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YouTube shows its hand

Love it or hate it, YouTube is now the largest and most popular video on demand platform on the internet.

A large and ever-growing percentage of the population now turn to YouTube of an evening while plonked in front of the family TV in preference to either broadcast media or the likes of Netflix.

What is it that makes YouTube so popular?

Perhaps it's the fact that it can be watched for free, albeit with annoying ads.

More likely, it's because of the range and diversity of material you'll find there.

Thanks to an army of many millions of creators, YouTube manages to add over 20 million new videos to its library every single day.

Of course there's no way anybody could watch all those videos so YouTube has devised clever algorithms that sort through this enormous mass of content to suggest things it thinks you'll want to watch.

For a long time, this user-generated video concept has been working very well and millions of "creators" have been entertaining billions of viewers while YouTube pockets enormous amounts of money from subscriptions and ads.

However, things are changing and announcements made recently provide a clear indication as to which way they're headed.

In the past, YouTube has had a "partner program" and when a creator qualifies for entry into that program, the company shares some of the revenue from ads and subscriptions with them. This is done on a "per view" basis so becomes proportional to the success of a creator's videos.

However, paying creators for their efforts is one of YouTube's biggest costs and, with a demand from shareholders for higher profits every year, the company is facing a bit of a problem. This is because they've already saturated the market and potential for revenue growth is rapidly evaporating.

So how do you hike profits when revenues are plateauing?

Simple, you cut costs!

With creator payouts being one of the single largest costs that YouTube incurs, it's pretty obvious that it's one of the first areas where the company will start trimming back -- and their strategy is pretty clear to see.

They've already started helping creators find and sign "brand deals" (that's sponsorships to you and me). They've also begun helping creators integrate merch and other sales into their presence on the platform. These two mechanisms now, in many cases, account for more revenue than the money that YouTube itself pays to those creators.

It's clear that YouTube is positioning itself so that it can eventually (probably within the next couple of years) simply cancel their "partner program" and thus avoid having to share all that advertising and subscription revenue with the people that make the videos we're all watching.

The goal is clearly to wean creators off a reliance on those revenues paid directly by YouTube and instead have them earn their money from sponsorships and product sales.

Unfortunately, this is likely to really impact (and not in a good way) the viewer experience.

Once YouTube creators are forced to rely on sponsor deals for their money, you can bet that those annoying sponsor segments will become more frequent and longer in duration. Likewise, if the bills are going to be paid by selling merch or other wares, many (if not most) user-generated content will be more like watching an online shopping channel than entertainment.

This saddens me greatly but in another way it gets me all excited. That's because I see it as the turning point where YouTube turns from being the edgy, innovative, dominant force in the market to becoming a tired and spent force. This means the door will be swung wide open to allow new players to enter and bring some freshness back into the VOD marketspace.

I'm picking that viewers will quickly tire of endless sponsor segments and product pitches embedded into almost every video that's suggested to them. This means those viewers will actively seek out alternatives to YouTube and thus true competition will be born.

In the past, there have been attempts to wrestle the crown from YouTube but they've failed because the audience wasn't interested in switching away from the platform. YouTube's greed will end that loyalty and create huge opportunities for competitors to attract both creators and viewers.

Bring it on!

Carpe Diem folks!

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