Why YouTube is sharing ad revenues in short-form videos

YouTube made $28.8 billion in ad revenues last year, up 46% over 2020, out of which it paid a portion to creators of regular, longer-form videos. YouTube launched Shorts, like Instagram’s bit-sized video feature, following the popularity of TikTok.

TikTok, ranked sixth among social media platforms on user base, also has a fixed pool from which it pays its creators. The payout for producers could potentially be higher under YouTube’s programme, enabling it to attract more creators. In India, too, TikTok had garnered over 200 million users before it was banned by the government in mid-2020. A crop of local apps are looking to fill that space, including Josh, Roposo and MX TakaTak.

For platforms such as YouTube, users, content and creators are connected. To attract users, platforms have to push engaging content, for which they need creators. Revenue-sharing programmes are key to attracting and retaining creators. Consulting firm Redseer estimates that India presently has 300 million short-form video users. This is expected to increase to 550-600 million, or 67% of all smartphone users, by 2025, and further by 2030.

The Ad Opportunity

This growth in users holds huge revenue potential. Ad revenues will follow, even as the percentage of digital ads goes up. In India, about 46% of ads are digital. In contrast, in China, 82% of ads are digital, enabling short-form video platforms such as Douyin (how TikTok is known in China) to get about 65% of their revenues through ads.

According to a 2021 report by consulting firm Bain & Co, digital advertising will be the first frontier, and there will be more revenue options. It points to KuaiShou, a Chinese video sharing app which has partnered with Taobao, JD.com and Pinduoduo for video commerce. In India, however, the ad industry is yet to tap even the existing market. There is a mismatch between the time spent on short-form videos and advertising on the medium. While consumers direct 7% of the time they spend on consuming content towards short-form videos, the medium has attracted less than 1% of ad revenues.

Beyond the Top 50

To tap users beyond the top 50 cities, short-form videos offer the best bet for advertisers. According to Redseer, short-form videos are next only to television and Indian social media apps such as ShareChat in terms of reach beyond the top 50 cities. This is being driven by content specifically catering to this audience. While users from metro and tier-I cities prefer English and Hindi language content, users in tier-II and beyond prefer regional languages.

The market beyond top 50 cities is likely to expand. According to an IAMAI Kantar report, India will have 900 million internet users by 2025, and this will be led by rural growth. Greater penetration is expected to overlap with economic growth. A Bain & Co. report published in March this year says, “Over the last five years, the rural ecosystem has grown ~10% per annum — and still has strong headroom for growth.”

Attracting Creators

To get a share of the digital advertising market, YouTube has to ensure a constant flow of content, and it has to onboard more customers and keep them. In the 2021 report referred to earlier, Bain & Co. pointed out that India’s short-form video market is nascent. “Successful players will focus on three areas as they onboard the next wave of users and drive engagement: tech-enabled hyper-personalization, creator enablement and lock-in, and monetization,” it said.

Yet, even in the broader creator economy, the potential for advertising is untapped. According to Kalaari Capital, India has about 150,000 content creators, most of whom have between 10,000 and 1 million followers, earning $200 to $2,500 a month. Those with over 1 million followers earn between $2,500 and $65,000 a month. Only 5% of that comes from ad revenues. YouTube’s programme could give a boost to it.

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