The YouTube Industry Has A Transparency Problem

YouTube, whose community is ironically stereotyped as oversharers, has business transparency issues. This transparency problem doesn't come just from Google, it also manifests within the YouTube community's top-earners and across the third-party businesses that have sprung up to leverage the giant video-sharing site. It's hard to say who is worse, YouTube, or the video industry emerging on the site - known as "YouTube Networks."  

The YouTube industry, often compared to the Wild West due to its few rules and regulations and seemingly endless profits for the lucky few, has a controversial mantra: "Join a YouTube Network! That's how you know you've made it!"

YouTube Networks Will Change Your Life, For Better Or Worse

To non-insiders, YouTube networks can be one or all of the following: an ad sales team, a promotional marketing service, a production studio, a talent management agency, and/or a laison between YouTube partners and the notoriously hard-to-get-ahold-of YouTube reps. Think of a third-party YouTube network as a type of Web video business incubator with millions in funding (depending on the network) and all the right (presumably) connections to make you a big Web star. In return for all these wonderful things, the YouTube network takes a cut of your profits. Sometimes that cut can be more than half of what you earn.  

There are roughly 200 networks operating on YouTube right now, Steve Raymond, the CEO of Big Frame, told me in an interview last month. Big Frame is one of the newest - and in my opinion one of the cleanest - YouTube networks now operating.

If the existence of 200 networks on YouTube surprises you, think of it this way: YouTube has been pushing towards the network model for a while, given 72 hours of content is uploaded to YouTube every minute. YouTube's small staff simply can't handle every YouTuber's needs the way they did in the good old days of 2006 - before the company was purchased by Google.    

Alas, tales of young rising YouTubers being taken advantage of because they didn't hire a lawyer when negotiating with a YouTube network has become all too common. Horror stories of people signing for life because they don't read the fine print, or end up giving away complete ownership of their content, abound. 

Educate Yourself! YouTube Partnership vs. Network

In a prior interview about networks taking advantage of unsuspecting video stars, The Fine Brothers - the YouTube duo known for their hit show "Kids React" - told me they were dismayed by the number of YouTubers who don't realize they are giving up their YouTube Partnership when they join a network. If anything, this should be the first thing made clear to Partners. (Some Partners like not having to worry about this financial aspect, but others, like the Fine Brothers, worry it leads to abuse.)

Forfeiting control of your Partnership - the contract you sign with YouTube that allows you to collect ad revenue from the Google-owned company - is standard in the YouTube network world.

Ray William Johnson, the top YouTuber and first video star to become a millionaire from his earnings (in April 2011), doesn't think this should be the case, and said so in a recent interview with NewMediaRockStar founder Benny Luo. (ReadWrite readers and YouTube insiders might remember the last time I wrote about Johnson,  notoriously media-shy for a Web celebrity, when he left the YouTube network Maker Studios after contract disputes.) 

In the interview, Johnson admits he is no expert on YouTube networks, but believes “there’s no good reason to ever sign your YouTube Adsense account over to a third party. Ever." Any service offered by a YouTube-based network, he said, "they can accomplish without seizing control of your Adsense account.”

Where's The Data?

YouTube's transparency problems are not just about the forfeiting of one's YouTube Partnership, or the lack of education about networks - it's also about YouTube's preferential treatment of networks when it comes to analytics. Networks get access to YouTube data relevant to the creator's account that YouTube doesn't share with the creator. In other words, there are better numbers for analyzing viewership and performance, and only networks get to see them.

Creators get only "estimated data," said Benny Fine of The Fine Brothers. "The actual final numbers, only networks get that." Many partners end up using other contractors and services to track their own data. It's a level of secrecy that doesn't make sense, Fine said, and certainly fosters at least the perception of abuse.

The Fine Brothers don't think all networks are bad - they signed with network Revision 3 after a year of researching their options. They recommend YouTubers demand their network contracts provide simultaneous access to YouTube performance data.

Johnson, on the other hand, seems to have eschewed networks all together, and appears to be happy being the master of his own YouTube fate by opening up his own production studio called Runaway Planet.

How Much Do YouTubers Make?

YouTubers, by their Partner contracts, are forbidden from revealing their earnings. But in OpenSlate's infographic published last month, the average monthly revenue for the top 1,000 channels comes out to $26,000. This amounts to an average annual payout of $276,000. That's serious money - that no one is permitted to talk about.

Philip DeFranco, a leading YouTuber known for his news and pop culture commentary on "The Philip DeFranco Show," admitted in a Reddit AMA that he pays himself roughly $100,000 a year and invests the rest (a monthly six-figures) back into his companies. A top executive at the YouTube network Revision 3 (where DeFranco is signed) mostly confirmed the salary in a phone chat at the time, saying DeFranco gets a six-figure check each month from the company. Not a check for six figures a year from Revision3 - a six figure check each month. DeFranco, of course, is a YouTube anomaly - a geniune Web celebrity and Internet video entrepeneur.

YouTube's Trickle-Down Effect?

It is actually not uncommon for leading YouTubers to invest in the Web-video industry that fostered them by opening studios, agencies, networks or high-production-value Web shows. The YouTube community generally cheers these investments.  The belief is that bonafide YouTubers know the space, will prevent it from being appropriated by corporate outsiders, stamp out industry abuses like predatory contracts, and make the industry more transparent.

It is this sense of a "digital family" that made Johnson's acrimonious split with Maker Studios so tragic to some in the YouTube community: after all, top YouTubers created Maker Studios. "How could they mistreat their own?" the community wondered. In fact, it seems Johnson's experience with Maker Studios turned him off networks forever. When asked if he would start his own network, Johnson's answer was an absolute, “No.”

Image courtesy of @RayWJ.