What the Hollywood Strike Has to Do with MrBeast
A Tale of Centrally-Managed vs. Centrally-Facilitated Ecosystems
On the surface, the Hollywood Strike is about an industry disrupted by streaming. But a much bigger set of forces is at work that threatens to further disrupt entertainment as we know it: the shift in content creation from a centrally-managed to a centrally-facilitated ecosystem. It’s a pattern we’ve seen play out in other sectors of the internet economy.
Hollywood is a perfect example of a centrally-managed ecosystem. While it may seem like the Wild West with many small production companies teaming up with talent to make a movie or TV show, all the decisions about what is actually made and released is centralized. For example, Netflix must buy and fund a show for it to be on Netflix, or a movie studio must greenlight a picture for distribution in movie theaters. Even if an individual decides to invest their own money to make their own movie, they must convince someone at a studio to distribute or release it. All decisions are centrally-managed.
Centrally-managed systems are by no means unique. They exist in every environment where distribution is limited. One sees this everyday: Costco only sells products that have been chosen by a Costco buyer, books can’t land in Barnes & Noble without a publisher; a new drug technology needs investors to fund the development of the drugs and a pharmaceutical conglomerate to distribute it.
In centrally-facilitated ecosystems, anyone can bring their product to the world. A central entity does not approve or reject the product. Instead, it is an enabler that facilitates the process for others to execute. Etsy is a great example of this. Etsy is a marketplace for anyone to sell anything, and they do not decide what is sold. Kickstarter exemplifies this model as an alternative to being funded by investors. Amazon has even attempted this approach in publishing, by allowing anyone to print and sell their own book. TikTok is another example, which initially grew by facilitating the creation of music videos by anyone
Which brings us back to Hollywood. Recently, Nielsen released a breakdown of TV viewership across the streaming platforms. According to Nielsen, America’s leading streaming service, the one that dominates all others, that captures most of our attention is….
YouTube.
That’s right, YouTube, not Netflix:
YouTube, unlike Netflix, is a centrally-facilitated platform. Anyone can publish a video on YouTube, and if one gets enough viewership, you can get a share of ad revenue. Nobody* at YouTube decides what’s on YouTube.
Thanks to YouTube’s success, people now spend more of their time consuming content on a centrally-facilitated platform versus a centrally-managed one. The picture is even worse for centrally-managed entertainment companies than it appears, since Nielsen did not include TikTok, Instagram (Reels), or the other social media services that are now video-centric. As centrally-facilitated businesses continue to take viewership share from centrally-managed platforms, the squeeze on Hollywood will only intensify.
Centrally-facilitated ecosystems are based on a very different set of economics. On centrally-facilitated platforms, people create content for free or at their own expense. Many do it for fun. A few with talent and luck break through to earn money. The extreme case is MrBeast, the largest YouTuber with revenue in excess of $50M a year.
MrBeast’s success shows that centrally-facilitated platforms can house programming with big budgets that are of high “quality”. He has a 50+ person production team. But he bears the risk and cost, not YouTube. He does have a massive upside… but so does YouTube. Compare this to a hypothetical MrBeast on Netflix: this MrBeast would get paid a hefty sum to make his show, but Netflix would bear all the risk and most of the rewards. The result is that the centrally-facilitated business, at scale, is a much better business than the centrally-managed business. And it’s better for content winners like MrBeast, who has reportedly turned down programming deals on centrally-managed streaming platforms.
If a centrally-facilitated entertainment landscape is the future, what does it mean for the industry? For well-known talent, probably nothing. Famous people do well on centrally-facilitated platforms and they can make shows that are hits. A good example is the pandemic-era success of John Krasinski’s Some Good News. They have the brand recognition to get the viewership needed.
But for all other talent, whether they’re the newbie or the mid-level professional, the shift to centrally-facilitated models places them in greater economic jeopardy. The pressure to create for free only increases and hope is the only compensation until (and if) they break out. With millions of regular people happy to produce content of all kinds on centrally-facilitated systems, unionizing is unrealistic; so the economics won’t change. .
For companies, the story of streaming is a story that the wisdom of crowds will always be superior to centralized, expert selection. This has played out time and time again online: investing in empowering millions is a superior business model to investing heavily in the few that are supposed to be great. For this reason YouTube is winning the streaming wars, just as Facebook won the news wars and Amazon and Shopify won ecommerce.
In the end, massively democratized systems level the playing field and provide access that otherwise would not exist. Those are good things. But it also generates winner-take-all dynamics that creates one MrBeast and one YouTube, and millions of people producing for nothing, with legacy companies struggling for relevance.
*Of course, YouTube has content moderation guidelines that must be adhered to.