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The power of Youtube

The stats for Youtube are impressive – 4bn hours viewed per month, growing at an annualised rate of 50% – but probably more exciting right now is the way they are re-imagining the television experience for both viewers and advertisers.

Elizabeth Murdoch, founder and CEO of ‘traditional’ TV production company Shine, now part of the News Corporation empire made the following points in her MacTaggart lecture to the Edinburgh International Television Festival earlier this year:

1. Significant new players emerge very fast in the online video world:

New forms of content and new audience relationships are being created very rapidly outside our very linear old world.  While Hulu and Netflix and Lovefilm, the iPlayer, 4OD and now finally even YouView are all welcome new and varied distribution channels for our made for television content, what’s much more fascinating is the explosive emergence of a made–for-online video category.

Here are a few things I think worth considering: the first is that like the early days of multichannel television, new networks are being built on platforms like YouTube.  Machinima, Makers Studio and Big Frame are networks that stunt schedule, cross-promote, cross-sell and commission content – and they are now commanding audiences of up to 120 million subscribers to their hundreds of channels.  These are not just channel brands like MTV and Nickleodeon, but networks like Viacom.

2. Content creators are able to make a lot of money just from Youtube:

[Youtube] is now a platform that showcases people like Ray William Johnson who makes more than $1m dollars a year from his comedy channel with over five million subscribers and it’s a platform premiering the big new series by big names like Bryan Singer.

YouTube is providing hundreds of millions of dollars in financial stimulus to its network partners, and using their 800 million unique monthly home page views to curate and promote content.

3. Youtube is enabling brands and talent to engage directly with their fans

My third observation is that brands and talent are using YouTube to create direct to consumer relationships.  Michelle Phan is the world’s most popular make-up expert with over 600 million views.  Yes – that’s equivalent to a global Olympic audience generated by a 22-year-old putting on Lady Gaga make-up.  Earlier this year she asked her fans if they wanted to subscribe for ten dollars a month to her home delivery service. Thirty six thousand of them did in the first 24 hours.  She is now turning over something like two million dollars a year and Lancome is now working with her as a distribution platform that could eclipse any single retail relationship.

4. This creates an opportunity to cut out the middle man

Digital platforms can translate audience trust into transactional relationships incredibly efficiently and without the middle men, agents, media buyers or programme makers reliant on broadcast based business models.

Youtube’s opportunity is to capture viewers from traditional TV and it’s biggest challenge is creating a relaxing lean-back experience to rival what we know and love from companies like Sky, BBC and ITV. Their channel and content acquisition strategies are their solutions to lining up content so people can just watch without the hassle of selecting a new video every 2-3 mins. If this works, or they find another UI solution that makes Youtube an effective replacement for traditional television, particularly as per Murdoch’s third point, could well provide the basis for transformation of a significant part of the television industry.

Youtube is also innovating on the advertising side of the business. Their family of TrueView video ad formats allow viewers to skip ads and only charge advertisers when an ad is watched to the end. This sounds like a much much better solution for advertisers and viewers than the current ‘full interrupt but not sure who is watching model’ (assuming the economics work out such that excessive numbers of ads aren’t required).