The recent YouTube demonitization kefuffle and why its business model is doomed

The controversy explained.

“Demonetization” means that YT took away the ability of certain videos to run ads because they were deemed unfriendly to advertising. This action (as I will call it) affected a huge range of channels, including a large percentage of YT stars: they found that a number of their videos could no longer run ads; ergo, they could no longer make money off those videos. There is an appeal process, but it requires the channel manager to go video by video, requesting an appeal for each. The criteria for deeming a video non-advertising-friendly are broad in the extreme, ranging from using curse words to talking about controversial topics.

This was a big deal and a big mess. I’d first like to challenges some of the assumptions, explicit or implicit, that I tended to see in the discussions (mainly in the form of YT videos about the issue–there are many). Then I’d like to talk about why YT’s business model is doomed (the site itself is part of Google, of course, and they aren’t going to take it down anytime soon, but the YT we know and love will probably not last much longer).

False assumptions:

  1. YT is competently run. People have tended to talk as though, while YT’s intentions with the action were unclear, it was acting rationally in its own interest as a business. People did correctly complain that the action was not a good idea and provided reasons, but few accused YT of simple stupidity or incompetence beyond noting the obvious fact that communication about the action was highly inadequate. Close to nonexistent. This is part of a larger tendency to revere large companies and assume they are competent.

Actually, companies do dumbfuck shit all the time. There are big failures within even the biggest companies eventually, including Google, Apple, Microsoft, you name it. The action seems to my eye careless and incompetent on multiple levels. For example, I have no reason to believe that market research was performed to ensure that advertisers in the aggregate even wanted the action. I have no reason to believe that the action will positively affect YT’s bottom line (not loading ads on popular content means less money from advertising, right?). And so on.

  1. Online advertising (as it currently exists) is a good/necessary/respectable thing. In their video about the action (not really worth seeing, so I won’t link), the Young Turks annoyed me by basically kissing YT’s anus and saying they understood why YT was doing this, they need to make money, blah blah (again, assuming competence). YT’s ad system is an abortion, just as are ad systems on the vast majority of websites. Their rate of annoying users is close to 100%, and their rate of not making the websites enough money to be profitable is not far from that figure as well (I will discuss YTs profitability in a second).

No one has ever liked online advertising. Anyone who fails to use an ad blocker out of ignorance is, well, ignorant, and anyone who doesn’t use one out of pity for the “content providers” is being an idiot: Forbes asked readers to turn off ad blockers then immediately served them pop-under malware. I never see ads on Facebook or YT. I have no idea why anyone else does. Oh, and by the way, I work in the advertising industry. And I still hate that shit and won’t tolerate it.

Intrusive advertising is accident of history based on where society was at in the 30s-50s (i.e., naive about media and technology and so hungry for anything new and exciting that radio and TV ads themselves seemed interesting and were thus tolerated). Companies still want to believe that people accept the deal of being peppered with ads so long as good content is being provided. That was never a deal that people ought to have accepted, and as a revenue model it is a dead man walking. Even commercial TV is in danger of collapse at this point. (Advertising rates are the same as they were in the 90s adjusted for inflation, but the most popular scripted show now would not make 1994’s top 50. That is, TV advertising delivers only a fraction of the eyeballs per dollar it did 20 years ago, but this harsh reality is tolerated because it is virtually the only advertising medium that still works.)

  1. Hi, Opal!

Now let’s talk about why YT’s business model is going to fail. First things first: YT doesn’t make Google money. That’s from 2015, but I haven’t heard anything different in the interim.

Even if YT were breaking even or slightly in the black now, that’s not good enough. Why? Because it is a massively expensive business to run. It had $4 billion in revenue in 2014–but also about that much in expenses. Compare two businesses you could run: 1. You take in $50,000 but have $49,000 in expenses. 2. You take $500,000 but have $499,000 in expenses. Both are shit but #1 is far less scary to run: if things start to go south, you might be out $5k, $10k but could recover. In the second case, if things go south, you might be out $50k, $100k and might not recover. “But what about the upside?” you say. “#2 has a lot more throughput; you could build on that.” Maybe. But in the case of YT we’re talking about a business that is now 11 years old… and still not making money.

And we’re not even getting into bean counter shit like return on assets. YT has a shitton of assets behind it: it takes a lot of servers to house the world’s cat videos.

To me the demonetization action was YT tipping its hand. Showing its weakness. It was saying, “We have to adjust this business model because, yeah, we’re not making money, but we gotta make money somehow. So we gotta do something.”

So it would be hard to argue back that YT is doing well, but that doesn’t mean it’s business model is doomed, does it? It means something close to that. Google is supposed to be super-smart. All them smart kids went to work there. Videos are popular. Any reason not be profitable after 11 years? Any in particular?

But I would add that there are several trends that are not in YT’s favor that will take them from breaking even (at best right now) to “oh fuck”:

  1. Very few YT stars make serious money. The demonetization action was just so dumb… “Hey let’s disincentivize our content creators even more!” Further, I have heard that the golden age is over and now it’s extremely hard to get a successful channel up and running. Without the incentive to create content, it won’t be created.

As a case in point, take the channel Break, to which I subscribe. Currently 2.9 million subscribers, but I have seen this mofo collapse (in terms of content offered) in real time. Until about a year ago, they were putting up a lot of high-budget prank videos. They had a very popular dude named Kevin in these videos. He disappeared (reason unknown), and they tried some other people. Content has sputtered to a virtual halt with an occasional prank video and some old school fail videos. Quite the sad state of affairs, and who knows what’s really going on. If a channel that popular and that loaded with subscribers can no longer produce content, what does that say about the future of YT?

  1. We’re at Peak Content anyway. This is true of the Web as a whole, but I am seeing redundancy of content and content fatigue in general. Concretely speaking with respect to YT, prank videos, until recently a highly popular form of video, seem to have collapsed. They have justifiably been called out as fake and antisocial. In addition to Break, the mostly prank channel Whatever (3.3 million subscribers–wow, that is above Break now–the latter must have lost a LOT) has basically quit releasing new content.

Don’t get me wrong, there will always be new content and new types of content. My daughter and I were laughing like crazy at Chadtronic today (hilarious reaction videos). There is always something to watch. But that doesn’t change the fact that a lot of the low-hanging content fruit has been plucked, and there is a lot of supply for any money-making content type. If supply outstrips demand, then people can’t get off the ground with their channels. The total amount of content keeps rising, but stars are NOT born, which deincentivizes (yes, I said dis- a moment ago) long-term content creation. And content fatigue reduces overall views (anecdotal data point: I read a far lower percentage of Cracked.com articles than I used to: they just tend to be about shit I’ve already read or about topics I’ve gotten tired of reading about. I also don’t watch many challenge videos any more: there are only so many times seeing someone eat a ghost pepper or Surströmming is funny).

  1. Competition. It seems that everything used to be YT content, direct or embedded. Not so any more. You have Vimeo, and a lot of sites are now just hosting their own content and trying to make money off that, such as Comedy Central. Screen Junkies maintains a YT presence but opened up their own subscription-based website (which I have some doubts will succeed in the long run, but that’s essentially the way to go). In a lot of ways, using YT to host your content is stupid. You give up a lot of control in return for inclusion in what is, at the end of the day, a glorified search engine and set of bookmarks.

This trend has the potential to be the death of a thousand cuts for YT. The more people get used to going to individual sites (such as Comedy Central and Screen Junkies), the more they… go to those sites. The YT habit gets broken, and more content creators are encouraged to strike out on their own. With the demonetization action, I have no doubt that several YT stars will jump ship.

  1. Have you even heard about YouTube Red? Even if you have, does it seem like a thing?

I could also entitle this point, There’s no upside. YT doesn’t have any new or exciting ideas, and its subscription service YouTube Red (which people aptly pointed out sounds like a porn tube) seems about as lively as a stillborn goat. The cool thing about YouTube Red is that you don’t have to watch ads! Oh wait, I use adblocker anyway. Oh but there is exclusive content! From which they are (have? still do? don’t know) removing the view counter so people can’t tell how bad it is all tanking.

  1. It only gets more and more expensive to run as is. What was the stat I read? People upload 400 hours of content to YT every minute, I think it was. In any case, it’s an absurdly high figure. Do you think YT is going to want to host blurry cat videos from 2006 forever? Endless copies of pop songs (especially now that streaming is a reality)? All the useless content that people throw up that no one watches? Hell no. It’s not physically possible or fiscally prudent. Something has to give.

That’s about it. I don’t see any positive trends with YT. The aforementioned action seems like panic paddling to me. Thoughts?

If Youtube is in a panic, why would they voluntarily reduce their ad revenue?

That’s a question many are asking.

I’m a bit confused. The OP seems to be arguing that A) online ads are always bad and run off viewers; and B) without online ads content creators can’t make money. There are only 2 sides to that coin, pick heads or tails.

Also, it leaves out a critical piece of information - do advertisers get to pick the specific videos that will display their ads? It seems to me that, in order to protect the advertiser’s interest and keep that money rolling in, YouTube either has to let them pick their ad placements or do what they did - make a blanket advertising policy. Many, if not most, companies are VERY particular about content that they do and do not want to be associated with. The “pick your own” option would likely not appeal to advertisers due to the sheer volume of videos (perhaps choosing channels would work, but even that would be a huge task and still carry risk for the advertiser) and to YouTube who would have to keep up with all the data.

ETA: Doctor Jackson beat me to it. Must. Type. Faster.
I don’t follow the industry closely, so this response may be off-base. But since we’re in IMHO …

Big businesses have other imperatives that aren’t obvious on the surface. One of the biggest is political acceptability to both the government and the sponsors that matter: the Fortune 500.

As a parallel example: … The only reason the NFL gives the slightest hoot about player behavior off the field is that Budweiser, Coca Cola, and Ford care deeply about appearing by their ads to promote spouse- and drug- abuse. If Coke didn’t care, the NFL sure as heck wouldn’t.

YT is acting to prevent a backlash by the sponsors and by the government over their more … aah … challenging content. And all this backlash is happening very much under the covers. Whether the backlash is even real yet or is just a product of YT’s suits’ lawyers’ overactive paranoia is mostly unknowable to us proles.
Bottom line: When you see a business acting contrary to its apparent best interests, look deeper. They *may *be flat crazy. But far more likely they’re reacting, albeit clumsily, to a larger but less obvious force.

Nobody wants their ad in front of the 100 layers of cum challenge (recently demonetized and renamed “100 layers of lube” to try to get monetization back)

If you’re tightening up requirements for monetization you’re probably making your advertising space more valuable.

Can someone explain a bit how the process works?

I have a video to post, and think it could make money. Do I ask YT to find a sponsor for it? Do I go liking for a sponsor on my own? Does Youtube just arbitrarily assign an ad to a new video? Basically, how is the video paired with one or more ads?

If advertisers (or Youtube or the people who post on Youtube) are planning to make money off of me and plenty of people like me who watch Youtube they where doomed to fail from the start. Since I (and millions of people just like me) use Adblock Plus.

It’s pretty much arbitrary.

When you upload a video to YouTube, there’s a checkbox you can mark that says “Monetize.” Assuming you meet the prereqs (the aforementioned criteria, plus having a certain account YouTube can put money in), YouTube will place an ad before the video plays for a user.

That ad varies depending on a lot of things - time of day, where YouTube thinks you are (you get quite the range if you use an IP spoofer), what Google thinks will interest you (I get more ads for video games than my GF in the same house), viewing history, type of video you’re watching, etc.

So a blanket policy makes sense, because this isn’t handled like TV - no one content creator goes “shopping” for an advertiser.

So in your first paragraph “you” means the uploader but in your second paragraph “you” means the viewer? Is that what you :slight_smile: meant?

You upload the video, and enable monetization on it (it’s a switch in the preferences somewhere). They assign ads to the video, presumably using some super secret special sauce algorithm including what they know of the video’s content (tags, description, caption text) and (probably primarily) what they know about the individual viewer seeing the ad. Remember Google’s whole business is advertising, and they are tracking you all over the web. They know what you’ve searched for, and what you’ve looked at, and have a profile on you as to what you’re interested in, how old you probably are, male/female, and so on and so on. They use that information to decide what ads to show you. I suspect the ads they show to YouTube users aren’t any dumber than the ads they show elsewhere on the web, so they’re probably selected more for each user, rather than selected for the particular video. It may be a combination of both, though. But mostly what I watch on YouTube is videos for my kid (animated alphabet train kind of stuff), and the ads are decidedly targeted towards my profile, I think.

And with regard to ad-blockers…sure, lots of people use them. Lots don’t. But that ignores the reality that more and more people aren’t watching videos on their desktops in their browsers. They’re watching (or even just listening) via tablets and phones and other devices. Most of my YouTube viewing (see above) is via a Roku. There’s Chromecast and AppleTV, all kinds of ways to get this content other than through a desktop browser that supports adblock plugins. The number of people who go to the trouble of maintaining a block list at the router level is vanishingly small. Make no mistake, there are still lots of people seeing ads on YouTube, and probably always will be. No way the YouTube app, or Roku or AppleTV or your “Smart” web-connected TV or DVD player and so on and so forth will ever allow for ad blockers.

Re big youtube star Casey Neistat. Hip, entertaining and hugely popular and youtube treats him like a superstar and flies him all over to conferences etc but he does not allow ads to run before or after his content. What is his value proposition for youtube if they are not making any ad money off of him?

Not sure, but you might be familiar with the “YouTube rabbit hole” phenomenon? Maybe somebody with a ton of videos, with 15-20 million views each, represents enough of a draw that some (a lot?) of those views will turn into monetized views by sticking around for another video or clicking “related” videos, many of which may be monetized. Just a WAG.

Eyeballs. The next video that autoplays after the one of his you just watched, and the ones in the sidebar you might click on next will play ads.

But isn’t that method a good reason why the blanket policy doesn’t make sense?

For traditional TV/broadcasting, the advertisement is tied to the show–everybody sees the same Super Bowl ads.

For YouTube/online, the advertisement is tied to the consumer. I’ll see ads for refrigerators because I searched a few sites for kitchen appliances, not because the person who’s video I’m watching has any connection to a refrigerator company.

So if the advertisements are tied to the consumer, then tying the monetization to the content is kind of silly. If the content of the video is unacceptable to your platform, then ban the content.

What’s really going on is this:

If the content is unacceptable to your major sponsors, refuse to play any ads on such content. The content creators will (eventually) go away and you’ll have successfully banned offensive content without all the “Teh Evilll Censorship!!1!” hullabaloo.

It’s simply corporate censorship by stealth.

There are many, many YouTube users who are not interested in monetizing their videos and will continue to upload content that may be objectionable under YouTube’s monetization guidelines. There are also many, many YouTube users who arrange their own sponsorship deals with advertisers and create integral ads within their videos that are completely independent of the YouTube platform.

YouTube also already has content policies in place that ban content altogether (no porn, explicit nudity, real violence (exception for newsworthiness), and so on.) Those categories have not been expanded under the new monetization policy.

Does anyone like online ads? No. They are reviled. Plus, they rarely are the foundation for a profitable online business. Lose-lose.

Nevertheless, YT does take in $4 billion (2014) in revenue, so those ads bring in money. They have shared that money with their content creators. So yeah, the content creators making money off YT need that ad revenue.

I don’t see the contradiction. I’m happy that people have been able to make money putting content up on YT, but that doesn’t make online ads a good business model and doesn’t make YT profitable.

Yeah, not sure why they can’t communicate that. “We’ve had increasing issues with sponsors complaining about the appropriateness of the content, and so…”

I have little doubt that someone at YT thought this was in the company’s best interest; but that doesn’t mean that this big, clunky step was taken based on competently gathered data, etc. But I see people more or less assuming that “YouTube knows what it’s doing.”

My feeling is that there shouldn’t be two tiers of content: advertiser-friendly and not. If something is within the community guidelines, then it should be appropriate for advertisers.

There is a ton of content on YT that shouldn’t be there at all: vicious prank videos, reaction videos that are little more than content theft, hate speech, and all manner of IP-ripoffs (a gray area–I’m glad that so much old TV and stuff is on there).

When the non-advertiser-friendly rules include “videos on controversial subjects,” well, that can cover virtually anything.

YT is appreciated largely because people put stuff up that isn’t templated and insipid. It can be edgy and crazy. You make that all safe for advertisers, and you remove the heart of the site.