YouTube needs to keep its eye on Amazon.
So says Mark Suster, a partner with Upfront Ventures in Santa Monica, Calif., and an investor in Maker Studios, a Los Angeles startup that aggregates independent YouTube channels and produces original videos.
Suster’s thesis — that Amazon could easily eat YouTube’s lunch — was presented at VidCon, a three-day convention in Anaheim, Calif., organized by independent YouTube creators. In his keynote, Suster argued that Amazon, while not currently in the user-generated-video business, has the wherewithal to begin developing an immense audience.
Its Amazon Web Services (AWS) is widely considered the world’s largest cloud-hosting company, running hundreds of thousands of servers globally. It also has an ad sales team that could easily sell inventory on any video site as well as on its main retail domain. The Seattle company has been dabbling in original video, funding a series of 14 pilots through its Amazon Studios division, and greenlighting five to be produced as exclusive series for its Amazon Prime Instant Video service. And it owns the Internet Movie Database, a repository of data on various forms of video.
In addition, Amazon has 219 million active monthly customers, 30 million users of its Kindle devices, more than $61 billion in annual sales and a market capitalization north of $135 billion.
What makes Amazon a formidable competitor, however, is its “ruthless” behavior, Suster said. “Amazon keeps cutting prices for its AWS customers” — 35 times since the service launched in 2006, even though it faces few competitors, he said. “This is the behavior of a ruthless, relentless juggernaut.”
For Suster, the comparison serves an agenda — to persuade YouTube to lower the percentage it claims from ad revenue generated by its content partners. While YouTube’s direct licensing agreements with its largest content providers are confidential and varied, Suster pegs the amount of YouTube’s take at roughly 45% of ad revenue. The remaining 55% goes to the creator or the multichannel network (MCN) that represents them. Maker, which Suster’s firm has invested in, is one of the largest MCNs out there, representing more than 25,000 YouTube channels that, combined, generate nearly 4 billion views per month.
These networks, as well as a handful of vocal independent creators, have chafed at YouTube’s 45% take, arguing that what’s left over isn’t enough to build companies and careers. Suster’s threat is implicit: Lower that percentage or there will be steady economic pressure for creators to take their content elsewhere. Sure, there aren’t many other options that can compete with YouTube and its “Walmart-like dominance” of online video, Suster said. But that could easily change should a company, say Amazon, decide to enter the field.
YouTube has argued that it provides tremendous value. The platform is free to both viewers and creators, who benefit from YouTube’s tools, hosting, storage and a vast distribution network that would otherwise cost billions of dollars to replicate — not to mention a monthly global audience of 1 billion people, or roughly 40% of the Internet population. Amazon, on the other hand, charges customers for using its cloud infrastructure, and its video service is free only to viewers who pay $79 per year to be part of its Prime program.
Suster is correct that Amazon could decide to change that. What won’t change, however, is the natural tension between distributors and content creators.