YouTube’s secret weapon in the digital video wars

The tweens start lining up as early as eight o’clock on a recent Saturday morning. After a security check, they’re ushered up to an empty floor of Google Canada’s headquarters in Toronto. They’re here to meet, however briefly, their favourite YouTube personalities. Many of the young fans carry homemade signs professing love and adoration for people like Bethany Mota and JusReign. It’s mostly a parent-free zone.

This is just the first event in a long day of celebrating all things YouTube. Later in the day, the company is throwing an event called YouTube FanFest, a live performance in downtown Toronto featuring more than a dozen of the video platform’s biggest names. It’ll be the first time FanFest has occurred in North America.

Previous shows in Mumbai and Singapore drew thousands of screaming tweens. Jasper Donat, whose Hong Kong–based event marketing firm helps organize FanFests, has no idea what to expect in Toronto. “It could be 5,000 people or 10,000,” he says. “A Google executive told me 20,000, but I think he’d had a little too much coffee.”

The main draw of the morning is Lilly Singh, a 26-year-old from Markham, Ont., who has amassed 5.6 million subscribers under the name IISuperwomanII. Singh’s videos, usually filmed at home, take the form of personal comedic monologues and skits about banal but relatable topics. Lately, she’s branched out and produced a couple of slick music videos. The 120 teens waiting in line for Singh are predominantly girls; they pass the time clutching Lilly Singh fan art and using their smartphones to primp for their long-awaited selfies with her.

Donat, playing the hype man, starts introducing three other creators on the far side of the room at around 9:30. As he approaches Singh’s line, the teens start trembling, eyes wide. “Who are you guys waiting for?” Donat asks, wearing a smug grin on his face. He’s relishing the moment. The sound explodes from more than a hundred pairs of tiny lungs: “Lillyyyyyyy!” They draw out the last syllable as the pitch ascends and the volume builds into a brain-stabbing physical force. I plug my ears. The wailing turns to ululating when Singh walks toward them in black jeans, white sneakers and a red baseball cap with an “Explicit Swag” warning written on it. (Her swag isn’t explicit; her videos are as wholesome as Disney.) Somewhere amid the noise, there’s a girl screaming “Lillyillyillyilly” like she’s in a trance.

The shrieking lasts for about 30 seconds before tapering off, though a stray, plaintive “Iloveyoouu!” sometimes escapes from a girl who can’t control herself. Singh doesn’t seem overwhelmed by the attention, nor is she cool to the reaction. She’s smiling, appreciative, but composed above all. Donat isn’t finished. “Ladies and gentlemen, she has 5.6 million subscribers,” he shouts. “She’s about to go on her first ever world tour and she’s waving the Canadian flag. Again, go crazy for Superwoman!” They do. The piercing shriek of a pack of Lilly Singh–obsessed tween girls is painful, but for YouTube and parent company Google, it must be comforting. The video platform has become a cornerstone of web life and, according to research firm eMarketer Inc., controls nearly 20% of the online digital video advertising market in the U.S. YouTube is making efforts to grow its position even more, with YouTube stars—or creators, in company parlance—as the key to attracting more ad dollars, particularly from brands that currently spend big on television. YouTube argues its creators are essentially celebrities for the next generation. In order to reach young people, you’ve got to be on YouTube.

The ad community hasn’t bought in wholesale, however. There are doubts about the importance and effectiveness of YouTube as an ad platform. Facebook now also poses a real threat, reporting that four billion video views are happening each day on its network. But when you’re standing amid the intensity of teen girl fandom at a YouTube meet-up, the looming threat of competition seems pretty remote. When Singh starts posing for selfies and signing autographs (usually it’s a smartphone or tablet case she’s asked to sign), emotions are still running high. The face of one girl crumples into what looks like extreme anguish when her time comes to meet Singh, but it’s more likely joy. She clamps a hand to her mouth and observes Singh from afar before running in for a hug, where she stays, convulsing into Singh’s shoulder.

YouTube might want to hold on to its stars just as tightly.

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When Google bought YouTube in 2006, in a deal valued at US $1.65 billion, the move puzzled people. Why would Google want a dumping ground for amateur video? Because it could make money through advertising, it thought. In 2010, Google introduced its TrueView ad format, which allows viewers to skip ads after five seconds; it now accounts for 85% of all video ads on YouTube. Advertisers like the format because they only pay Google when a viewer watches at least 30 seconds of a spot, ensuring they’re not wasting money on a disengaged audience. The company does not break out YouTube’s financials, but analysts estimate it generates up to US$4 billion in revenue. That’s tiny for Google, accounting for just 6% of its total in 2014. YouTube is presumed to be an expensive operation that adds little to the bottom line, given the infrastructure costs associated with hosting the 300 hours of new video uploaded every single minute and the fact that 55% of ad revenue is paid to YouTube creators. Google’s interest in the platform is essentially a bet that viewers and advertisers will migrate to digital video. “We’ve had a big focus on our core search business over the last few years, but this is the future,” says Sam Sebastian, managing director at Google Canada.

Sebastian’s YouTube awakening happened in 2013. Then Google’s director of local and government markets in Chicago, he was out of town on business one afternoon, and his wife was taking their 12-year-old daughter to a mall outside the city to meet a YouTuber named Bethany Mota. Sebastian’s wife, who was texting him, expected it would be an hour-long affair. Instead, they were in line for four hours, and his daughter bawled when she finally met Mota. “I’d been at Google for nine years,” he says. “I knew about the power of YouTube, but it didn’t hit home until that night.”

Sebastian recounts this anecdote on stage at a glitzy event space in downtown Toronto. He’s somewhat hesitant to tell the tale—he doesn’t want people thinking YouTube’s audience is exclusively tweens. But it’s an appropriate tidbit if he’s going to get a crowd of advertisers and media buyers to accept the company’s vision. Called Pulse, this event is YouTube’s version of upfronts, that time of year when traditional television networks hold splashy events, trot out their stars and pitch advertisers on upcoming programming. On this night, YouTube is showcasing some of its own talent, like Mike Tompkins, a 27-year-old originally from Edmonton who has 1.5 million subscribers. His DJ setup is wheeled onstage and he performs electronic dance music with sounds made from his mouth, some pre-recorded, some not. His gimmick on YouTube is spitting out a cappella versions of pop songs, beat boxing and manipulating his voice to recreate the original instruments. Other creators are brought onstage for individual Q&As, the underlying message of each one being, “I have a big fan base. Advertise with me.” With the creators proffered up for deals one after another, the event takes on the feel of an advertising-world meat market. Later, Sebastian says the creators will be hanging out for cocktails after the show. “Corner them,” he tells the audience.

Sebastian is also pitching Google Preferred, a new ad product debuting this month in Canada, designed to help advertisers better target their content. “We tend to over-complicate everything,” he tells the crowd. “YouTube is this massive sandbox that we haven’t done a very good job delivering to advertisers and agencies.” Preferred hives off the top 5% of content on YouTube for brands to run their ads against, using what it calls a “preference score” to rate content based on the number of views, shares and sentiment behind comments, among other factors, to determine what qualifies as its best material. That way they can be assured their meticulously orchestrated spots won’t appear before a video of, say, a chimp drinking his own urine. (There’s a large number of videos on YouTube belonging to this genre.)

Preferred mimics the traditional television ad model. The content is organized into 13 categories, such as fashion and beauty, comedy and automotive. Advertisers have to commit their money upfront, as is the case with television. Even though Preferred is centered on categories as opposed to individual creators, it’s not too hard to figure out who ranks among the rarefied 5%. At the Pulse event, the company gave away expensively printed lookbooks featuring moody portraits of various YouTubers, including Singh and Tompkins, alongside their channels’ stats.

The idea of scarcity seems like an odd one on YouTube—even its top creators are constantly uploading new videos—but so far, media buyers are intrigued. Omnicom, Publicis and WPP signed on for early access. “It gives assurance to advertisers that with this premium content, their ads will not only be seen, but show positive brand engagement,” says Michael Neale, chief investment officer at MediaCom in Toronto. “All with no digital speak around clicks and acquisition metrics.”

Even before Preferred existed, some advertisers have found success on YouTube. ING Canada used the platform to help promote its rebranding as Tangerine. When users searched for anything related to cars, for example, they might get an ad featuring a man with an orange mug saying, “Hey, what a coincidence. I love cars, too.” He’d then make a quick pitch for Tangerine. The company had four different ads connected to searches related to fitness, DIY projects and music as well as automotive. According to Google, the campaign received more than 8.3 million impressions, exceeding expectations, and 18% of viewers watched the 15-second spot all the way to end. (YouTube won’t disclose how many ads are viewed the whole way through, but a study conducted by research firm MetrixLab found that 94% of people skip pre-roll ads.)

With better targeting capabilities, Preferred helps to address some of YouTube’s long-standing shortcomings; whether it will attract money away from television is another matter. Advertisers will spend US$7.8 billion on digital video ads this year, according to eMarketer—up 34% over last year. The television ad market, meanwhile, is worth a whopping US$70 billion and is growing. While the TV ad market will see US$3.2 billion in additional spending next year, digital video will add just US$1.7 billion. Last year, an analyst at RBC Capital Markets concluded that a single episode of The Big Bang Theory was more valuable to advertisers than an entire week’s worth of viewing on YouTube. Mark Sherman, founder of media planning firm Media Experts in Montreal, argues YouTube’s relevance is overblown. “It’s a fantastically important medium, but that does not necessarily make it a fantastically important advertising medium.”

Companies have other ways to advertise on YouTube beyond buying pre-roll ads. They can work directly with creators on endorsements, which might be even more effective. Bethany Mota, a 19-year-old from California, is probably one of the most sought-after YouTube stars. Her DIY projects, hair tutorials and fashion videos have attracted more than 8.6 million subscribers, and many advertisers would love to have their products featured. “Advertising on YouTube is really powerful because it’s so natural,” says Mota. “If I’m thinking about testing out a product, I’m probably going to trust somebody who’s talking about it on YouTube more than I would someone on TV. On YouTube, they’re not talking from scripts.”

When it comes to these sorts of endorsements and collaborations, Google doesn’t get any revenue—it’s entirely between the advertisers, the creators and their agencies. The company has to depend on pre-roll ads to bring in cash. What’s ironic is that while YouTube started purely as a repository for user-generated content, the company has recognized that it needs higher quality videos to draw the kinds of advertisers it wants—which sounds a lot like television’s model.

And even though YouTube has its own constellation of video stars, not everyone is convinced of their value. “The problem is YouTube is trying to price itself at the higher end of the market,” says Brian Wieser, an analyst who covers Google for Pivotal Research Group in New York. “That makes sense if their content was comparable to television. But it’s not.”

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Lilly Singh and her 5.6 million devotees would probably object to that statement. At 26, Singh still lives with her parents. She makes videos in the same bedroom as she did when she posted her first one five years ago. She started uploading videos for a couple of different reasons, she says. Singh cryptically references “overcoming difficulties” in her life and says she found the experience self-medicating. “I thought, if I make other people laugh, it’s going to make me laugh, and it’s like everyone helping each other.” But she displayed a savvy business sense even then. “The first thing that caught my eye was there wasn’t any other South Asian female doing this, and I thought, Hmm, this is kind of strange. That gap needs to be filled.”

Singh’s videos, like those of other prominent YouTube personalities, are a bizarre mix of confession, standup comedy and ranting. They often just feature her alone in her bedroom, talking into a camera for seven to 10 minutes, interspersed frequently with jump-cuts. Singh performs skits too, like when she plays exaggerated versions of her Indian-born parents. Her style is somewhat manic, with wild gesticulations and rapid changes in intonation. Her approach is earnest, and the humour is innocuous. She trades in observation comedy, sometimes about situations she’s far removed from (“Types of Kids at School,” for example). “I’m talking about parents and relationships and things a lot of people can relate to,” she says. Her top video, with nearly 13 million views, is titled “How Girls Get Ready.” Her content is strictly PG. She never swears. Sex is never addressed. Parents can feel safe knowing their kids are watching Superwoman.

As her videos attracted views, she reached out to more established YouTubers, like Harley Morenstein from Epic Meal Time, for advice. She has tweaked her approach over the years, too. “When I first started making videos, it was very much like, my Indian parents this and that,” she says. “I realized you don’t have to corner yourself into a niche market.” Three years ago, she posted a video called “Sh*t Punjabi Mothers Say.” A year later, her parent-related videos were simply about parents, regardless of their background.

If you ask YouTubers about the reasons behind their success, more often than not they’ll talk about their videos being relatable and authentic. Singh tries to make each video have broad appeal, so someone who has no idea who she is can still find it and enjoy it. Her on-camera persona isn’t far removed from who she is off-camera, either, which appeals to tweens. Film and television stars, on the other hand, employ an army of public relations professionals tasked with ensuring their clients are seen as “normal” by the general population. The nature of YouTube itself also has a lot to do with Singh’s success. It’s a more intimate and interactive medium than television, which is something YouTubers exploit by responding to comments, live-streaming videos and staying active on other social media platforms. (If Singh is stuck for a video topic, she’ll ask her Twitter followers.) Her star is rising so much that she’s spearheading a world tour this month, featuring dancers, music and her monologues. It starts in India and hits Singapore and Australia, countries with big non-resident Indian populations. Singh has a rabidly loyal fan base in India, which she credits in part to the country’s celebrity-driven culture and the fact that there still aren’t many South Asian stars on YouTube. “The young kids, who else would they have?” Throngs of fans were waiting for her at the airport when she visited earlier this year, and a man pulled her aside with a comment. “He’s like, ‘I just want you to know you make Indians proud.’”

Singh is firmly part of YouTube’s celebrity ecosystem, which is crucial to the platform’s success. Each time she posts a video (which she does twice a week on her main channel), millions of people are notified and come to YouTube to watch it, like it and comment on it. YouTube fame exists largely outside the mainstream, but the company argues its celebrities have relevance outside the platform, too. Last year, Variety commissioned a survey that found five of the most influential figures among American teenagers were YouTubers, ahead of Katy Perry and Daniel Radcliffe. YouTube ultimately needs more people like Singh to produce engaging content and attract more of the advertisers and ad dollars it’s seeking.

YouTube creators and ad agencies have griped in the past that the company could be doing more to support and promote them, and the company has stepped up its efforts. In 2014, YouTube took out print, television and billboards promoting three of its creators, including Mota and makeup tutorial phenom Michelle Phan. Google Canada deployed a similar campaign in March, featuring Mota and the two guys behind a channel called AsapScience.

In April, the company established a new role called “global head of top creators” and appointed Laura Lee, an executive who’s been with YouTube since 2007. “We realized there’s even more we can do as a company to really get our arms around creators and help them fulfil their creative ambitions,” Lee says. She’s a little vague about what specifically the company will be doing, saying that she’s only been in the role for a month and is still in “listening mode.” However, YouTube did hold a summit for creators recently, bringing in speakers like Wes Anderson and David Blaine to inspire them.

YouTube will also be investing more in original content. The company tried something similar in 2012, when it ponied up $200 million to develop about 100 new channels on the platform, focusing on both native creators and established producers, television networks and personalities, including Jay Z. But it reinvested in only 40% of the original channels a year later. The industry generally considers the effort a non-starter, though YouTube has pointed out that 25 of the channels it funded have a million subscribers or more. This time around, YouTube is concentrating only on a narrow slice of homegrown talent. (The company has not disclosed how much it’s spending.) “There’s so many different paths creators can take, and we know it’s important to have a group to help them,” Lee says.

There is already a well-established system around YouTube for cultivating new stars. Companies like Maker Studios and Fullscreen are known as multi-channel networks (MCNs), which sign YouTube talent, help them promote their channels, score advertising partnerships and make promises about turning them into stars. The tag line on the website for AwesomenessTV, another MCN, is “Get discovered by Hollywood!” Maker Studios, based in Los Angeles, was bought by Disney last year for more than $500 million.

At this point, it’s unclear how YouTube’s new creator group will work with MCNs and whether there will be any overlap or competition for talent. Lee doesn’t expect that to be the case. “We’re very lucky that MCNs have provided us with a huge roster of creators,” she says. “The MCNs are trying to help creators on many different levels. We’re focused on YouTube.”

However that shakes out, MCNs are on a voracious hunt for new talent. Los Angeles–based Collective Digital Studio, which counts Singh as a client, hired a managing director for Canada this month. “We’re going to be aggressively looking at this market and expanding really, really quickly,” says Jordan Bortolotti, who’s heading up the Toronto office. He is looking for people he calls “YouTubey.” It’s a hard thing to define, he says, but it comes down to authenticity. “Authenticity is to YouTube as production value is to television.”

Bell Media is launching an MCN, too: Much Digital Studios debuts this spring as an extension of the television channel. Justin Stockman, vice-president of specialty channels at Bell, explains the Much brand has long been associated with youth, humour and irreverence—the same qualities now attributed to YouTubers. “It’s a great way to extend our brand and help enhance our old TV business,” he says. The two platforms can cross-promote each other, and the company will pair advertisers with its YouTube clients, generating additional cash for itself and compensating for any loss of TV ad dollars. Stockman says a lot of YouTubers are unhappy with their MCNs, some of which have tens of thousands of clients, making it impossible to devote any attention to them. A boutique offering, he hopes, will help Much acquire talent. Being part of an existing media company is a bonus, too. “If you’re really funny, we might be able to work with you one day to develop a comedy series or a fashion series,” he says.

This network of companies focused on acquiring and developing YouTube talent is, of course, a good thing for Google. But MCNs are not only concentrating on YouTube. The term itself is outdated, in fact. Today MCNs prefer to be called multi-platform networks, because they also have clients who are huge on Vine and Snapchat. For Google, the worrying questions are whether emerging platforms will steal attention and what happens if its stars leave YouTube.

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Other companies are gunning for YouTube’s talent. Facebook, AOL and a new startup called Vessel have attempted to woo YouTube stars away, prompting the company to respond by offering better financial terms, according to the Wall Street Journal. So far, no high-profile stars have completely abandoned YouTube. But that’s not to say there isn’t dissatisfaction. Freddie Wong, whose channel has 7.5 million subscribers, is the Los Angeles–based creator of Video Game High School. He’s developing his latest project with Hulu after YouTube balked at the cost. “Hulu understood how much content costs,” Wong told Variety in March. “By remaining defensive, YouTube is losing various aspects of video—long-form, for example—to other companies.”

Even some native YouTube talents are bigger on other platforms. Jasmeet Singh, a comedian who goes by the name JusReign on YouTube, participated in the same delirious fan meet-up as Lilly Singh this month. The Brampton, Ont., resident has 511,000 subscribers on YouTube but twice as many on Vine. Facebook represents the newest—and biggest—problem. In January, the company reported the number of video posts per person increased 75% globally in just one year and that 65% of Facebook video views are on mobile. (It’s 50% for YouTube.) Brands are enthusiastically experimenting with Facebook and seeing results. Visible Measures, a digital video analytics firm, looked at 82 brand video campaigns in March. Facebook accounted for 35% of the views, compared to 65% for YouTube. But Facebook was in the single digits late last year, says Brian Shin, the company’s founder. “That’s pretty amazing, and that’s without Facebook fully developing its video capabilities,” he says. “This means the battle for video audiences isn’t over yet.” He likens it to Internet search back in the late 1990s. Nobody expected Google to overtake entrenched leaders like Yahoo and AltaVista. Facebook could stage a similar insurgency in video.

Beyond Facebook’s scale and the amount of time people spend with it, those in the industry are intrigued by the ability to target ads to the right audience. “I’d be lying if I said it wasn’t a huge priority for us,” says Bortolotti. YouTube has sophisticated capabilities, too, but there is a perception that Facebook knows more about its users. “Where Facebook offers an advantage is personalization and recommending content they know you’ll be interested in,” he says. But Facebook has its shortcomings. There is no defined advertising model for video, for starters, and the search function is dreadful. Once a video disappears from your news feed, good luck finding it again. But that may only be a matter of time.

Publicly, Google is unfazed by Facebook. “I wouldn’t say it’s a threat,” says Sebastian, head of Google Canada. “I love when lots of other folks get into a market of great momentum.” Lee, the global head of top creators, points to YouTube’s advantages: “We meaningfully share revenue with creators, and that’s something that sometimes gets overlooked,” she says. “It’s the cornerstone of why we’ve been able to build these businesses with creators.”

YouTubers are paying attention to Facebook, though. It’s an ideal platform for short, viral comedy videos, which is a huge category on YouTube. “Facebook has the potential to completely obliterate that marketplace for sure,” says Lewis Hilsenteger, who has 1.9 million subscribers for his tech channel, Unbox Therapy. Tompkins, the a cappella artist, has posted directly to the social media site. “Facebook has done something where it’s easier to share video, and it’s easier to see,” he says. But because of the site’s auto-play function, he’s unsure of how people are actually engaging with his videos. Mota is resolute in her devotion to YouTube. “There’s something very unique about the site that people fell in love with, and I definitely don’t see myself outgrowing it,” she says.

As for Lilly Singh, she is savvy enough to keep an eye on other platforms, but her ambitions lie more with television and movies, not other video sites. “This might change,” she says, “but in terms of an online platform, I will remain loyal to YouTube.”

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The feeling seems to be mutual. On that Saturday in early May, Lilly Singh is the headliner at YouTube FanFest in Toronto. Kids start filling Dundas Square in the early afternoon, and it’s rammed by the time the show starts at 8 p.m. Comedian Jenna Marbles (15 million subscribers) is introduced first, to waves of screams. “Oh my god, you guys,” she says. “What am I even doing up here?” She takes a selfie. The rest of the show leans heavily toward YouTube’s musical acts, and the company’s employees are thrilled at the turnout. “This is insane,” says one of them, as he surveys the crowd that peaked at 15,000 people. Singh finally takes the stage after dark, backed up by a crew of dancers wearing T-shirts that read “TUH RAW TO.” Along with a rapper named Humble the Poet, she performs a song she released on YouTube last year called #LEH, a slang term in the Indian diaspora meaning ridiculous. (She sells T-shirts emblazoned with the phrase.) A girl in the front tries singing along to the chorus (“O-M-G, L-O-L. You got us sayin’ ‘Leh, you ridiculous as hell’”), but she’s overcome with paroxysms of sobbing.

When the show is over, some kids have raced backstage to where a 10-foot-high fence wrapped in translucent gauze separates them from a VIP area. A group of teenaged boys climb on each other’s shoulders in hopes of seeing the other side. One sticks his smartphone over the fence to record what he can’t see. The father of one of the boys watches the melee and crosses his arms sourly. He tells me he drove in with his family from Brampton, about an hour’s drive, and it’s been a long day. He barks at his son to come down. “Two minutes!” the kid pleads. The father gives him five before pulling him off the fence, away from Singh, who may not even be on the other side. In a few days, Singh will post another video, for him and everybody else.

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