YouTube: Great for Chad, maybe not for You

Forbes magazine recently published an article by YouTube CEO Chad Hurley in which Hurley explained the benefits, as he saw them, of partnering with YouTube.

Hurley’s argument was twofold: That YouTube subverts the traditional media structure by democratizing distribution while simultaneously supporting that media structure by serving it with new, low-cost talent. Both parts of the argument are true. But Hurley neglects to mention several consequences of the YouTube model that disadvantage both old media and the YouTubers themselves.

The biggest losers, believe it or not, are the individual YouTubers. While a small percentage of YouTubers may achieve fame, the overwhelming majority remain obscure. When YouTube implements revenue sharing, most users will receive pennies and nickels. There are YouTubers who will make it; I’ve counted about 20 who’ve been signed or have a deal “in development.” YouTube doesn’t reveal its number of registered users, but do the math. The odds aren’t in your favor.

Chad’s also right in saying the talent agencies and studios benefit from exposure to talent. They get low-risk access to wouldbe actors and comedians. That shifts production costs away from the media companies, who pay the talent agencies. Meanwhile, creatives accustomed to being paid for their work upfront face competition from a mass influx of low-wage talent.

Meanwhile, all things being equal, the media companies face a decline in market power. If Hurley is right — if YouTubers really can create content on par with studios, and if YouTube has such a huge audience — then companies like Viacom gradually lose their bargaining ability to secure exclusive rights and make advertising deals. Some of the ad dollars that would have gone to the media companies now go to YouTube. Web media siphons attention away from broadcast.

That means the television ad market changes. The upfronts, already declining in importance, give way to a scatter market. And who benefits from that? Google.

This is inevitable. Hence News Corp. and NBC’s plan to launch a distribution channel on the Web. If all media will eventually be IP media, then it’s in the media companies’ interest to ensure they control the ad platform (to the extent they can) where that media lives. That strategy doesn’t exclude partnering with YouTube, where they can also syndicate content.

So yes, Chad’s absolutely right that media companies should partner with YouTube. But at the same time, those companies need their own Web distribution channels. Like Ben Franklin said, trust your neighbor. But don’t pull down your hedge.