SXSW: Maker Studios Execs on Turning Down TLC and How Mobile Views Threaten Revenue

Shaycarl Headshot - P 2013
Getty Images

Shaycarl Headshot - P 2013

YouTube stars KassemG and Shaycarl, co-founders of the digital production company, discuss why it's "next to impossible" to break out as an Internet sensation these days and the secret reason behind Shaycarl's 100-pound weight loss.

On the third day of South by Southwest Interactive, execs and talent behind Maker Studios -- the Culver City-based YouTube-stars studio that boasts more than 2.5 billion page views a month -- spoke before an overflow crowd and addressed the unique business challenges facing makers of original content for YouTube. The all-Maker panel, moderated by company COO Courtney Holt, featured co-founders and comedic talent KassemG and Shaycarl and co-founder/CEO Danny Zappin.

The talk veered between humor and serious business as the panelists discussed the maturing YouTube space, expressing some frustration that many advertisers, according to Shaycarl, still "see the size of the screen as more valuable as you go up" from the small screens of laptops, tablets and phones to the bigger screens of TV and film. "But hopefully they realize the size of the eyeballs is all the same" -- and that when ad rates between the mediums are compared, "the return on investment is way more valuable," he added.

Founded by YouTube talent in 2009, the digital production company works on a system of profit-sharing revenue from YouTube with its own stable of stars, offering the services of a studio, including development, promotion, distribution, sets, wardrobe, marketing, merchandise, potential brand deals, animators and now even live sets. ("It's a whole other medium to screw around with," said KassemG, though bandwidth capacity continues to be an issue.) Maker has 165 million subscribers to its 10,000-plus channels, and its series Epic Rap Battles of History is the most viewed format on YouTube on a per-episode basis, averaging 30 million views an episode (Many broadcast shows average 2 million viewers an episode.) Maker recently signed deals with Snoop Dogg and Kevin Smith and moved to new studios in Culver City to accommodate its growing staff now at 350.

But two key challenges face the makers of content for the web.

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One is that mobile advertising rates need to increase. "The role of mobile is obviously exploding,” said Zappin. “It's growing faster than even we expected. For a lot of our channels, over 50 percent of views are coming from mobile. But the monetization of mobile hasn't caught up. So the revenue of the content creators is actually going down. More of the views are happening on places that aren't generating the revenue."

And studios like Maker, even with their enormous number of page views, are realizing that they need to become even bigger to compete with television. The reason? Advertisers believe they need to hit all those eyeballs in a short time frame for maximum impact. "The challenges we see on YouTube specifically is that it is a global platform and that KassemG may get 10 million views on one video, but that may be only 3 million in the United States and of that 3 million maybe only 1 million of them came in the first week," said Zappin. "We recognize that advertisers want that impact and to hit a large audience in a region all at once. This is the reason we need to grow our audience much larger than we originally thought to hit 2 or 3 million people all at once."

Maker Studios' success means that not only do advertisers such as Clorox, Electronic Arts and Warner Bros. come calling, but Hollywood content creators increasingly do too. YouTube star-turned-Maker Studios co-founder Lisa Donovan did a stint on Fox’s MADtv in 2007, video sensation Justine Ezarik (aka iJustine) has guested on Law & Order: SVU and Criminal Minds, and Shaycarl appeared on ABC’s No Ordinary Family.

But they’ve also turned things down, including reality-show proposals from the likes of TLC. "We've been approached by TLC and other television studios who've said we can create a reality TV show at the cost of taking down all your related YouTube stuff," said Shaycarl. "So we've said no to things that might have seemed like a good opportunity but at the detriment of what we've already created on YouTube. Getting on TV … that's always been kind of like not the goal."

They professed they still love the immediacy that YouTube provides. "I've woken up in the morning with a song in my head. I can just go down to Maker and I can make whatever I want," said Shaycarl, who cherishes the connection to the audience the medium provides. He recently lost 100 pounds and did a weigh-in every Tuesday on his weight-loss channel. (He has five of them.) "Every Tuesday I knew there would be 150,000 people there and they'd be disappointed if I didn't lose weight," he said. Added KassemG, "They'll call you out on your bullshit." He added jokingly, "That's why you lost so much weight. All those negative comments gave him anorexia."

One irony of Maker’s success, though, is that the YouTube system has in many ways become as impossible to break into as Hollywood’s. Zappin said that he first came to Hollywood to try to get into filmmaking and acting the traditional way, as did KassemG, who sardonically recalled an audition doing "a piece of material you hate to get a job you don't want."

When YouTube came out, said Zappin, "we were just really excited about, 'Here’s a global audience we can reach, and we don't have to get anyone to let us do something.' "

But Shaycarl said he doesn't think he could break into the sphere if he were to start out today. "It would be maybe next to impossible just because of the supply and demand," he said. "It's such a bigger ocean now. There's a lot more money being put into it, with all of Hollywood and these brands starting YouTube channels."