Analysis: YouTube’s Originals, Seven Months After the Newfronts

Optimism, growing pains, public contract disputes: it must be the tech sector

Earlier this year, YouTube had its very first upfront event—dubbed a "brandcast" by the Google-run video portal—during which it laid out just what it was getting for its $100 million investment in funding for 100 "channels" of content consisting entirely of professionally-produced material.

The producers in question ranged from old hands at the YouTube model—Maker Studios, for example—and relative newcomers anxious to expand their presence in the digital space, like Electus, which had loads of digital properties and several television shows, but no YouTube native channels (CollegeHumor.com has a popular YouTube channel, but also its own popular Web destination).

Slowly, the results are coming in.

Adweek has learned from sources in the online video world that YouTube will be committing to between 30 and 40 of the channels for a second round of funding; the rest will be left to fend for themselves, though YouTube balks at the term "cancelled," since the channels will still be able to produce with their own resources and the YouTube-funded videos will remain live. Most of the channels are still under consideration, but at least two have come back with definitive answers: Deca's woman-focused channel, Kin Community, is out, and Electus's NuevOn (produced with Latin World Entertainment), which targets young Hispanics, is in.

Interestingly, at the executive level, even folks who aren't on the list for that second round of money are pleased with the experience overall.

"YouTube sales gets lots of calls from advertisers looking for women's programs," said Michael Wayne, CEO of Deca, which produces Kin Community. "We did a big, six-figure deal with them with Quaker, and we acted as a studio for the content and we brought our [people] to create video, so we've been on their radar for years, and we continue to work with the sales team. And they want that women's audience on the platform, and we couldn't be happier to build it, whether they fund it or not." The initial investment, said Wayne, gave Deca the ability to build the infrastructure for Kin, and because its audience isn't naturally endemic to YouTube yet, it took a while to grow—but it is growing.

There's been plenty of criticism of YouTube's flashy entrance into the premium ad market (not least from Time Warner CEO Jeff Bewkes, who called the $100 million programming investment "cute" at a recent panel discussion), but criticism of the company for failing to command TV-level CPMs may be missing the point. According to people who participated in the program, the sea change has been in the way native online video providers regard high-level production.

"YouTube had an offsite about two weeks ago and they were opening up their new studio in Playa Vista, and the energy of a technology company embracing entertainment the way they have is just like, 'Finally,'" said one entertainment vet who launched a channel with YouTube this year. Historically, said the producer, the problem has been that entertainment types who make the content and tech execs, who have the money, aren't able to agree on what defines quality. "In the past [at another tech company] it's been the engineers and the creatives not seeing eye-to-eye, and at the end of the day, the engineers go, 'Why do we need to go this way? UGC is the way of the future, not premium, quality content.'"

And while that's been good for producers, YouTube has benefited from increased viewership among people who weren't necessarily spending all day on the site. Sometimes that was for unexpected reasons—NuevOn scored huge views in the wake of the sudden and unexpected death of Hector "Macho" Camacho, whose Es… Macho Time! series on NuevOn was the boxer's final professional endeavor before his untimely death at age 50. It may sound a little ghoulish (not to mention sad), but the attention has allowed NuevOn to grow, and to bring a new audience to YouTube.

"We've been able to determine who the audience is for our channels," enthused Electus' COO and head of digital, Drew Buckley. "You'll specifically and directly see if it's something they like or don't like, because they have coments and buttons that say 'Like' and 'Don't Like.'" And that's helped Electus locate an underserved demographic. "We've tied into a growing youth U.S. female Hispanic market," Buckley said. "It's young women who love […] NuevOn. People think YouTube is young male, and we've been able to find and grow this niche of young women from 12 to 34."

Of course, where there is money, there have been major disputes, as well. Even as hugely popular YouTube producer Maker Studios navigated the production of its own three original channels, the company (particularly its CEO, Danny Zappin) came under scrutiny for its relationship with one of YouTube's star attractions, Ray William Johnson.

Johnson's =3 show has made him the single most-subscribed creator on YouTube; he's also been a part of Maker Studios for years. According to a very public post by Johnson, Maker Studios shut down production on =3 when he refused to sign over half of the IP rights to the show (Johnson has some pretty good material backing up his claim, too, including screenshots of emails demanding what he says the company asked for).

When he refused several times to let IP rights enter the renegotiation, Johnson said Maker ended production, forcing him to produce the show himself from his own apartment. When he joined Maker, however, Johnson signed over his AdSense account (through which all of his ad proceeds are paid) to the company and let them handle the revenue split; despite producing the show on his own, Maker continues to retain the AdSense account. In other words, Maker already controls Johnson's ad business (according to Johnson), and wanted a fifty-fifty split of his entire show.

Maker's only public contribution to the legal discussion has been to say that Johnson is still under contract, and that they continue to pay him under the terms of that contract (presumably whether or not they're contributing to producing the show).

And then there's the added, gossipy angle: Johnson included in his lengthy post on the controversy a story about drinking with Zappin and hearing the Maker CEO admit to a felony conviction; Zappin, in a subsequent email obliquely addressing the troubles with Johnson, told his company and the press that "about 12 years ago, I made a mistake for which I was convicted of a felony drug possession." The only other official line on the feud is a video by another Maker comedian, reported by a cat, presumably because it is catty.

All of this comes at an awkward time for Maker—whether Bewkes thinks YouTube is adorable or not, Time Warner made a $40 million investment in the company last month and the studio has a full three channels in YouTube's premium lineup. The growing pains are obviously part of a larger trend in the industry—Toby Turner of CuteWinFail, appears to have had a falling-out with producer Fishbowl, to name one more example—and one that will likely make YouTube all the more anxious to have experienced negotiators on both sides of the producer/talent table in the future. There's such a thing as a high-profile talent dispute, too, of course, but they tend to be the exception, rather than the rule.

Among the other pro channels, most who spoke to Adweek seemed to feel that they knew what they were getting into, and to be happy with the deal, which consisted of YouTube making an initial investment into each creator's content—an investment which was to be at least partially repaid through a healthy stake in ads, but would simply be a gift if ad revenue couldn't cover the seed money.

YouTube then promised that channels making over and above their initial investment would be able to keep 100 percent of the overage, but it's hard to imagine that being the case under most circumstances. Some of the safer bets received multiple millions of dollars, and even with, say, 60 million views, a $10 blended CPM doesn't get anyone that kind of dough. Still, the numbers range from the moderately successful to the outrageous: 56 of the channels have logged at least 10 million views and the top channel, the raunchy MondoMedia, has 1.3 billion views and counting—an incredible success by anyone's standards.

If anything, producers thought that YouTube paid for too much content too quickly, and even then, only in some cases. "Maybe for our vertical in particular," offered one producer, "it would have perhaps been advantageous for YouTube and for channels like ours to take less money and build the channel." Less cash up front, he said, would have meant lower initial expectations that could be built up over time. "I would have taken a quarter of the money, produced a quarter of the content, and proven that we could get the money back; instead we started off with thirteen episodes."

Ultimately, though, that producer said he was happy to have built a business, whether or not endemic viewership stacked the odds in his favor. "Smosh [one of the biggest pre-existing YouTube producers] will certainly have an easier time getting their initial investment back, though," said another.

YouTube didn't want to go into details, but they did express support. "While we don't comment on partner deal specifics, our goal has always been to help all of our partners succeed," said a spokesman.