YouTube's War for Talent: How Facebook and Others Are Wooing the Biggest Stars

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Ray William Johnson, Michelle Phan and Felix Kjellberg

Google courts talent to fend off competitors as TV-style "windowing" emerges and everyone from Hulu's ex-CEO to Facebook tries out premium video

This story first appeared in the Oct. 24 issue of The Hollywood Reporter magazine.

Three years after YouTube began, seeding original channels to create premium programming, the Google-owned video streamer is at it again, this time pledging to bankroll ambitious projects from a handful of its top creators and opening a New York studio on Nov. 6 to complement spaces in Los Angeles, Tokyo and London.

But a lot has changed since 2011, when YouTube wrote checks to everyone from Madonna to beauty vlogger Michelle Phan (with a mixed record of success). Now a number of digital platforms are courting its top creators with lucrative deals and a more favorable revenue share than the 45 percent that YouTube typically charges. The new entrants have the potential to dramatically alter the landscape for top YouTubers.

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Former Hulu CEO Jason Kilar has raised millions from A-list Silicon Valley backers for Vessel, a stealthy video platform expected to launch this fall as a primarily subscription service for short-form content. Kilar is said to be offering sizable up-front paychecks to YouTube stars who sign up and reportedly is asking advertisers for CPMs (cost per thousand viewers) as high as $50. Meanwhile, a group of seasoned YouTube veterans launched Victorious this summer to develop mobile apps for creators that house exclusive videos, library content and monetization tools. The company already has lured Phan, vlogger Shay Carl and actor Ryan Higa.

Established players are feeling out the space, too. Facebook has been improving its video player with new products such as a view counter, and has been encouraging YouTube talent to test uploading videos directly to the platform instead of through embeddable links. To wit, YouTube star Ray William Johnson debuted web series Riley Rewind on Facebook in December, giving it a one-day window of exclusivity. Even Yahoo has held meetings with creators about distributing content via its platform, although sources say that those efforts are less developed.

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Each is approaching content in unique ways, but one thing is clear: There's never been a better time to be a YouTube star. "With an increasing number of platforms competing for a limited supply of unique content and personalities, creators are in a very good place," says consultant Peter Csathy of Manatt Digital Media. "That demand is a great thing."

Many see the diversification of platforms as part of a natural maturing process. With the economic model for short-form video finally getting figured out, talent has more leverage. "One of the most interesting new categories of public figures is this next generation YouTube talent," says Sibyl Goldman, Facebook's head of entertainment partnerships. "We've been trying to give this talent the same attention that we've given to others."

With more than 1 billion viewers each month, YouTube still is the undisputed king of online video. A September report from eMarketer pegs the streamer's 2014 ad revenue at $1.13 billion, a 19 percent share of the U.S. digital video ad market. But that market share is unlikely to increase as more ad dollars flow online, says the eMarketer report, and many say YouTube has started looking over its shoulder. One digital executive believes that's the reason for YouTube's latest funding efforts. "They're trying to keep people from jumping off the platform," says this exec. This source says YouTube now will pay as much as $4 million to land hot projects, though that number is expected to vary wildly. (A spokeswoman declined to comment.) YouTube's newly minted originals chief Alex Carloss has framed the initiative as an evolution of its content strategy to fulfill talent's "creative ambitions but also deliver new material to their millions of fans on YouTube."

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Thanks to its scale, YouTube remains the dominant outlet for creators seeking a portion of ad revenue sold around their videos. The platform's megastars have been able to rake in millions a year (Swedish gamer Felix Kjellberg, aka PewDiePie, recently boasted that he made $4 million in ad sales in 2013, and has suggested he might leave Disney's Maker Studios to create his own network). But many creators complain about the economics of the site, which often has lower CPMs than other video platforms because of the glut of low-quality content (think cats playing pianos). YouTube launched a preferred ad program in April to boost CPMs, which sources estimate can range from $7 to above $20, and says it has sold out of that inventory.

Now the entrance of deep-pocketed streaming alternatives could give YouTubers added leverage to window their content — much like movies and TV series are windowed from first-run to pay cable and beyond — or to extract up-front payments and more favorable ad splits. "Previously, YouTube was almost always the first place to go," says Csathy. "But this fight over exclusivity will increasingly become part of the YouTube economy."

Ask the digital community, however, and few executives suggest that a creator should abandon YouTube entirely. "There's a wider audience on YouTube than anywhere else," says Barry Blumberg, executive vp at Defy Media, whose comedy channel Smosh distributes content on its website and other platforms in addition to YouTube. "With a brand like Smosh, we're never not on YouTube." He and many others believe there's a balance to be struck between the various platforms.

The million-dollar question for these upstarts is whether YouTube's young audiences will follow their favorite stars to new platforms, especially those that charge for content. "This audience is fickle," says one digital agent. "You risk alienating your audience by forcing them to do something they don't want to do."

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