December 12, 2012

A Challenge to YouTube Multi-Channel Networks

December 12, 2012

A Challenge to YouTube Multi-Channel Networks

We decided to found Big Frame in the summer of 2011 because we identified many large premium YouTube channels that didn’t see value in the existing ecosystem, either because they had specific needs or because the stated offerings of the multi-channel networks (called MCNs or just networks) weren’t worth the loss of revenue and control that their terms required.  We are grateful that our vision of a network has allowed us to partner with over 160 YouTube channels to create one of the largest and most respected networks on YouTube.

Every day we have tried to answer the question “What value are we delivering to our talent, and how can we deliver more”.  As we have grown the company to meet the needs of our talent, we have learned a lot about what delivering value means with respect to how we run our business.

Slow down to be the best:  All of the major YouTube networks are under a lot of pressure, from the media and from their investors, to get big fast.  This horse race plays out in Comscore reports and press releases touting millions of unique users and billions of monthly views.  We believe that being solely focused on the horse race necessarily means that some (or many) of the channels in your network are not your main focus.  We would rather work better with fewer channels.
Transparency:  Every channel should know what our network revenue is every month and with every deal.
Don’t forget about advertisers and end users:  If MCNs are going to reach their full potential, we should be creating a better experience for the channel end users and for the advertisers who are turning YouTube into a place to make a living.
Make it very clear how we are helping:  We think contracts are necessary in our business because our basic proposition to talent is that we will invest time and money in them in order to make their channel more valuable, with more views and more revenue, and in return we should share in the benefit we help create.  But we shouldn’t rely on one sided contracts to lock in channels.  We strive to be indispensable to every channel in our network.

Recently, we have been concerned that the focus on the views horse race by some YouTube networks is damaging the entire YouTube ecosystem.  Some of the symptoms of the damage are being made very public, but they are only the tip of the iceberg.  Here are some other notable warning signs:

Bad contracts:  We are seeing some very well lawyered contracts being offered by other networks that have 4 year terms (!!!) with no right of termination on behalf of the talent except for breach of contract, with fixed CPMs that are at a lower rate than what a channel could earn on their own, and with no other benefit offered.  Because no other benefits are committed to by the network in the contract, there is never a cause for termination by the YouTube channel.  This would be bad enough if we didn’t expect YouTube CPMs to at least double and maybe triple over the next 4 years.
Unhappy YouTube channels:  Not a day goes by that we don’t hear from a channel that is unhappy with their existing network.  This is to be expected, but the volume is disconcerting.  But because the channels have usually signed a very one sided contract, they are stuck in a relationship that doesn’t work for years.
Unsustainable growth rates:  Some networks are signing hundreds and thousands of channels per month, with predictable results.  What is the plan for operating networks of this size?  We are very skeptical that there is one.  Most of these channels should just be partnered with YouTube directly.
High profile talent trashing “all networks” as being greedy and useless:  It goes without saying that this is counterproductive to all of our best efforts.

For networks to succeed, we need to recognize that without the YouTube creator community, we would have no businesses.  We’d like to challenge our friends and colleagues working at other YouTube networks to take the following steps in order to improve the health of our ecosystem.

Offer a clear and fair value exchange in your contracts:  If you are asking channels to sign a longer term deal, enumerate the benefits that you will deliver.  More traffic, more advertiser deals, personal attention, channel branding, production funding, whatever it is.   If you aren’t clearly hitting your marks, give channels the right to terminate the relationship.  Put some skin in the game.
Shorter term contracts:  We are in the very early stages of creating this ecosystem.  We will all benefit if the ecosystem is optimized.  Admit that your network may not be the best solution for every YouTube creator, and allow channels to switch (within reason) to the network that offers them the best fit.  This will light a fire under you and your team to be sure you are providing value to the creators who are most important to your business.
Focus less on “views in our CMS” as a success metric:  We believe that views are important, but don’t represent that you’ve built the most valuable network, only the best vacuum cleaner for channels.  Let’s grow individual channels, kick start careers, foster innovation, and create a new type of entertainment business.  Make sure that your network views reflect your underlying business value.

We respect that we follow in the footsteps of others, and that the leadership of some of the other networks has made our business possible.  No network big or small is perfect or immune to the challenges of this emerging and fast moving business.  We too have made missteps along the way as we try to innovate, grow and improve our business – we have had more than one big channel leave our network, even after we have worked hard to try to prove to them that we are their best option.  But we are heartened that for many, many channels in our network we are hearing fromthem every day that they feel Big Frame is the best network for them.

Steve Raymond
CEO, Co-Founder

Sarah Penna
Head of Talent, Co-founder