Social media platforms and creator-focused startups haven’t been looking too hot this year, as companies like Snapchat, Patreon, Cameo, and Meta all carried out layoffs along with the rest of the tech industry. YouTube ad revenue is declining and creator funds for platforms like Pinterest have dried up.
Things may appear bad on the surface, but creator economics is more than just a buzzword losing interest among venture capitalists. Despite platform-level challenges, creatives continue to make their living outside of the confines of traditional media and will not continue to grow until 2023.
Social Media Platforms Must Commit To Creators (Seriously This Time)
In my opinion, the biggest news for creators in 2022 was YouTube’s announcement that it was adding shortform creators to the YouTube Partners Program, allowing shortform creators to earn ad revenue for the first time ever. Beginning in early 2023, creators will be able to apply to the YouTube Partner Program when they reach a new Shorts-specific threshold of 1,000 subscribers and 10 million Shorts views over 90 days. As members of the affiliate program, these creators earn 45% of the advertising revenue from their videos.
That’s huge because it’s an open secret that short videos are hard to monetize. For example, TikTok pays creators through its Creator Fund, a $200 million pool that was unveiled in Summer 2020. At the time, TikTok said it planned to expand that pool to $1 billion in the US over the next three years and double it internationally. That might sound like a lot of money, but by comparison, YouTube has paid creators over $30 billion in ad revenue over the past three years. With the pool of eligible creators becoming saturated, creator funds are pretty much useless — if you’re in TikTok’s creator program and a video gets 1 million views, you might be able to cash out a small latte. While these multi-million (or billion) dollar creator funds may seem like a beacon for creators, they’re not helping all that much. The most popular TikTokers make their money from sponsorships and off-platform opportunities rather than their videos.
TikTok has long been the dominant platform for short videos, while Snapchat, Instagram, and YouTube have largely copied the newcomer to keep up. But YouTubers will finally have an incentive to flock to YouTube Shorts once they can actually make advertising money there. The best part? There has never been greater pressure on TikTok to follow suit.
“Creator Economy” is not a catchphrase
What is a buzz word? You know it when you see it. It’s when Facebook rebrands to Meta and you’re suddenly getting hundreds of emails about “the Metaverse,” or when a crypto startup declares its commitment to promoting the “community” just because it has a semi-active Discord server . You could also classify ‘creator economy’ as a buzzword – I personally cringe when I say it out loud, but I stand by the fact that it’s a much simpler shorthand than saying ‘the industry where talented people work on the internet influencing social media audiences to develop careers as independent creatives.”
But all of these buzzwords actually represent real things. Yes, even the metaverse is a thing, although I’d argue that we’re talking more about Club Penguin than what Mark Zuckerberg cares about. The problem with buzzwords, however, is that they dilute real-world phenomena into fads that are further muddled by unaffiliated venture capitalists who double the trend with overzealous investments.
On TechCrunch’s own equity podcast last week, everyone favorite tweeter and new dad (!!) Alex Wilhelm reflecting on a prediction he made last year.
“The passion economy is not sustainable,” he read, citing his forecast from last year. “Done! Who still talks about creators these days? Nobody!”
I can forgive Alex for hating “passion economy” with the fire of an exploding supernova for every single follower Khaby Lame has on TikTok. The term glorifies the relentless, soul-crushing hustle and bustle people experience when trying to “make it” in a field they love, while ignoring that industries people are passionate about (arts, community service, politics), often the most important ones are exploitation of all.
I think what Alex is getting at here is that venture capitalists have been pumping money into the creator economy in 2021, just as they have been pursuing “trending” technologies like AI and Web3. According to data retrieved from Crunchbase earlier this year, here is the breakdown of Creator Economy funding for the first three quarters of 2022.
Q1: 58 rounds worth $343.2 million. Q2: 42 rounds worth $336.0 million. Q3: 19 rounds worth $110.2 million.
However, I don’t think that means the creator economy is failing. It could just mean that the industry is investing too much in a bunch of companies that focus on the creators that the creators didn’t actually want or need. The economy too, you know.
I’ve been saying for the past year that creator economy startups can only thrive if their ultimate goal is to truly help creators. In 2021, a year where venture capital flowed like champagne at a Gatsby party, we joked about it more startups in the creator economy as creator. But that’s a problem for investors, not developers, many of whom are completely oblivious to a16z’s whims. It’s indicative of an environment that encourages inexperienced tech moguls to try to solve problems in an industry they don’t fully understand, and as a result, the space became deeply saturated. I can’t understand the number of companies I’ve encountered that have attempted to automate the process of securing branded deals or help developers white label products.
I would even say that it’s bad for developers when there are too many startups fighting to partner with them. We know that most startups are doomed to fail – what happens when you rely on a company to provide some type of service to your business and then within a few years it fails? For this reason, I’ve made it a personal guideline to always ask creator-centric startup founders how they would plan to protect their creators from harm if their company fails.
No matter where VC funds may fall in 2023, the playbook for creators’ success remains the same. Diversify your revenue streams, build trust with your audience, and make sure you don’t burn yourself out.
Venture capital will continue to intersect with creators, but not in the way you think
Investment in creator economy companies may be declining, but creators continue to collaborate with VC money in ways their audiences don’t often see. Charli D’Amelio and her family have become investors themselves. MrBeast is seeking a unicorn’s worth of funding, which is not surprising as other notably successful creators have achieved the same thing.
In less extreme cases, many creators grow their businesses through startups like Creative Juice, Spotter, and Jellysmack that offer upfront cash payments for temporary ownership of a creator’s YouTube back catalog, meaning the company gets all of the advertising revenue from those videos. These companies operate in a similar way to venture capital firms. They invest in creators who they believe will turn that cash injection into even more money and bring returns to both parties.
Despite massive funding rounds and mammoth valuations, the model these companies operate is still relatively new, and founders should exercise caution, as they should with any business deal.