YouTube isn't the future of TV

In a few weeks I’ll launch a YouTube channel where you’ll be able to see lots of shows readers have asked about, including Startup America and even that lost second season of NerdTV. YouTube, as the largest video streaming service anywhere, is the absolute best place for me. But YouTube isn’t the future of TV.

I know this because TV is a business and this channel I’m launching is a business and I’ve spent the last several weeks talking to investors and running the numbers every which way. I’ve spent many hours with my friend Bob Peck looking at the economics of YouTube and my unequivocal conclusion is that while YouTube is great, it isn’t TV.

YouTube is the Casino

Television is a mass medium, and it needs to be because professional content is expensive so you have to amortize it across a lot of viewers. YouTube certainly has moments when it functions as a mass medium, when millions or even tens of millions of viewers look at the same clip in a short period of time. But for most people YouTube is a smaller, more intimate viewing experience with comparably smaller production budgets.

Many YouTube videos have hundreds, not millions, of viewers.

And that works to a point for YouTube and parent Google because their cost of acquiring content has traditionally been nothing.  YouTube is the casino, not the gambler in this model.

But as a casino, YouTube would really like to attract gamblers willing to place larger bets. As far as I can tell, though, such gamblers aren’t coming. Google’s current professional video initiative, which I have written about before, is a $100 million effort to attract real producers or real television, which it has done to a certain extent. But once that $100 million is spent, how many of those producers will stick around?  Very few.

The problem is that nobody is willing to make the big bets required to move mainstream media to the Internet. Glenn Beck and Louis CK can do it, but their followers will go anywhere for their fix. Those two are outliers -- outliers who would not be successful on the Net had they not previously been successful on mainstream TV. Traditional TV and movies can’t or won’t follow their lead.

Even a modest cable series on, say, the Oprah Winfrey Network, is budgeted at about $190,000 per finished hour, so a 22-part series is about a $4 million commitment for the network.

If you do the math, turn the algorithms inside out, and parse the ratings data, the sweet spot for professional production costs (not cat videos) on YouTube is around $8,000/hour — just over four percent of an Oprah.

You Can't Make a Spectacle

This doesn’t mean there won’t be good original shows on YouTube. You can make a great show for $8,000. But you can’t make a spectacle.

You can repurpose content you’ve already paid for, which is what happens on Hulu, for example, and to some extent on YouTube. But the nature of stardom has to be different — smaller — on YouTube than it is on more traditional media.

This is a large part of the reason why television has lately been in resurgence. Once viewed as being inevitably replaced by Internet viewing, both TV networks and audiences are concluding that for certain types of programming the Internet isn’t an acceptable substitute for the boob tube.

As a producer I can accept this but doing so puts very real bounds on my ambitions working solely within the YouTube ecosystem. As a video application platform, YouTube simply doesn’t scale the way Hollywood would like it to scale.

That is not to say YouTube and YouTube producers can’t or won’t be successful. I certainly expect to be successful. But in order to make that happen we have to embrace hybrid business models where we make our profits in different ways.

The kind of shows I like to do can be made for YouTube-scale money, they just can’t be made at a profit.

This isn’t such a foreign idea, by the way. PBS, where I worked for many years, tries to pay as little as it can for programming -- hopefully nothing at all. And in a meeting I had a couple years ago at The Smithsonian Channel, they offered me $115,000 per hour for a show (their going rate) while simultaneously requiring that the production budget be $230,000 per hour. If I wanted to be on their channel it was my job to find half of the money.

And producers do. They presell foreign rights, sell product placements (Subway saved Chuck one season), or in the case of PBS they get foundation money to make up the difference.

Money Machine for Me

With YouTube offering only one way for producers to make money, little in the way of co-marketing, and almost no network halo effect of being, for example, the show right after Seinfeld, it’s inevitably a smaller and more antiseptic medium.

I spent more than a year working with a major Hollywood studio trying to figure out how to make money doing shows for YouTube and I’ll tell you that it simply can’t be done, not with Hollywood overhead.

Hollywood can repackage content and maybe make a little margin, but that doesn’t buy Porsches.

I wonder if YouTube has figured this out?

For the sake of its own long term success, YouTube needs to either consistently deliver larger audiences or pay content producers more for their work.

None of this bothers me, though, because I finally have it figured out. I’ve come up with a lateral business solution that will turn YouTube, at least for me, into a money machine.

Photo Credit:  holbox/Shutterstock