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YouTube's strategic sharing

January 27, 2007

The BBC reports that YouTube founder Chad Hurley is confirming that the Google-owned company will begin sharing advertising revenues with the people who upload videos to its site: "The system would be rolled out in a couple of months, [Hurley] said, and use a mixture of adverts, including short clips shown ahead of the actual film." Hurley says the plan is intended to "reward creativity." That's true, I'm sure, but it's not the real story. There are deeper strategic reasons for the move. Here are the four most salient ones, so far as I can see:

1. First, and most important, it provides a way to greatly expand the advertising on the site without instigating a community rebellion. To justify the huge amount of money Google paid for the site, YouTube needs to begin incorporating ads into videos on a large scale. By sharing a fraction of the resulting revenues with its members, it makes the expansion of advertising feel like a gregarious move, aimed at benefiting "the community" rather than exploiting it.

2. Second, it's a defensive move that will help prevent the shift of popular videos, and their producers, to competing sites that offer revenue-sharing programs. As Liz Gannes points out, "Revenue sharing is something an increasing number of YouTube competitors, such as Revver, Metacafe, and Break.com, have used to differentiate themselves from the front-runner." If it turns out that revenue-sharing is their only meaningful differentiation, they're going to be in big trouble once YouTube initiates the practice. Their only recourse will be to offer contributors a bigger slice of the ad take, and a payment war against Google is a losing strategy. They'll get killed.

3. Third, it spurs competition among contributors to create videos that get viewed a lot and hence generate more ad revenues and larger payments. Reward "creativity" (ie, the production of videos that attract a lot of viewers) with cash, and you get more of it. Social production's fine, but when $1.65 billion is involved, crasser incentives are sometimes necessary.

4. Fourth, and most speculatively, it prepares the way for YouTube to exact greater commercial control over users' videos. Here's the current language in YouTube's official terms of use: "You retain all of your ownership rights in your User Submissions. However, by submitting the User Submissions to YouTube, you hereby grant YouTube a worldwide, non-exclusive, royalty-free, sublicenseable and transferable license to use, reproduce, distribute, prepare derivative works of, display, and perform the User Submissions in connection with the YouTube Website ..." The bold type, added by me, highlights the key points. Currently, you don't receive any royalties from YouTube but you also don't have to give the site exclusive rights to your video. You can post the same video on other sites. What will be interesting to see is whether, as a prerequisite for participating in revenue-sharing - for getting some royalties -YouTube will require that a member give it an exclusive license, precluding the posting of the video elsewhere. If we assume, as I think we can, that a relatively small number of videos and video producers will receive a disproportionate percentage of views and generate a disproportionate amount of ad revenues, then "locking up" that content and those producers will become increasingly important in the years ahead. Controlling the "stars" will be as critical to YouTube as it is to any media business. I would bet that, perhaps not immediately but at some point in the not-too-distant future, YouTube will demand an exclusive license in return for payment.

This is a smart strategic move on YouTube's part. It's an even smarter move on Google's part. As for the users: Don't quit your day jobs, guys. The money's in aggregation.


You missed one, although it is related to your #2 point.

5. It's a move to neutralize sites that rely on YouTube content. These sites are often popular "best of YouTube" sites that locate and present narrow categories of content, but don't upload any original content of their own to YouTube. Google obviously thinks these sites are leeching.

Posted by: Charles [TypeKey Profile Page] at January 27, 2007 06:15 PM

By this logic Google.com website has to pay every site that in indexes.. why not?

Posted by: web20guy [TypeKey Profile Page] at January 27, 2007 10:10 PM

Great analysis as usual, Nick. Good comment from Charles too, although this won't neutralise those sites which link directly to youtube videos as such. One better, it actually embraces those sites as additional distribution "channels". Adverts shown in front of videos linked to directly will presumably be seen by a greater audience, benefitting both Google and the uploaders.

Posted by: DaveW [TypeKey Profile Page] at January 28, 2007 09:00 AM

Reward "creativity" ... with cash, and you get more of it. Social production's fine, but when $1.65 billion is involved, crasser incentives are sometimes necessary.

Yes, and I wonder to what extent this move might help shore up the pro-IP argument out on the wild, woolly web. If even just subconsciously.

When the Digg masses see a raw demonstration of the process in action -- people, just like them, being rewarded for the value of their creations -- perhaps they will be forced to reevaluate their stance on file-sharing etc. Or to at least restructure their arguments: One bogeyman (the Rich Evil Entertainment Cartels) will have been rendered moot, and other standard assertions ("piracy doesn't hurt anybody") will have been made trickier.

Something has got to change the dismissive attitude among younger Internet users regarding IP and copyright. Maybe this is a start.

Posted by: Semolina Pilchard [TypeKey Profile Page] at January 28, 2007 11:46 AM

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