One of the most interesting developments of the past two decades has been the rise of the creator economy. But one has to question to what extent content creation translates to value creation. An organization, or individual, creates value by reallocating resources to a higher valued use. For most products or services this can easily be proxied by profitability. In order to hire resources away from their next highest competing use, the organization must make a more attractive offer than the current employer. If the revenue associated with the enterprise exceeds this “cost”, i.e., the enterprise is profitable, we can infer that the organization has indeed created “value”.
At first blush, it appears that the rise of web 2.0 has created substantial social value. Open access to channels like YouTube, Instagram, and X have allowed users to participate in this potential new marketspace at nearly no direct cost. And clearly consumers of content have benefitted as the amount and variety of entertainment, education, and self-help have exploded. But has value been created, or has there primarily been a transfer of value from producers of content to the host channels and consumers of content?
According to the following table taken from AwesomeCreatorAcademy.com, as of February of 2023 only a little over 8% of YouTube channels had the 1,000 subscribers required to be eligible for ad revenue sharing on YouTube. Coupling this with a less than five year life span for the average YouTube channel, it is not immediately apparent that most channels are able to cover the opportunity cost of their creators’ time.
Next can look directly at YouTube revenue. YouTube generated approximately $29B in revenue from subscriptions and advertising in 2022. According to Zippia.com, roughly 15M channels actively create content. So, the average revenue generated per creator, compensated or not, was only a little more than $1,900. We of course can’t know how many hours on average creators spend on their channel. But to match the US median income of approximately $74K, creators would need to spend no more than one hour per week on creation and managing their channel.
And so, using YouTube as an example, it appears that on average content creation fails to generate net social value. The benefits enjoyed by the content consumers appear to come at the personal expense of the average content creator. But then this analysis is imperfect. First of all, markets for non-rival, non-excludable goods, like YouTube, are inherently inefficient. As it is unnecessary to compensate the provider of content directly, instead relying on advertising and subscriptions, revenue is a poor proxy for the value received. We see this same problem in the efficient provision of clear air and water, national defense, public radio, and so on. Second and perhaps related, the producers of content are also consumers of content. And so, interestingly Web 2.0 may reflect an economy based on non-commodified exchange, no different from two farmers trading apples for potatoes. To the extent this is the case, profitability would no longer serve as an appropriate signal of value creation. Unfortunately, we’re left not knowing for certain whether we are experiencing yet another bubble, or whether value is being created and this new market is sustainable.