Getting Creators Paid is the Next Big Thing in Media

Image by Mohamed Hassan from Pixabay

The mirror image of the shift in value away from traditional media businesses is the shift in value towards the tail, or what is often referred to as the “creator economy.”

The obvious follow up question is whether this dislocation presents any opportunities. It does. The mirror image of the shift in value away from traditional media businesses is the shift in value towards the tail, or what is often referred to as the “creator economy.” The main problem with the creator economy historically is that the aggregators make all the money, not the creators. But as more platforms and tools providers compete to attract talent, that’s untenable. In this essay I lay out why there is no end in sight to the growth of the creator economy and why enabling millions of creators to make a living wage — the democratization of the “economy” part of “creator economy” — is one of the biggest opportunities in media today.

  • It is not a fad, it is a structural shift, and it has numerous tailwinds behind it. These include the prevalence of the creator economy among younger demos; the normalization of independent work, which has been accelerated by the pandemic; growing consumer demand for “authentic” content; and, most important, an explosion of new enabling tools, platforms and monetization models.
  • Historically, the creator economy has been undermonetized by ad-supported platforms because “free” is not the market clearing price and, relatedly, there is growing evidence of consumer willingness to pay.
  • The solution is price discrimination (or “versioning”) models that enable creators to extract consumer surplus by offering multiple tiers of content and perks for different prices.
  • Near term, expect rising competition among platforms and tools providers to get creators paid and help them run their businesses more effectively.
  • Longer term, micropayments seem like a logical way to extract even more consumer surplus, but it is unclear if they will ever achieve scale. Another trend to watch is the evolution of new financing models in the creator economy, including debt financing and the “equitization” of celebrity (aka social money).
  • In a struggling media industry, it’s one of the biggest opportunities for the companies that can figure it out.

What is the Creator Economy?

There is no consensus definition of “creator economy.” Li Jin, a former partner at a16z, has written extensively about what she refers to as “the passion economy.” She draws the distinction between the gig economy, which seeks to commoditize labor, and the passion economy, which emphasizes and monetizes individuality. I think a more precise definition is that the creator economy is the ecosystem of content creation activities in which independent creators generate content on a self-directed basis that is monetizable by the creator. Under this definition, this excludes the content creation of mainstream celebrities who obtained fame offline (i.e., it excludes The Rock but includes DanTDM or Ninja); it also excludes the large class of gig workers (independent contractors and freelancers for organizations such as Uber, Upwork, Fiverr, Juni, Scripted, Taskrabbit, Torch, etc.) who supply labor for work that is directed by someone else (whether or not they are passionate about what they do); and it also excludes all the content that can’t be monetized by creators themselves (such as the billions of Facebook posts, low-engagement YouTube and TikTok videos, tweets and other social activity that is monetized by the platforms, but not the creators).

Historically It’s Been Very Hard for Creators to Get Paid

YouTube, Instagram and, increasingly, TikTok creators (or influencers) have become household names (sometimes for their content and often for their controversies): PewDiePie, the Paul brothers, Charli D’Amelio, Huda Kattan, James Charles, Zach King and on and on. According to Forbes, the top earning YouTuber in 2019, eight-year old Ryan Kaji, made $26 million from his unboxing videos. The Dude Perfect guys made $20 million, Jeffree Star made $17 million. That is just from ad splits or sponsorships. Some stars have expanded into merchandise; Huda Kattan’s beauty line is supposedly worth $1.2 billion. The poorly kept secret, however, is that the distribution of success on these platforms, like the Internet itself, is a power law with a very long tail.

Reportedly only 3% of YouTube channels generate more than the poverty line annually.

Either way, very few people can make a living on YouTube. (Here’s one article explaining the challenges of a mid-tier creator who is prominent on several Buzzfeed YouTube channels and attended the Buzzfeed Golden Globes party not as a guest, but as server.) The reason is that they need massive scale to really get paid. One million views sounds like a lot, but depending on whether the YouTuber allows ad-skipping, the length of the video (and therefore the number of ads YouTube permits), the geographical distribution of viewers and the appeal of the content/vertical to advertisers, 1 million views only generates about $2,000 in revenue to the creator (with a range of about $700-$5,000, a net CPM of $0.70 -$5). With abundant supply and demand and complete price transparency, it’s hard to argue that the market for UGC video ad inventory is inefficient, but yield sure is low. Since YouTube takes a 45% revenue split, that net CPM range equates to a gross CPM of about $1-$9. In other words, each view generates between $0.001-$0.009 in gross ad revenue. Again, creators are only getting about half of that. As regards other ad-supported platforms, like Instagram and TikTok, most don’t share revenue, so only the influencers with a sufficient following to attract brand sponsorships or sell merchandise can get paid at all.

There are Numerous Secular Tailwinds Behind the Creator Economy

Despite the historical challenges getting paid, there are a host of reasons to believe it’s on a multi-decade growth trajectory.

The Creator Economy Has Been Undermonetized

The reason that the creator economy monetizes at such a low rate is that the largest creator economy platforms — YouTube, Instagram and TikTok — are free to users and underwritten by advertising. This raises a couple of questions: how did we decide free is the right model?; and, relatedly, would a sufficiently large subset of people be willing to pay more than zero?

All these services are free because their top priority was scaling.

Then why not raise price after achieving scale? To state the obvious, it’s hard to come back from free. The psychological hurdle for consumers to go from paying nothing to paying something is enormous, not to mention the friction of entering in credit card information, etc. Around free, willingness to pay acts like light acts near a black hole — it all gets sucked up.

The Solution, for Platforms and Creators, is Price Discrimination Models

The obvious solution to this problem is to charge more (and provide more) to those willing to pay more. Kevin Kelly theorized about this more than a decade ago, with 1,000 True Fans and Jin, the former a16z partner mentioned above, recently argued certain kinds of creators could get by with 100 True Fans.

Most people will not be able to make a living as digital creators, but that is beside the point. The point is that many more will.

Pricing models that charge more for different tiers of a product or service are known as second-degree price discrimination models (or what economists Carl Shapiro and Hal Varian call “versioning”). In the case of the creator economy, this means different versions of the creator’s product — such as early access, exclusive access, personalized shout outs in content, the ability to influence content development, member-only chat sessions, emojis, etc. — for different prices, often including a free tier.

  • Twitch enables its streamers to offer different subscription tiers, which may include a wide range of perks, such as subscriber-only gaming days, Discord chat sessions and “emotes” (essentially emoticons) that only subscribers can see. Viewers can also buy “Bits” that they can donate to streamers on an ad-hoc basis.
  • Last year YouTube introduced the ability for creators with more than 30,000 subscribers to offer subscription tiers with different perks, which may include early access to content or merchandise, personalized shout outs or the ability to influence content.
  • Bandcamp and Mixcloud enable fans to directly support artists and Soundcloud recently added a donation button that links to third-party payment processors.
  • Udemy, Podia, Outschool, Teachable, Thinkific and Kajabi all enable creators to produce and sell their own online courses.
  • Patreon-owned Memberful, Supercast and Supporting Cast all offer the ability to sell paid podcasts.
  • Steam, itch.io and Gamejolt enable independent developers to sell their games.
  • Uscreen allows video creators to sell videos, giving the creators wide latitude to set the monetization model (subscription, one-time sales, freemium, etc.).
  • Substack enables writers to create paid subscription newsletters and recently added the ability to support paid podcasts.

What’s Next?

The logical trajectory of these dynamics is a few things:

The risk for tools providers is that the platforms will suddenly decide their business is a feature set, not a business.

Take YouTube and Patreon, for example. Patreon’s primary appeal to creators is the ability to offer multiple membership tiers. But it is not a platform. Creators need to drive fans to their Patreon pages from other consumer-facing sites, like YouTube, Instagram or Soundcloud. As mentioned above, YouTube now offers some creators a very similar ability to sell membership tiers, but with several key advantages: video creators can now deal with one provider (i.e., they don’t have to upload videos to multiple sites) and there’s less consumer friction to subscribe because there’s no need to click through to another site and a lot of people already have a Google wallet. Patreon still has advantages — it charges a much lower commission than YouTube (5–12%, compared to 30%) and it integrates with multiple 3rd party tools, like MailChimp and Discord. But YouTube could theoretically match those benefits and make it very difficult for Patreon to attract new video creators.

How much is an hour of Charli D’Amelio’s time worth today compared to three years ago?

The most compelling element of social money is that it enables the next step in the evolution of the relationship between creators and fans: the alignment of financial interests. Fans could benefit by investing in their favorite creators — especially those they think they’ve discovered early in their career trajectory — and “ownership” could become yet another way to signal fandom. Creators would benefit not only by getting access to capital, but also because their fans would be incented to be even more ardent evangelizers. It’s early and a lot has to be worked out (not the least of which is whether the idea of buying a share of a “person” is just too distasteful for many people). But it makes a lot of sense.

Creators Gonna Create*

*Apologies to Taylor Swift.

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Doug Shapiro

Doug Shapiro

Media and stuff. Write to learn; publish to stress test. Senior Advisor BCG. Former: Turner/WarnerMedia; II-ranked Wall Street analyst.