Failure, Sellouts and Overseas Expansion: 5 Predictions for YouTube’s Biggest Networks

On the eve of VidCon, TheWrap surveyed key executives and YouTube talent about the future of online video

YouTube celebrities and online video executives gathering at the fourth annual VidCon this weekend have money problems that didn't exist before — they have more of it. 

Maker Studios raised $36 million in December. Fullscreen raised at least $30 million in April. Phil DeFranco sold his channels to Revision3 and Discovery for an undisclosed amount in May.

And, most notably, DreamWorks Animation purchased AwesomenessTV for $33 million in a deal that should be worth $95 million before all is said and done.

Also read: How an '80s Sitcom Star Turned a Hollywood Mogul Into YouTube’s Newest Champion

Now that these companies have secured the trust (and money) of major media companies like Time Warner and Comcast, even more change is expected. The funding will help them expand, but also compels them to make a lot more money — and quickly.

Leading up to this weekend's convention in Anaheim, TheWrap spoke with prominent executives and talent across the industry about the issues they will be confronting in coming months. Here are five predictions about the future of online video based on those conversations:

1. Spectacular failure. One major YouTube network will likely fail in the next year, and everyone with a prominent channel knows it. Executives in the online video industry love debating which company will get rich — and which will walk the plank. (The more gentle term: they'll "pivot.")

"I'm hopeful that one of the major MCNs does not crash and burn, but Maker feels like it's constantly on the brink of implosion and Machinima is upside-down economically," one executive in the industry told TheWrap. "I don't want one of those big players to do irreparable harm."

Like Silicon Valley's biggest companies, these networks raised money by doing something new — online video — on a massive scale. After aggregating thousands of channels and hundreds of millions of views, they convinced investors that they were worth millions without generating substantial revenue.

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Some of those companies have a vision for how to build a business from that audience, like Google and Amazon. Other are too reliant on the stars in their network, but don't own most of that content.

"They take all these people, make them blow up and take the credit," DeFranco told TheWrap. "Some groups are doing it very smart, but I don't see it as profitable. You are always hearing rumors that so-and-so company is looking for investments. It's not a sustainable model."

2. Networks will buy their own Phil DeFranco. If you don't own 'em, buy 'em. Some of these networks will solve the problem of being ovely reliant on channels they don't own by buying those channels. That's what Revision3 did with Phil DeFranco. Though DeFranco began his career as a blogger, he built a prominent business on YouTube, operating multiple successful channels and making real money from his For Human Peoples merchandise line.

Revision3 already sold advertisements against and distributed DeFranco's channels. Instead of investing in production (very expensive) or trying to build a new star on YouTube (almost impossible), they bought DeFranco.

"The more you own your content the better," Revision3 CEO Jim Louderback told TheWrap. Yet he cautioned that other stars would struggle to replicate DeFranco.

Also read: Why YouTube Pioneer Phil DeFranco Will Inspire More Networks to Buy Up Stars

"What's somewhat unqiue about Phil is that he's not just a great creator but a great entrepreneur. I'm not sure how many other content cerators are also great at launching new talent and building businesses. I'll do whatever I can to look them up."

Translation: other networks will follow — if they can.

"Most networks can't afford it," Max Benator, who manages the Fine Brothers, prominent members of Revision3's network. "MCNs are beholden to top channels and top talent that are generating all the audience and revenue. Discovery could do the Phil deal because big companies like that are more valuable."

3. More sellouts. One way to get enough money to buy a Phil DeFranco? Sell. Almost every major network wants to, eager to reward their investors and stock their dwindling retirement plans.

Once DreamWorks Animation plopped down all that money for AwesomenessTV, the head of every other major YouTube network had one of two responses – they saw dollar signs or groaned loudly. The price that DWA CEO Jeffrey Katzenberg paid to bring in Brian Robbins and develop an audience on YouTube proved that there is money out there for a company with the right pitch.

Also read: Did DreamWorks Animation Just Inflate a YouTube Bubble?

Yet it also placed greater pressure on all of these companies to show a return. 

"At the size these companies have reached, when you have 200 employees and have raised $30- to $35 million, you're basically done," one executive said. "It's time to get acquired."

4. Overseas expansion. When Google chairman Eric Schmidt regaled advertisers in New York with tales of his globetrotting at a YouTube event in April, he was making a larger point — YouTube is a global video network. Yet making money from online video overseas is a lot harder than you'd think.

It's taken several years to convince advertisers in the United States to spend more money for videos on YouTube, Yahoo and other sites.

"The ideal format has 100 percent of views happening on desktop or laptop in the United States on a Saturday," Fullscreen CEO George Strompolos joked with TheWrap.

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No one questions the potential overseas – that's why Strompolos has opened offices in markets like Brazil and Russia. Will they make the same money as the U.S.?

"We have the benefit of being on this global platform, but it doesn't mean the market is going to mature as fast as the technology," he said.

Be patient.

5. Creators will try to quit the YouTube habit. Prominent executives and creators have publicly complained that they are not making enough money from YouTube, some going far enough to call the video site greedy.

"They are grumbing about revenue publcliy saying, 'We cant sustain what were doing with the current YouTube business relationship,'" one former executive told TheWrap. "People don't grumble about revenue publicly unless it's a real issue."

Also read: YouTube's Biggest Partners: Show Me the Money (Video)

YouTube's response? Not much, at least publicly. Privately executives note they are giving these creators a platform to speak to a global audience — funding channels, offering free production space and providing revenue these creators would never had access to.

So will creators abandon YouTube and it's audience in the billions?

"You're better off staying on YouTube and figuring out ways to drive additional revenue somewhere else rather than trying to pull stuff off of YouTube," Louderback said. "It's really hard to move audiences from service to service."

The audience on YouTube is too big to leave it behind, but creators will be looking off YouTube for new money. Even YouTube agrees with that, with one executive telling TheWrap that "there needs to be an off YouTube business."

They could go to Blip, as YouTube star Ray William Johnson did.


"We're a compliment to YouTube, not a competitor," Blip CEO Kelly Day told TheWrap. "We support premium content creators in getting the widest distribution possible."

They could build their own site, as Maker Studios is planning.

Or, they could followed the successful models of Smosh, the Young Turks and countless others – go everywhere. Build your own site, launch a subscription service, offer mobile apps and make a TV deal if you can. It will make your YouTube channel even bigger.