The Creator Economy is Broken
Can you imagine a world without smartphones, social media, or streaming services? A world without internet? One where you actually had to walk over to a friend’s house to ask if they were free to chill or down to party? I certainly can’t, and yet this is a world that only recently existed.
It amazes me to think that the world as we know it, the way we interact with one another on a daily/hourly/minutely basis is only 14 years old. Essentially, it all started when Steve Jobs took the iPhone out of his pocket. It was an event that changed the world forever and has done so with unparalleled speed.
Nowadays we live in a very different world, a connected world where everyone on this planet, wherever they are, are just about three clicks away. Companies like Facebook, Instagram, WhatsApp, TikTok, Youtube, Snapchat and the like have drastically changed the way we interact with one another and in turn how we consume content.
In fact, it has never been easier in human history to consume content or to create it and people love to consume created content.
There are now over 2 billion people that use YouTube every month, whilst 1 billion hours of created content is being watched on YouTube every day.
This content is uploaded by so-called creators… but what exactly is a creator and who are they?
“A creator isn’t someone who creates but an individual who scales without permission. They are to the individual what startups are to the organization. They are the future of scalable entrepreneurship. As a result, a new economy is growing up around — and through — them: The Creator Economy.”
This great definition of the term is taken out of Hugo Amsellem’s Article Mapping the Creator Economy.
Only the beginning of the creator economy
With the emergence of the smartphone and platforms like YouTube, the barrier for entry to creation has basically dropped to zero. And this is HUGE.
Never before in history have creators had the same possibilities for creating content and the means for distribution of their creations as they have today.
This emergence has not even peaked yet, in fact it has not even reached half of its potential.
As of 2020, there are:
- 4.66 billion people that use the internet
- 3.6 billion people that use social media
- 3.14 billion people that use at least one of Facebook’s core products (e.g WhatsApp. Facebook, Instagram…).
In fact, the rise of social media is breathtaking; the percentage of US adults using social media has increased from 5% in 2005 to 79% in 2018, whilst millennials and gen Z are spending more time than ever on social media. Respectively, 2.38 hours a day for millennials and 2.55 hours for Generation Z.
Yet a large amount of the world’s population is still not yet on the internet.
Our planet’s current population is at 7.8 billion people, that means that at this point in time:
- 3.14 billion people are not on the internet yet (either out of choice or because of access issues)
- 4.2 billion people are yet to use social media
- 4.66 billion people do not use any kind of Facebook products yet (even without China’s population, this figure stands at 3.26 billion people)
The anticipated generational shifts and trends resulting in cheaper access to the internet and smartphones, and more intense social media usage around the world, will exponentially increase global connectivity over the next 30 years. Increasing numbers of people from the developing world will begin accessing the internet and social media platforms.
Not only is it a logical deduction to buy big tech stocks when investing in a long-term sure thing (increased internet use= increased profits for big tech) but this also means that the creator economy as we know it still is in its infancy.
Putting this into context with the fact that the world has never been as connected as it is right now, and is only getting more connected by the second, it’s logical to conclude that a steep rise in new creations — and respectively creators — will mean a flooding of the world with new and creative content.
A true age of creativity and its consumption is emerging.
In short:
- Everyone in this world has or will have access to cheap creation devices such as the smartphone
- Not everyone is online yet (huge growth metrics, 9.75 billion people by 2050 vs. 4.66 billion people that use the internet today = 5.09 billion people likely growth)
- The world has never been as connected as it is right now and it is only becoming more connected by the second
A broken system
YouTube, the main platform where creators showcase their creations, makes about 15 billion dollars in advertising revenue a year. However, not all of that revenue goes to YouTube directly but is used partly to pay content creators, Alphabet’s CFO Ruth Porat explains in a recent earnings call with investors that out of that 15 billion USD, 8.5 billion USD is used for “content acquisition” but did not specify how much of that revenue content makers actually receive.
The reality is that the majority of creators on YouTube only see a small fraction of that revenue, which in most cases is not enough to make ends meet.
It is not the big YouTubers or celebrities on the platform that complain about their monthly advertisement income that they receive, rather it is the medium to lower end of YouTubers that are most adversely impacted. This is partly due to the fact that YouTube favors top creators, who generate a large number of views and thus earn the platform higher advertisement revenue rates than smaller creators.
For example, on Youtube, creators can earn around 3–5 USD per 1000 video views. These figures are generated via an ad-based model which rewards scale and reach, whilst in contrast, the subscription based model offered by the live streaming platform Twitch, offers creators the choice to set their fees at $4.99, $9.99 or $24.99 a month for their fans to access their content. When comparing this to the ad model and each Twitch subscriber was accounted for with one view “it’s a monetization rate that’s at least 1,000x more than YouTube’s revenue per mille (RPM) model” according to an article called “the creator economy needs a middle class” from Li Jin the founder of Atelier Ventures.
This was precisely what led Jack Conte to found Patreon, a company that helps creators monetize their following. He explained that one day he opened up his YouTube account and saw that his most recent video at the time received 1m views but only 166 USD in ad revenue. Creators are clearly getting “screwed,” he wrote.
Simply put, there are millions of creators that are working for free only to hope that their channels or social media accounts take off someday.
Patreon is now 8 years old and already it has paid out 2 billion USD to creators around the world. In the meantime, ad revenues being paid to creators have slightly risen on YouTube, though, the mere existence of Patreon and its alternatives like, Onlyfans, buy me a coffee, Fiverr & Upwork (freelancer), Udemy & Skillshare (tutors), Medium & Substack (writers), to name just a few, is strong evidence that the ad money system still is not a reliable income stream for creators and does not work for many.
Simultaneously,
“we have a generation of kids who are used to buying merch from their favorite YouTubers, tipping their favorite TikTokers, subscribing to Patreon, backing kickstarters,”
says Casey Newton the Verge’s longtime Silicon Valley editor. On Substack “I only need to find 1,000” of those people, so I can have “a better salary than the vast majority of all journalists in America. So I think you’re going to see more writers finding out that they’re wasting their time on Twitter,” he said.
The same logic applies to most content creators making a living off unreliable advertisement revenue; the better the platforms become that help creators get paid and build stronger businesses out of their brand, the more normal professional creativity also becomes.
With the age of creators only in its infancy, I believe that the door is still left wide open for many other companies to build products for creators to help them monetize and grow their follower base through definite monthly recurring revenues.
Short takeaways:
- People have been more connected than we have ever been, though connectedness social media is still in its infancy (majority of people still not on the internet)
- People love to consume created content
- Barrier to entry for creating content is at nearly zero because of smartphones
- Content creators don’t earn enough money through traditional channels to make ends meet
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Hey! if you liked this article, have different thoughts on the topic, or are an investor / researcher / founder / startup operator, please feel free to reach out via LinkedIn or florian@dayone.one. I would love to compare notes and discuss the future of this topic or related ones.
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Here are some more articles on the topic I find interesting:
5 creator economy VCs see startup opportunities in monetization, discovery and much more
The Creator Economy Needs a Middle Class
Creators finally know how much money YouTube makes, and they want more of it
10 VCs say interactivity, regulation and independent creators will reshape digital media in 2021
Casey Newton on Leaving ‘The Verge’ for Substack and the Future of Tech Journalism
The Gig Economy Is Failing. Say Hello to the Hustle Economy.
A YouTuber with 8+ Billion Views Just Launched a 300-Location Burger Business in One Day
