For the last few years, the entertainment industry has gone through a massive upheaval, chasing after a brand new online based revenue stream.  This “streaming war” involved a huge amount of capital being poured into creating the infrastructure as well as the exclusive content that would draw audiences to these new platforms.  For the longest time, Netflix was alone as a streaming provider, and Hollywood was taking notice of just how much money they were making on monthly subscriptions.  Netflix continued to grow even more as they had gained the ability to form their own production wing, and were not as reliant on all the licenses that they were paying the movie studios for in order to play their movies and shows.  As Netflix continued expanding, the movie studios (in particular the Big 5 of Disney/Fox, Paramount, Warner Brothers, Universal and Sony) began to consider that it would be in their best interest to take Netflix’s formula and repeat it under their own umbrella.  The expense of setting up all of these streaming platforms was not unsubstantial, but Hollywood believed that it was an investment worth making for the long term, as it seemed that streaming was the future of entertainment.  But, what ended up happening was that the pool of potential subscribers was split up among the separate streamers and many of them couldn’t reach the lofty growth projections that they hoped to reach.  Even with the assist of the pandemic forcing many people to turn to streaming as a sole outlet for entertainment over the course of that turbulent year, many of the streaming platforms struggled to find their footing.  Now, over half a decade in and only one of the studio run streaming platforms (Disney+) has managed to reach profitability, and just barely.  What Hollywood failed to see was that another factor in the streaming content market was also affecting the viewership patterns of the audience pool that the studios were hoping to capitalize on.  The user generated video streaming site YouTube has not only emerged as a primary player in the streaming wars, but possibly also it’s victor.  And the truth behind it’s dominance all comes down to economics; particularly when it comes to the audience itself.

YouTube of course existed long before there was any concept of streaming entertainment.  When it launched in 2005, home entertainment was still dominated by the likes of Blockbuster Video.  Netflix had only just started it’s DVD by mail service, and it would be another 6 years before they would make their first jump into streaming.  And yet, YouTube would instantly make an immediate splash in the online world.  The concept of “Viral Video” stemmed from the way user uploaded videos would suddenly gain attention not just in the online community, but in the whole pop culture zeitgeist itself.  Google, which clearly saw the potential of YouTube’s ability to generate buzz worthy content, purchased the platform for a then substantial $1.6 billion.  With Google’s backing, YouTube was able to expand it’s revenue through advertising monetization program, which enabled people who uploaded to the platform to make money off of the content they created.  Being a YouTube content creator could actually help people earn a living, and in some cases, people who were able to gain a massive subscriber base could become multi-millionaires.  But, to get to that place is difficult, and a large part of YouTube content creation is trying to figure out how to manage the algorithm and get noticed in a competitive market.  That’s why so many YouTubers are working a hustle in all their videos, asking people to like and subscribe to their channel.  The constant pressure to meet quotas for viewership in order to make money off of the platform has also led to a lot of creators burning out over time.  But, even with all that, YouTube still has managed to evolve into something that not only provides plenty of material for broadcast on a daily basis, but many of the creators on the platform has improved the quality of their content so much that it rivals much of what we see on linear television itself.  One big factor that helped to make YouTube even more of a worthy competitor to television itself was in 2010 when they removed the time limit for video uploads.  Before then, all content creators were bound by a ten minute ceiling, but afterwards the sky was the limit.

Now people regularly go to YouTube for any kind of entertainment they desire, and creators could take advantage of the creative freedom allowed on the platform.  YouTube became a place for underground outlets of journalism and experimental film-making.  Of course, terms and conditions set by YouTube and their parent company Google applied, but YouTube content creators found that this platform afforded them an outlet that could reach a totally different audience than they would’ve through traditional media.  The barriers to getting noticed were also smaller, as it didn’t matter if you had a foothold in the entertainment business beforehand; you could reach a massive audience and become famous if you managed to stick out in the algorithm.  Even Hollywood was taking note.  While viewership numbers for linear TV shows have been declining for years, those same shows can still retain relevancy if the clips on their YouTube channel still get a lot of views.  The Nielsen ratings, once the major barometer for judging the success of television show, now only tells half of the story.  The viewership patterns for NBC’s Saturday Night Live are a good example of this, as their TV ratings make it look like the show is falling off every single season due to dwindling broadcast numbers.  And yet it’s cultural relevance still has not waned, because it also enjoys a massive following on YouTube.  It has a 16 million large subscriber base, and their clipped videos almost continually do millions of views even in the course of a week after airing.  And in case of some of their more viral videos, like the “Lonely Island” music videos they’ve put out, they can reach far more viewers than they ever would’ve during their late night broadcasts.  YouTube has significantly changed the way that people consume television, with a lot people opting not to check out these shows live when they were originally scheduled, but instead on their own time, and repeatedly if they are viral enough.

But there is a much bigger factor in what has ultimately made YouTube the true king of streaming; that it’s free to use.  Where all the other streaming platforms derive revenue from monthly subscriptions, YouTube is primarily funded through ad revenue.  Sure, there is a YouTube Premium service available where people can subscribe to watch their content ad-free, but for the most part, people have largely accepted the ad service model as a way of getting content at no cost to them.  This is why YouTube is the second largest trafficked website on the planet, because there is no barrier to logging in and watching.  And as stated before, the quality of the content has risen so much over the years that YouTube channels are now competitive with what we see on television.  Sure, network television is still made free for the public, and also supported by add revenue, but the number of stations is limited to just a handful of networks; ABC, NBC, CBS, FOX, CW, and Public Broadcasting.  Cable Television was created as a paid alternative to give viewers more choices in programming, but the fact that it’s pay walled has diminished it’s value over time, especially in competition with what streaming provides.  One thing that we have seen the big studios struggle with in the last couple of years is what to do with linear television, as the ad revenue they can generate from their holdings have shifted to other places like YouTube.  Advertisers have learned that more eyes are going to streaming instead of the networks and cable channels, so that’s where they are putting their money now.  Disney, whose holdings include ABC and ESPN, has had to reshuffle their corporate structure in order to meet the new reality in broadcasting; so much so that many have speculated that Disney may be looking to offload their linear television channels in the future in order to focus on streaming instead.  The tolerance for ad breaks has been one of the biggest surprises to come from the streaming wars, largely due to the fact that YouTube’s ad support model is getting the most traction in the online space.  That’s probably why so many of the streaming platforms have created their own ad-supported tier as a more budget minded alternative; including Netflix.

But one thing that YouTube has decided is not in their wheelhouse is the idea of creating their own original content to compete with the likes of Netflix.  Not that they didn’t try.  Before YouTube Premium became an ad-free only option, YouTube had another paid service called YouTube Red.  YouTube Red was going to be ad-free like Premium ultimately ended up being, but it was also going to offer original shows and films made by YouTube’s own in house production company.  YouTube Originals would create a string of original shows and movies that not only would compete with the likes of Netflix, but would also be useful in spotlighting the brand of YouTube itself.  One thing that YouTube Originals did was tap into their own pool of content creators to develop shows and films that would be extensions of their own channel content, only with a more substantial budget.  Creators like gamer PewDiePie and others were among the people tapped to start up this new phase of YouTube’s programming, with a large emphasis on reality based content.  But, there were scripted programs made too, including a couple of buzz-worthy programs.  It may surprise many to know that a hit show like Cobra Kai, a spinoff series based on the Karate Kid films, started it’s life as a YouTube Original.  YouTube produced the first two seasons of the series, and for those seasons it became the driving force for YouTube Red’s subscriber growth.  But it clearly wasn’t enough.  In 2018, YouTube announced that they were phasing out YouTube Red in favor of growing their Premium service, and this included the shuttering of YouTube Originals.  The majority of the original shows that premiered on YouTube Red were quietly cancelled, but a couple were allowed to be shopped out to other interested parties.  In the case of Cobra Kai, it was picked up by Netflix, which kept the show running for an additional four seasons, all of which were wildly successful for the streamer.  In the end, YouTube saw their value as a platform for content creation rather than a production outfit themselves.

This has helped YouTube to stay ahead of so many other streamers in the race for attention from potential viewers.  So many of the studio run streamers cater to such a specific kind of audience, while YouTube is literally a place where you can find anything to watch.  Sure, YouTube can’t run movies and television shows from the major studios (and they have strict rules about uploading pirated movies onto their platform as well), but they are the place where everything else is available to see: how-to tutorials, video podcasts, highlight reels, and tons of videos about cute pets.  What YouTube has done in it’s 20 year existence is change the viewing habits of the average consumer.  One phenomenon that has come from consuming programming on YouTube is the “rabbit hole” binge watching habit that so many people have developed.  It comes from people choosing one video to watch on YouTube, and then clicking on one of the algorithmic selected suggestions that are attached to that video, and then repeating the same function after watching that.  Some people can spend hours just watching the random stream of videos that are suggested to them through YouTube’s algorithm, and that’s the thing that Hollywood is trying to compete against.  Of course all the streamers operate on some kind of algorithmic programming that caters to the subscriber’s viewing habits, but their suggestions are often confined to the niche selection that they have curated from their own libraries.  Meanwhile, YouTube literally contains billions of random types of videos on their platform, with countless more added each day, so those who go down the YouTube rabbit hole are far more likely to encounter something new they haven’t seen before when they are given suggestions from the platform’s algorithm.  This is why so many people are giving their time over to YouTube; the variety of options and the simple interface of YouTube’s platform that makes it easy for viewers to continue watching.

The streaming wars as a result has become less of a race to the top and more of a contest for third place.  Netflix had a ten year head start on all the other wannabe competitors, but even Netflix has to compete for time with what YouTube has to offer.  The bad news for Hollywood is that there doesn’t seem to be any alternative path to being able to do what YouTube is able to do.  It really is an entity without peers.  Disney or Universal is not going to suddenly launch a competitor to YouTube, where users can upload videos onto a site they run.  With YouTube, it’s better to find ways to work with it than compete against it, and all the major studios have their own channels on the platform where they launch movie trailers, as well as a couple YouTube exclusives of their own.  But just like everyone else, they are subjected to the ebb and flow of how YouTube’s algorithm works, so it’s not exactly the place where they can launch one of their multi-million dollar projects.  The problem Hollywood faces now is trying to figure out how to maximize their audience reach in a market that clearly has been shaken up by streaming.  With YouTube pulling in millions of views daily, and Netflix showing little signs of weakness, the studios are searching for new ways to drive engagement on their own platforms.  For the longest time, exclusive content was the thing to bring in subscribers, but that required an insane amount of capital to produce, especially in the early days of the streaming wars when these new platforms had so little to offer.  What we’ve seen happen is a lot of these traditionally powerful media giants face some hard financial pitfalls due to their ramp up of production to feed these streaming monsters.  But, because of the large amount of offerings out there (with every studio jumping in) the potential audience was splintered and the amount or revenue coming in was not countering the investment it took to put it all together.  That’s why so many mergers and acquisitions are happening, as the studios are trying to shore up their financial burdens due to the amount of money they burned through in such a short amount of time.  Meanwhile, YouTube and Netflix have continued to maintain their leads in the streaming race, with their already firmly established hold on their audiences allowing them to weather the stormy seas of the streaming wars.

YouTube may not be a powerful player in terms of production, it still is the place where most people go to for quick, easy to digest entertainment.  Hollywood is learning more and more that their goal should be to offer audiences entertainment that is special enough to get people to click of their computers and phones for an hour or two.  For a long time during the streaming wars, the studios were under the Field of Dreams belief that “if you build it, they will come,” but as we’ve seen building isn’t enough.  You need to make people want to actively go out and see something, whether it be in a theater or on a separate platform.  One of the biggest problems facing streaming right now is the rising cost of everything.  The low price points at launch were a big help in getting people to subscribe to these new streaming surfaces, but all the incremental price increases since then have caused a lot of budget conscious people to tune out.  Moving to streaming was a big part of the whole “cutting the cord” movement that drew people away from subscribing to cable, but now the costs have risen to the point where streaming is now on par with cable TV and possibly even more depending on how many services people have signed up for.  While streaming can be a good value overall depending on how robust their libraries are, people are becoming more picky about which ones they want.  And that audience churn has become the biggest problem facing the market today, especially for the studios that have seen their growth stagnate even after spending billions creating exclusive programming for it.  All the while, YouTube is free to use, easy to navigate, and offers a lucrative creator incentive structure that enables a higher quality of entertainment than just simple home videos.  At the same time, there is truth to there being too much of a good thing, and YouTube’s monopoly on people’s attention is not exactly healthy in the long term for the future of entertainment.  Hopefully Hollywood discovers a way to deal with the competition that they face with YouTube and manage to build something special that either competes strongly against the pull of YouTube, or manages to survive alongside it.  In the face of television and home video, Hollywood has always managed to find ways to bring audiences back to the movies and prestige entertainment.  In the meantime, enjoy the best that YouTube has to offer, but in good moderation.  There are plenty of good content creators on YouTube that are deserving of your attention.  But just remember to come out of that YouTube rabbit hole before it consumes too much of your day and support the arts in far more direct and personal ways beyond it.