The Creator Economy vs The Power Law
The Creator Economy vs The Power Law
The internet is driven by power laws - will it defeat the creator economy too?
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If you had $1 billion, what would you spend it on?
For some, it might be a penthouse on billionaire’s row in NYC, a plane and a couple of fast cars.
For others, they might buy an island and a massive yacht.
But in this case, someone wanted to buy a YouTube Channel for at least $1 billion.
A few days ago, Mr Beast, arguably the most popular YouTuber in the world with over 100M subscribers on the platform, made a comment about knocking back a verbal offer to buy his YouTube channel and associated companies for at least $1 billion.
Just a few years ago, this would’ve been unthinkable. But the creator economy has come so far in such a short amount of time that this probably isn’t even that shocking. Given Mr Beast (Jimmy Donaldson) made at least $50M in 2021 from YouTube alone, not to mention Merch, Burger (over $100M in revenue since late 2020) and Chocolate (over $10M in revenue since Jan 2022) sales on top of that, the forward revenue multiple is somewhat palatable for a high growth consumer brand.
With this, it’s clear that distribution - whatever the form - is king.
And this has been known for a while. It’s why influencer marketing is a thing.
Brands realised that tapping into the creator’s curated audiences increased brand awareness significantly and created a more authentic image of the brand.
This then created a market for nano and micro-influencers who offered brands a hyper-focused and engaged audience for a fraction of the price of a larger creator. To date, a diversified influencer-focused marketing strategy has been successful for consumer brands. They’ve been able to create brand awareness and double down on conversions through performance marketing.
Beyond creators selling ad slots, creating subscription programs to access exclusive content also boomed over 2020 and 2021. By doing so, creators didn’t need to deal with fickle advertisers and were able to build themselves their own recurring income stream. Platforms such as Substack or Patreon scaled exponentially and thrived through this period.
The release of more creator economy tools made it easier for the average joe to become a content creator and work towards creating their own income streams. It made it viable for the long tail of creators to actually make a living from their content.
However, as we enter a bleak economic period - will this continue to hold true?
Probably not.
Both Patreon and Substack have already had to lay off 14-17% of their staff.
Consumer budgets are already tightening with high inflation being felt throughout the entire economy. Consumers are looking for discounts, and substitutes, rather than spending freely on subscriptions with Netflix losing over 1 million subscribers in 2022.
So is there hope for all those new creators who left their jobs in the Great Resignation in 2020/21?
Maybe.
Whilst Kevin Kelly’s 1000 true fans framework will still hold true, the way in which these fans are monetised will need to shift and adapt.
To date, creators have been able to double down on their niche and do what they do best, whether that’s writing, videography or something else completely. Many of the creator economy startups did the heavy lifting on distribution and abstracted away much of the operational difficulties of being a solopreneur.
Despite this, I’d argue that there is a lot more to running a solo business than just dealing with operations. Thinking strategically, and exploring different verticals or operating models are key to maximising revenue and in this case, maximising longevity in the game.
Going back to the Mr Beast example from earlier, dissecting his journey to YouTube stardom is a masterclass in intentional brand building and developing strategic pillars that fit his brand. To begin with, Donaldson prioritised making over-the-top, competition or wager-style content which kept viewers on the edge of their seats to see what would happen. Once he saw success here, he doubled down on the over-the-top nature of the content and built a team around him to be able to deliver on this and continuously take it to the next level.
Like any good growth startup, Donaldson has ploughed all revenue back into the business, regularly spending $1M + for each video production. In return, he expects his videos to get at least 50M views to make them worthwhile.
So with this flywheel spinning and a team in place to dream big, he’s gone after food as his next vertical. Using ghost kitchens, he created Mr Beast Burger and scaled that to over $100M in revenue.
He largely bootstrapped this growth by creating content that fits with his over-the-top style (see below):
And even extended this into a permanent fixture, drawing over 10,000 people to the American Dream Mall to visit his new IRL restaurant.
To prove this wasn’t just a one-hit wonder, he’s also pushed into confectionary through his Feastables brand. True to the brand, Donaldson used a Willy Wonka-style golden ticket promotion to kick start sales, culminating in the below video:
Whilst the Mr Beast model, i.e., building verticals around a central persona or theme, is effective and has been successfully employed by other creators such as KSI, Logan Paul or Emma Chamberlain, it’s not the only way to survive and thrive as a creator.
The other viable path is combining forces with other creators and forming a collective of sorts. Collaboration is a strong way to unlock new distribution. In this case, creating a creative collective (almost like a band) is a good way of pooling creative genius and audiences to be able to scale everyone’s brand in a powerful way.
Again, we can look to the YouTube ecosystem, which is by far the most advanced creator ecosystem across all platforms for some stellar examples of this. Immediately, the Sidemen come to mind as the standout group. Beyond being a group of 7 guys who play games together, they also have their own Fried Chicken restaurant, burgeoning Merch line and subscription streaming platform with exclusive content.
Whilst their revenue figures aren’t public, collectively, they have over 100M subscribers that are served up content from 4 group channels, and 7+ solo creator channels. Whilst Mr Beast explored other commercial verticals far sooner, the Sidemen have largely focused on creating an unprecedented level of content to build a stronger connection between themselves and their audiences.
As an example, many of the Sidemen members routinely created 3-4 videos per day for at least 2-3 years pre-COVID (e.g., Vikkstar who has uploaded over 9000 videos across 3 channels). Whilst this has reduced, most members still continue to produce numerous videos per week, in addition to a longer, more extravagant video (check out the ~2-hour long $20,000 vs $200 Holiday video below) on their group Sidemen channel every Sunday. This amount of volume and consistency likely wouldn’t have been possible if they had pursued their own solo endeavours.
Regardless of whether a creator goes down the Mr Beast or Sidemen pathway, the following is clear:
To stay alive, the long tail of creators will need to institutionalise their thinking about their content creation. Intentional content programming with an understanding of the data behind each piece of content is crucial.
It is almost a necessity to explore new verticals that make sense within the creator’s context and content. Whether that’s launching a consumer product (most creators) or a PE Fund (like Kim K), creators need to start thinking about how they start a Walt Disney-like flywheel earlier in their journey (see below).
The dual responsibility of creating content and thinking commercially will be a large obstacle for most creators to jump over, and they’ll need to figure this out before the power law kicks in. Having an accountability system whether it’s with other creators through a collective or some other means is a good way of managing this.
The creator economy has been driven by a push towards pursuing one’s passions above all. Whilst this has worked out well during a protracted bull market - it’s unproven in a real bear market that isn’t curtailed with endless money printing and stimulus checks.
Whilst making money and pursuing one’s passion isn’t mutually exclusive, it’s about to get a whole lot harder to do both at the same time.
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Abhi