years into its multi-hundred million-dollar content grant program, many of YouTube’s funded channels have matured from casual experiment to well oiled machine status, regularly churning out professional-grade content and catching the attention of Hollywood, Madison Avenue, and “Main St. USA.” The multi-channel network (MCN) ecosystem also saw its first marquee acquisition with Dreamworks picking up AwesomenessTV for up to $117 million in upfront cash and long-term incentives.

But 2013 wasn’t all roses. For the first time in its history, the spotlight was aimed (quite publicly) at the economics of the YouTube creator community and its often contentious relationship with the Google-owned platform. Leading the way was Mahalo (soon to become and Launch Festival founder Jason Calacanis.

Calacanis started on June 2 by penning the blog post titled, “I ain't gonna work on YouTube's farm no more.” He followed up with a second post a week later, "A YouTube Creators' Bill of Rights (Or 'A Roadmap for Building a Better YouTube'),” and gave successive keynote talks on the same topic at the Vidcon and STREAM conferences. Calacanis main critiques were the inequitable revenue split, the absence dedicated video ad-sales support, and the lack of input from the creator community in YouTube's policies. He didn’t saying anything that hadn’t been said countless times before in private, but by poking YouTube in the eye publicly he dramatically turned up the heat on the company.

I caught up with Calacanis this week to discuss the state of YouTube and his predictions for the year ahead. In typical “JCal” fashion, he didn’t hold back, predicting major sea changes in the online video ecosystem.

“YouTube competitors are going to arrive in force this year, and they are going to be extremely aggressive,” Calacanis predicts. The leading candidates, he adds, are Amazon, Twitter, and Yahoo, with Microsoft and Facebook as dark horses in his mind. “I may or may not have inside information about any of this, and I may or may not have signed NDAs,” he says. “Let’s just call this my informed opinion.” It’s not just new entrants that will play a big role in how this story unfolds, but also the next steps by Hulu and Netflix which surely are considering moving downstream into the UGC (user generated content) space.

Running a YouTube-scale online video network is no small feat, even for other Silicon Valley giants. Successful video demand three things, according to Calacanis: audience, infrastructure (bandwidth, fiber, storage), and advertising. Amazon may be the best positioned, he says, given the extent of their current physical infrastructure and the company’s massive global customer base.

With nearly 42 percent of the world’s 2.4 billion Internet users visiting YouTube each month in search of video content, it’s hard to see the platform being overtaken by an upstart competitor, no matter how well-funded or popular its backer may be. But the goal won’t be to replace YouTube as the home of UGC video, Calacanis says. Rather it will be to challenge its position as the home of the elite creative community and as a legitimate challenger to traditional television.

“You watch, the top 200 to 300 creators on YouTube are going to be part of a bidding war for their services,” Calacanis says. “Competitors will offer deals that are phenomenally better than the YouTube split, and many of these creators will leave to test new platforms, or reduce their YouTube presence to a fraction of their current level. This won’t affect YouTube’s revenue, but it will causes problem with optics among advertisers and die-hard fans.”

Calacanis predicts that these new deals signed by the top creators will be more akin to traditional Hollywood deals than anything YouTube has offered to date. He expects to see monthly minimum revenue guarantees and/or guaranteed minimum CPMs (advertising rates) that will be an order of magnitude bigger than YouTube’s current deals. Calacanis and others in the ecosystem continue to predict that the top creators will soon view YouTube as merely a marketing platform, aka “the top of the funnel,” for whatever other owned-and-operated or third-party platform affords them the best monetization opportunity.

“YouTube will remain the best place for emerging audience to start their careers,” Calacanis says. “YouTube will be the top of the video entertainment funnel. Cable TV will be the bottom. But there’s a huge opportunity for someone [like Yahoo, et al] to create the middle tier.”

Even if this unfolds as predicted, it will likely take some time for the top tier of talent to migrate off YouTube. That’s why Calacanis predicts that we won’t see a move away from the standard 55 percent / 45 percent in 2014. “I think YouTube will eventually move to a 70/30 deal, but not until 2015,” he says. Even then, this may not be as generous as the deals top creators can find elsewhere. But few places will be able to match YouTube’s audience size.

If Calacanis’ predictions prove correct, 2014 could be a big year for M&A in the online video and even premium television content. “Silicon Valley isn’t looking at content as a dirty word anymore,” he says. “Bezos acquiring the Washington Post and [Pierre] Omidyar’s [First Look Media] venture signal a shift.” Looking into his crystal ball, Calacanis predicts that Maker studios will be acquired by a company like Yahoo or Microsoft in 2014 and that publications like Business Insider, Buzzfeed, and Vox Media will be the target of traditional technology company desires. Most provocatively, he suggests that Google could realistically pull off a moon shot like licensing NFL content for online distribution or acquiring Netflix.

Online video is a $300 billion category that is doubling in size annually, Calacanis says. YouTube is still the 8 million pound gorilla. “It’s quite conceivable that in 10 years YouTube and Google Search will have the same revenue,” he says. But YouTube’s position at the top is anything but a foregone conclusion

For the Google-owned platform to remain the destination of choice for the top 0.1 percent of creative talent – the ones who deliver disproportionate levels of audience engagement – the company will need to navigate the next 12 to 24 months deftly. Calacanis and others have already demonstrated that they’re willing to call YouTube out when they perceive the company to be operating unfairly.

Online video may one day replace television as the dominant platform in video entertainment. But for YouTube and others, the road from here to the promised land is littered with landmines. Expect 2014 to be a year filled with pyrotechnics.