The Youtube Frontier: The Business of Youtube

The music video "Gangnam Style" by Korean artist Psy was the first YouTube video to hit a billion views. This video started accumulating views in July of 2012, and hit the billion-view mark in December of 2012. The video now maintains several hundred million views more than the next-most viewed video on the website.

However, it was as recently as 2008 that the title of "Most Viewed Youtube Video" could be acquired with fewer than 100 million views. Judson Laipply's "Evolution of Dance" held the title until that particular year, when Avril Lavigne's single "Girlfriend" finally topped the Youtube charts. The view count for each of them at the time hovered around 89 million views. Though her music video did eventually exceed 100 million views later that year, it took the #1 spot with a view count below this number.

2008 wasn't some prehistoric time for the internet, either. Facebook was already on the digital stage, hitting 100 million active users in that year and riding high rates of growth. It was an election year, and Barack Obama was using the internet in ways previously unseen in presidential campaigns. This was even after 2girls1cup - and the many reaction videos to it - had reached its height of infamy.

Clearly, there's been some inflation in Youtube's popularity since those days. With the next few blog posts, I'd like to walk us through an analysis of YouTube's role in entertainment culture.

2008 was also a different kind of benchmark for Youtube - it was the first year that the website was projected to have significant positive revenue. Just one year earlier from that, there were legitimate concerns present in the video-hosting website's sustainability.

"YouTube, which makes the bulk of its revenue from selling display ads that run on the right-hand side of the site's homepage, has not been a moneymaker for Google. The company states YouTube's revenues last year were "not material" in a regulatory filing. The search giant paid $1.6 billion for the company in October 2006. "I'd be surprised if they broke $20 million in revenue in '07," said Anton Denissov, an online video analyst with the Yankee Group." - CNNMoney

Back in those days, YouTube was a giant playground for amateur video-makers, promising to be a new platform for the everyman. From the perspective of an internet user, it was one of many emerging websites that gathered its appeal from the collective knowledge and creative input of the population. It was comparable to wikipedia and other such "Web 2.0" sites - any individual had the power to contribute something that people could choose to watch.

Viral videos from this era include the "Don't Tase Me Bro" video, which made its rounds on YouTube and other hosting websites. It is an excellent example of how accessible video-hosting has contributed to a collective increase in social awareness. The OK Go music video for "Here it Goes Again" generated all of its initial popularity through digital word-of-mouth, with the attention skyrocketing the musicians' careers forward.

The open frontier of YouTube presented some serious sustainability problems. The website used monstrous amounts of bandwidth, leading people to question how long such a video service could last. The accessibility of the Youtube platform also meant that people could upload copyrighted music, TV episodes, and movies. This invited lawsuits from companies who had not yet figured out how to make money off the internet.

Youtube eventually doubled down on its problems, instituting tougher moderation of videos and striking deals with more established media generators. But, the real breadwinner for the website was ad revenue.

Companies are as eager as ever to promote their products to consumers, and the internet's proliferation into modern life has sprouted many new ways for ads to generate money. The most relevant ad revenue for youtube comes from the cost-per-impression model, which pays the ad host a monetary amount per X number of ad views. Youtube itself rakes in about $25 per 1000 hits on its website.

YouTube relies on its content for getting hits. It relies on hits for ad money, which goes back into maintaining its content. So, what does Youtube do? It starts paying content creators a tiny fraction of its ad revenue, which encourages the generation of even more content, and therefore more hits and more ad money.

This is the heart of the Youtube partner system. A video-maker can opt to host ads on their videos, provided that the content of their videos do not violate copyright. The number of views that a video receives is about equal to the number of hits that an ad would receive. This becomes the measure of how much compensation the video-maker gets.

Youtube partners receive somewhere between fractions of pennies to approximately $2.50 per thousand views. Even on the lower end of estimations, the money can add up very quickly.

Once again, let's talk about 2008, where Avril Lavigne's "Girlfriend" challenged - and overcame - Judson Laipply's "Evolution of Dance" for the title of the most viewed video on YouTube. The original "Girlfriend" video from that era is now gone, having been re-uploaded under the more profitable VEVO moniker. However, the original upload of the video had been uploaded by affiliates with Avril Lavigne herself, which is why the music video hadn't been taken down during its moment in the limelight.

This struggle for views was representative of a new time for YouTube. Laipply, gaining his fame for a one-off video that went viral on its own charm, versus Lavigne, who had an established career and fanbase that helped push the video forward. Lavigne's video served to promote her work as much as it served to entertain the casual internet surfer. With Youtube's ad revenue models beginning to emerge in this time period, Avril Lavigne saw approximately 2 million dollars in gains as a result of her video.

Though it wasn't immediately obvious to the lay viewer in 2008, Avril Lavigne's video brought in a new way to think about online promotion, and made it clear that an artist could get significant attention on YouTube. It helped pave the way towards a YouTube economy. Nowadays, music videos top the YouTube charts for view count, and can make money while doing it. No longer are there conflicts of interest between YouTube and old world media - at least, none so severe that one must do away with the other.

It is important to note that, despite these developments, it still felt like YouTube was a decentralized, chaotic hub of individual video contributions. YouTube was still a frontier; to the casual YouTube user, it was still unclear if there was anything to be gained from YouTube, other than exposure to novelty and information.

Unbeknownst to most of us was that YouTube had laid the groundwork for a new paradigm of commercial entertainment.

In part 2 of this series, we'll talk about the culture that's emerged within YouTube as a result of its business model, and the new entertainment industry! Check it out now!