A Creator's perspective on Li's 10 strategies to grow the middle class of creators
Part 1: Monetization
Li Jin wrote an article on how platforms can help build the middle class of the creator economy. The article explains how top creators are massively successful but the long-tail creators can barely get a sustainable income. It outlines 10 strategies for creator platforms that can help solve this problem.
I would like to give my thoughts on each strategy in the monetization bucket from a creator’s perspective. For context, I run a YouTube channel called Joma Tech with 800k subscribers and I would consider myself “upper middle class” in terms of a creator, as I am able to generate an income equivalent to an entry-level software engineer in the Bay Area.
In addition, I’ve worked as a Data Scientist at Buzzfeed which allowed me to get an insight into how a publisher thinks about growing on these social media platforms. I then worked at Facebook on the video creator team to try to help video creators succeed on our platform. And finally, I’m now a software engineer working on ads for a large video platform.
I’m in a unique position where I’ve worked on creator platforms but also worked as a creator, so I try to understand both sides of this economy. However, I will focus on YouTube creators in this article because that’s the platform I’m most familiar with.
Creator economy players
Before we dive into each of the strategies, I would like to share some definitions I’ll use for the attention economy. There are essentially 3 players in this economy:
Producer: an entity that produces content that has value in itself
Distributor: an entity that is able to distribute a piece of content or an advertisement
Advertiser: an entity that has something to sell and will pay for distribution of their advertisements hoping for a positive ROI
Advertisers are what powers this economy since it’s the source of conversion between attention to capital. Note that an entity might act as more than just one of those players and depending on which revenue stream, the roles can be different too.
For example, a creator who also sells merch is both a producer of their content and also an advertiser of their own merchandise. But for their Adsense revenue, they are the producer, YouTube is the distributor of their content, and advertisers like Grammarly will pay YouTube and the creator to distribute their ad. Once a creator becomes big, their well-known brand becomes its own distributor in addition to the platform like YouTube. So when the creator does a sponsorship video, they’re both the producer and the distributor.
Let’s go through the strategies now.
5. Provide capital investment to up-and-coming creators
“If creators are the new small businesses, what is the new version of small business lending?”
In the article, they propose that some sort of upfront financing would allow them to have a higher chance of succeeding. I believe that is certainly true, but there is one more type of investment that is very valuable that capital cannot replace.
Some of my friends working in tech at one point wanted to become a creator. They definitely had the capital to start a YouTube channel, but they all failed. I believe that capital is a lot less helpful than we might think.
There is a version of capital investment for creators that might be more useful, which is audience investment. The hardest thing for a new creator is to get an initial audience base that will act as a catalyst to increase the rate of their videos spreading either through sharing or on the platform. That initial audience base is important because they’re the ones that the platform will gather watch time data from to determine if the creator’s content is worth recommending. Without an audience, it’s difficult for your content to spread no matter how great your content is.
Larger creators in a specific vertical will be like founder VCs who are experienced in investing in an industry because they understand their vertical or niche. Receiving a shoutout from a large creator in a similar niche will be worth way more than capital. It really doesn’t require much capital to create engaging content on YouTube.
For creators who believe they have to make high production videos to succeed, they’re probably competing in a space where it’s saturated and the only way to differentiate themselves is the production quality. That is equivalent to a startup wanting to compete with existing fortune 500 companies at their own game. As a creator, you have to choose a niche that you think you can dominate. The smaller the niche, the easier it is to be the best. But the smaller the niche, the smaller the audience/market. Most creators start from a niche and slowly pivot their content into verticals with more mass appeal, similar to how Amazon started off selling books before selling everything.
A VC firm for creators (or Venture Attentionists, ew no) will end up looking like distribution companies in traditional media. The only signals they have on whether they should invest in a creator or not is their content that currently does not have traction. If they think the creator has potential, then they will move their existing audience to their channel, which is similar to distributing tv shows to a network in traditional media.
In the end, the creator economy is an attention economy. At its core, the way you succeed as a creator is by maximizing eyeballs on your content. Then you trade that attention for money and try to optimize that conversion, either through ad revenue, integrated sponsorships, or investing that audience on another channel like our hypothetical VC firm for creators. When a creator has their own products they sell, they cut out the middleman and act as both advertiser and producer.
6. Decouple creator payouts from audience demographic
“The higher the advertising rates and the more sought-after the audience is for advertisers, the more creators earn on their videos.”
The difficulty in decoupling creator payouts from audience demographic is that the money has to come from somewhere. This decoupling might work at the beginning of the platform when their aim is growth. But the moment the platform becomes mature, they will need to monetize their platform in a traditional way with ads or a subscription fee. Both are unequal in terms of demographics because countries like the United States are more likely to pay a subscription fee and receive ads from advertisers. Views and engagement need to be converted into advertiser’s sales or else advertisers will leave. If advertisers leave, then that creator fund that decouples content from commercial imperatives will deplete.
Even if advertisers are making their sales through the ads and they continue to support the platform, creators who are making less because of this ad-revenue redistribution will leave the platform for another and creators are the heartbeat of a platform. It’s not sustainable for a platform to receive tons of engagement from viewers who don’t convert into sales for advertisers since the cost of running a video platform, which is extremely high, will outgrow the advertisers’ revenue very quickly. Even YouTube wasn’t profitable for the longest time. Creators are constantly trying to expand their audience base and increase their attention to capital conversion efficiency, so they will move on if that conversion is lower.
7. Allow creators to capitalize on superfans
“If each Twitch subscriber accounts for one view, it’s a monetization rate that’s at least 1,000x more than YouTube’s revenue per mille (RPM)”
I think the comparison is a bit misleading with 1 view as 1 subscriber.
You don’t need to be a twitch subscriber to be a viewer. You can simply follow the twitch streamer without subscribing to them, which is free. A twitch follow is equivalent to a YouTube subscribe.
Each Twitch subscriber is like a Patreon member for a YouTuber, or a YouTube membership, the new feature that YouTube launched.
Here’s an example to illustrate the proportions of followers/subscribers on Twitch. Hiko, a pro Valorant player, has 1M followers and I believe he has around 5000 subs. Subscribers are also extremely hard to maintain and have a high churn rate. So we definitely can’t compare Hiko with 5000 subscribers to someone only getting 5000 views on YouTube. Everyone who plays Valorant knows who Hiko is.
“My essay “100 True Fans”—a riff on Kevin Kelly’s classic “1,000 True Fans”—outlines guiding principles for creators who are monetizing off a small base of customers.”
In my experience, despite the popularity of the 1000 true fans concept, it is extremely difficult to get 1000 true fans. You either have to amass multiple hundreds of thousands of followers to get that many true fans, or you’re able to sell a high-value product.
If you have a low amount of followers but most of them are “true fans”, then your main product as a creator is what you’re selling, not your content on YouTube. YouTube for them is just a way to spend time/effort on advertising instead of dollars like traditional advertising.
However, I do agree that allowing creators to capitalize on their superfans is a must for a platform. Having the platform reduce the friction from turning a viewer into a paying viewer is extremely valuable. We can think of it as income divided by popularity as the attention to capital conversion efficiency, which platforms can increase through better monetization tools.
I believe Twitch is currently leading in terms of frictionless monetization features as it is the cultural norm to donate and subscribe to twitch streamers. Other larger platforms have huge friction in monetizing attention and mostly rely on traditional video advertising. For example, YouTubers need to use external membership platforms like Patreon to monetize their content and it’s not that common for youtube subscribers to donate to their favorite creators. Though they launched YouTube Membership, which is still new but it’s the first step of reducing that friction.
OnlyFans is also very good at monetization tools, however, the difference is that Twitch is both the distribution platform and the monetization platform while OnlyFans relies on creators who grew an audience elsewhere. However, we are already seeing a shift, since there are creators creating free subscriptions on their OnlyFans and then funnel them into paid products and they’re able to be discovered through the OnlyFans platform itself.
8. Create passive (or almost-passive) income opportunities for creators
“This stands in contrast to the digital content world, wherein creators have zero marginal costs for additional viewers.”
I think there’s a common misconception that income for creators is passive because an incremental viewer doesn’t cost anything.
But that incremental viewer does cost something. If you stop making videos or content, then that “passive” income will dissolve. Each piece of content has a lifetime value, it might feel like the content lives on forever, but most videos have an implicit expiry date, just like how movies don’t generate income forever but mostly on the first few months in the theaters.
The creator economy is an attention economy. We need to keep that attention by creating content and we need to sustain ourselves by monetizing that attention. So maybe incremental sales don’t cost anything, but incremental viewers do cost time and effort since you need to create more content. A platform can help by improving the distribution of high-value evergreen content to increase a video’s lifetime value so that creators can focus on quality instead of quantity. Most video platforms have a huge time decay for videos.
“the sales represent passive income (after products are initially created), allowing creators to scale earnings without scaling time. When income is incremental, creators are able to dedicate time to other sources of earnings and create a portfolio of various income streams.”
It is true that creators can scale earnings without scaling time, but income streams are not totally incremental as one revenue stream can cannibalize another. Every video is an opportunity for a creator to advertise something but there’s limited "promotional” inventory, and they have to make a choice in what to promote that optimizes their attention to capital conversion.
You have a limited audience and they have limited amounts of money to spend. So to increase that attention to capital conversion efficiency, a creator has to create orthogonal products and maybe rotate promotions for each during some time period to prevent promotional saturation.
Also note that most of the time, all revenue streams are dependent on the success of their content on one platform. So if the views die down, then every revenue stream will also die down. So our revenue portfolio is not as diverse as one might think.
9. Offer a form of Universal Creative Income (UCI)
This might be quite difficult in practice as we need to define what it means to be a “creator”. Then we’re back to defining thresholds since everyone would want to be a “creator” just to get that income and do the minimum for it.
We’ve seen that happen at Facebook when they experiment with paying creators to create a minimum amount of content weekly in hopes to grow the video creator platform. The result was that most of them would do the minimum to get that income without any regard to trying to grow on the platform.
The difference between UBI and the proposed UCI from a platform is that everyone in the US pays taxes through purchases and income, but not every self-assigned creator would add value to the platform. This redistribution of income (UCI) from a platform is only possible if there is a clear return on investment allowing smaller creators to create more content which leads to more users (growth) on the platform, which is similar to how proponents of UBI have argued that basic income can increase economic growth.
This is an area that would be interesting to explore, but the ROI has to be positive for platforms to do it. UCI would only work if the following assumption is true: there would be more creators that can create better content for the platform if they don’t need to worry about their next paycheck.
In the end, to create a middle-class of the creator economy, it is a matter of risk and capital redistribution.
It all depends on how much money is in the pool, and that is a matter of how fairly and efficiently we can turn attention into money in this economy. Currently, because it’s a new industry, there are definitely lots of inefficiencies and arbitrage opportunities. For example, the reason why integrated sponsorships in videos are common is that the advertisers are able to underpay the creators relative to their ROI compared to traditional YouTube ads. Once we reach an equilibrium in these different advertising channels, then we can expect a more standardized conversion of attention to money, which currently favors the advertisers.
That is important to allow us to then create risk management tools to redistribute the risk from new creators to superstar creators who will get paid a premium to own that risk.
I can see a future where we have reached an efficient and fair conversion of attention to capital and we’re able to securitize attention the same way to securitized capital. That way creators will have the option to determine their risk tolerance by trading potential payout for lower risk. In the short term, there are possible options that already exist if we look at traditional media companies.
One example of that is K-Pop. Let’s assume they get paid reasonably, which I heard they don’t, but let’s ignore that for a second.
Technically, everyone can try to become an idol, but if you join an entertainment company as a trainee, then you’re paid to train and you get education, support, and distribution from the company. However, most groups fail, so it’s a loss for the company, but there are a few groups that succeed and become extremely lucrative, and the company will get paid out for that and will be able to recover the cost of the failed groups and even make a profit. I believe the concept of mitigating risk but reducing your payout if you succeed is fair in the creator economy, the question lies in how to calculate the right premium for the risk.
So to conclude, I believe growing a middle class of the creator economy would create a more diverse and richer experience in entertainment by filling out more niches that are not financially viable for traditional media companies who invest a ton of money in production. A perfect media company would be able to create content at every production level (traditional films to iPhone filmed TikToks) and be profitable at each level. So I think we can see a future where media companies specializing in YouTube content or any content with lower production costs get formed. They would probably get bought by traditional media companies though.
In the end, no matter how we look at it, we have to redistribute risk and accurately calculate that risk premium for any of these models to work. But it only works if there’s enough money in the economy so that it has to make sense financially for all parties involved (new creator, big creator, advertisers, and platform).
In part 2, I will focus on the product and distribution aspects of that article.
Nice blog Joma. I think it's important to flesh out your definition of "distributor". Unless a Creator or Producer's brand owns the delivery network - "carrier" in the case they are delivering a physical good and "CDN," "ISP," and "data storage" in the case they are delivering a digital good - they are not a distributor. FedEx is a distributor. Amazon is all a producer, platform and a distributor. YouTube is a "distributor" in-part as Google (parent-company) owns its own CDN and storage. YT is also a "platform." As an analogy, platforms allow passengers (consumers) and businesses (marketers) to board the train (distributor) so such passengers and goods or services can travel.
Amazing post! Looking forward to the next installment :)