Sunday, 21 December 2014

YouTube’s Chief, Hitting a New ‘Play’ Button

This fall, Susan Wojcicki, the chief executive of YouTube, appeared on a panel at Vanity Fair’s inaugural technology conference in San Francisco. Sitting on the same stage at the Yerba Buena Center for the Arts where Steve Jobs once introduced the iPad to the world, she discussed the future of the media with Richard Plepler, the chief executive of HBO. (Picture: Susan Wojcicki, the chief executive of YouTube, has quietly become one of the world’s most powerful media executives.)
At one point, the moderator asked Ms. Wojcicki if she thought cable television would still be around in 10 years. She paused for a moment before answering, with a bit of a sly smile, “Maybe.” The crowd laughed, even though just about everyone in the packed auditorium knew she was only half-joking.
If cable TV is gone in a decade, Ms. Wojcicki and the global digital video empire over which she presides will be one of the main causes. YouTube, founded in 2005 as a do-it-yourself platform for video hobbyists — its original motto was “Broadcast Yourself” — now produces more hit programming than any Hollywood studio.
Smosh, a pair of 20-something lip-syncing comedians, have roughly 30 million subscribers to their various YouTube channels. PewDiePie, a 24-year-old Swede who provides humorous commentary while he plays video games, has a following of similar size. The list goes on and on. For the sake of perspective, successful network television shows like “NCIS: New Orleans” or “The Big Bang Theory” average a little more than half that in weekly viewership. The 46-year-old Ms. Wojcicki — who will soon give birth to her fifth child — has quietly become one of the most powerful media executives in the world.
It wasn’t so many years ago that the entertainment establishment thought it might be able to kill off YouTube with copyright lawsuits. Now agencies like United Talent and William Morris Endeavor are scrambling to sign up the site’s native stars, and prominent studios are paying huge sums to acquire companies that bundle together YouTube channels. Last year, DreamWorks Animation bought one such bundler, AwesomenessTV, for $33 million upfront. (It’s already looking like a bargain: This month, DreamWorks solda 25 percent stake in Awesomeness at a valuation nearly 10 times that.) In March, the Walt Disney Company paid $500 million for Maker Studios, a different company in the same business.
Every day, one billion people around the world watch more than 300 million hours of videos on YouTube. In November, 83 percent of Internet users in the United States watched a video on YouTube, according to comScore.


The YouTube stars Smosh, a pair of 20-something lip-syncing comedians, have roughly 30 million subscribers to their various YouTube channels.

Yet for all of its influence as a cultural force, YouTube is still finding its way as an economic one. Viewers may be migrating online in droves from traditional television, but the advertising dollars have not yet followed. The marketing research company eMarketer estimates that YouTube will log about $1.13 billion in ad revenue in 2014, a small fraction of the $200 billion global TV advertising market. CBS, for instance, brought in nearly $9 billion last year.
It’s not that corporations aren’t eager to advertise online; they’re desperate to reach the younger demographic that chooses digital video over cable or broadcast TV. But advertising on YouTube isn’t like advertising on television. Subscribers don’t translate neatly into viewers. Airtime on TV is finite. Airtime on YouTube is effectively unlimited — 300 hours of new content are uploaded to the site every minute — which suppresses the value of ads across the platform.
Above all, the quality of most YouTube programming is too unpolished to draw big investments from many blue-chip advertisers. “Despite YouTube’s size, a tiny fraction of it is what we call ‘TV replaceable,’ content where we would take TV money and swap it over to YouTube,” said one ad executive who spoke on condition of anonymity because he does business with YouTube. “It’s a funny thing to be sitting on top of something this massive and not really be able to totally control what you’re selling advertising against.”
YouTube creators, meanwhile, complain that the company takes too much of the ad revenue — as much as 49 percent — and does too little to market and promote its stars, which makes it hard for them to leverage their celebrity. The danger for YouTube is that it will become a kind of farm system, developing talent that is picked off by other distributors that are willing to make bigger investments in it. Netflix has already been trying to lure away YouTube creators, as has Vessel, a web video start-up founded by a former chief executive of Hulu.


YouTube recently ran an ad campaign for its stars including Rosanna Pansino, at far right, who hosts a popular baking show.

Right now, YouTube’s red-and-white “play” button is everywhere; the site dominates online video. But competition for eyes and advertisers is coming from pretty much every direction. Not only are traditional TV networks like CBS and HBO moving content online, but digital media like Instagram and Twitter are increasing their video offerings. So is Facebook, with its vast numbers of users and global presence. Some of YouTube’s most popular channels feature people playing video games; to protect this franchise, Google, YouTube’s owner, recently tried to buy Twitch, an enormously successful video game streaming site. It was outbid by Amazon.
These are some of the known quantities. There are also unknown ones: the legions of young, tech-knowledgeable entrepreneurs who were raised on YouTube and think they can build something better. It’s worth remembering that the idea for YouTube was hatched at a dinner party in San Francisco less than 10 years ago. Just as abruptly as it changed how we watch TV, it could become the victim of disruption itself.
It’s Ms. Wojcicki’s job to make sure that doesn’t happen.
A Daughter of Silicon Valley
Not long after the Vanity Fair conference, I visited Ms. Wojcicki on a brisk, sunny November day in Northern California. YouTube’s headquarters are across the street from a Carl’s Jr. in San Bruno, about halfway between San Francisco and Silicon Valley. The space is open and airy, and filled with predictable college-dorm-style touches — putting green, foosball table — as well as a steep, triple-chuted red slide. “No children or guests,” the sign next to it warns.
Ms. Wojcicki runs a media company that has been valued at $40 billion, yet her office has none of the expected trappings — no bronze statuettes or pictures of her posing with movie stars. On her bookshelf is a photograph of her oldest son’s recent bar mitzvah and a small box filled with her various business cards from Google. (She was employee No. 16.) She flipped through the cards nostalgically, remembering an early task as the company’s first marketing manager: redesigning Google’s logo. (She changed the typeface and removed an exclamation point.)
Nor is there any media-mogul swagger about her. During our conversations, she didn’t hold forth on the changing nature of entertainment or lay out a bold vision for YouTube’s future. She volunteered that she was still learning about content and, for that matter, getting a handle on YouTube’s place in the entertainment ecosystem.
“I didn’t really get how different a medium this was until I got here,” Ms. Wojcicki said. She was seated on her office couch, flanked by red throw pillows embroidered with YouTube “play” buttons and wearing a maternity shirt and jeans. As she spoke, music drifted up from the eucalyptus-lined courtyard beneath her window, where hundreds of YouTube employees were drinking microbrew ale and eating sliders at their weekly Friday afternoon social.
Silicon Valley legend has it that Google was started in Ms. Wojcicki’s garage in Menlo Park in 1997. This is not the whole truth. The company’s founders, Larry Page and Sergey Brin, also rented three of her four bedrooms for their start-up. It was the first home for Ms. Wojcicki and her husband, but according to the words scrawled across a whiteboard inside, it was also “Google Worldwide Headquarters.” Their monthly rent of $1,700 gave Google’s early employees access to the hot tub and washer-dryer, too.
Ms. Wojcicki was raised in Silicon Valley before it was Silicon Valley, the oldest of three girls who would all go on to high-powered careers. Her middle sister, Janet, is a medical anthropologist at the University of California, San Francisco, who has studied obesity in the United States and the decriminalization of prostitution in South Africa. Her youngest sister, Anne, is the chief executive of 23andMe, a biotech company near Google headquarters that specializes in genetic testing. (Anne also married Mr. Brin, though they are now separated.)
The sisters grew up on the campus at Stanford, where their father, Stanley, taught physics. A next-door neighbor was George Dantzig, the mathematician who invented a widely used algorithm known as the simplex method. Many of their family’s friends were scientists.
“Part of what makes us successful in this valley is that we’re used to people who are superanalytical and not supersocial,” Anne told me one morning at her office in Mountain View. “Our childhood was spent with people who challenged Einstein.” (Picture: A Wojcicki family photograph from 1981. Standing at the back are Susan and her sister Janet. In front, from left, are Anne; their father, Stanley; and mother, Esther.)
Their mother, Esther, taught English and journalism at Palo Alto High School. After winning a state grant for several early Macintosh computers in 1987, she started putting out one of the country’s first computerized high school newspapers. “I have to admit that I had no idea how to even turn them on when they arrived,” Esther told me.
Susan was hard-working and goal-oriented. She went to Harvard, concentrating on history and literature. “We didn’t know anything outside of academia,” Anne told me. " When she graduated, we were all like: ‘What are you going to do? You’re going to get a job that you have to go to every day? That’s terrifying.' ”
Ms. Wojcicki didn’t really know what she was going to do herself. She settled on technology after a stint as a photographer at an English-language newspaper in India — she came home in a sari for Anne’s high school graduation — and a pair of graduate degrees in business and economics.
She was working at Intel when Mr. Page and Mr. Brin offered her a job. It wasn’t an easy decision. Ms. Wojcicki was pregnant with her first child and still paying off her business school loans. She was nothing if not sensible about money. Growing up, frugality had been a kind of family religion. When the Wojcickis went out to Sizzler for dinner, they would get three all-you-can-eat meals for the five of them.
Google had no revenue, and a small, predominantly male staff, most of whom had just graduated from college. Mr. Page and Mr. Brin hadn’t even thought about the company’s maternity-leave policy until Ms. Wojcicki asked.
There was financial upside, at least. “If it works out, I could make a million dollars,” Ms. Wojcicki told Anne, whose jaw dropped at the number. Susan, of course, is now worth hundreds of millions. “The Internet was happening, it was happening all around me, and I wanted to be part of it,” Ms. Wojcicki said. “I could tell that Google was going to go somewhere. I wasn’t sure where, but I could tell that it was going to go someplace interesting.”
Ms. Wojcicki became Google’s first mother and most senior female executive. She helped recruit and train Sheryl Sandberg, who is now the chief operating officer of Facebook and the author of “Lean In,” the manifesto on women in the workplace. “When I was there, she was the working mother at Google,” Ms. Sandberg told me. “She’s the one who showed me it could be possible.”
As both the company and her family continued to expand, Ms. Wojcicki almost accidentally created a model for female tech executives like Ms. Sandberg to follow. Ms. Wojcicki is home for dinner with her family almost every night — her husband, Dennis Troper, is a director at Google — and she generally doesn’t answer weekend emails until 9 p.m. on Sundays. “Productivity and success in this industry are based a lot of the time on insights and prioritization and actually on doing the right thing, not necessarily on 15-hour work days,” she said. “Google is very results-oriented.”
A Video Epiphany
When Ms. Wojcicki was named chief executive of YouTube in February, succeeding Salar Kamangar (Google employee No. 9), it was a kind of homecoming. In 2005, she was a leader of Google’s first foray into video, a short-lived product that came to be known as Google Video. It seemed to Ms. Wojcicki that people might want to watch videos on their computers, but she wasn’t sure what sorts of videos would appeal to them. After a little experimentation at Google Video, she figured it out. The well-known TV clips that she licensed drove just a fraction of the traffic of a video uploaded by some college students in China of themselves singing and dancing in their dorm room to the Backstreet Boys.
“That for me was the insight that this market really does matter,” Ms. Wojcicki said. “People want to see other people all over the world. They want to share experiences. They love their TV and they love their shows, but they’re also interested in seeing new and different creators and new and different types of video.”
The only problem was that Google Video was getting crushed by a competing start-up, and Ms. Wojcicki thought it was too late to catch up. So she encouraged Mr. Page and Mr. Brin to scrap Google Video and buy that start-up, YouTube, for $1.65 billion.


A 2002 meeting of early Google leaders, from left, the chairman Eric E. Schmidt; the co-founders Larry Page and Sergey Brin; Susan Wojcicki, now YouTube’s C.E.O.; and Marissa Mayer, who has become Yahoo’s chief.

It was a steep price — YouTube had no revenue and was embroiled in copyright disputes — and the deal was widely criticized, even ridiculed, at the time. But eight years later, YouTube has become central to its parent company’s financial future. Google depends heavily on the ad revenue from its search engine, but that ad growth has begun to slow. People are spending more and more time on their mobile phones, which thus far haven’t proved very ad-friendly. YouTube’s extraordinary reach and the booming popularity of online video make it an obvious candidate to help offset these declines.
At this point in YouTube’s evolution, it might have made sense for Mr. Page to bring in a seasoned media executive to run the company. But Google typically prefers to recruit its leaders from inside. And Ms. Wojcicki had some relevant experience: She had helped build Google’s $50 billion-plus ad business. “YouTube is one of the most used media assets in the world and one of the most undermonetized media assets in the world,” Mary Meeker, a Silicon Valley venture capitalist, told me. “That’s exactly what the Google search bar was when Susan first focused on advertising.”
Video advertising, though, is a very different proposition. Advertising on Google is the modern-day equivalent of buying space in the Yellow Pages. Producing digital video ads requires a much bigger investment, and companies expect their ads to be placed strategically against high-quality and appropriate content.
Those who have worked with Ms. Wojcicki describe her less as a visionary thinker than an open-minded and analytical one. There’s an argument to be made that her understated manner could be an asset as she makes her way in a rapidly changing, competitive industry where people are naturally wary of one another. “I think she’s somewhat nonthreatening,” Ms. Meeker said, “and I mean that in a good way.”
Betting on Its Own Stars


Bethany Mota has nearly eight million subscribers for her fashion and beauty channel.

The day I visited YouTube, in November, the company had just unveiled a new subscription-music service. YouTube is the world’s most popular music platform; someone, somewhere has uploaded just about every song imaginable to the site. And all of them are available for free streaming at a click.
But the company decided that there was a market for a premium service, so it rolled out Music Key. For $8 a month, YouTube will provide users with better-quality audio and remove advertising from music videos. The new service was at least partly a response to pressure from a music industry that had grown frustrated with YouTube’s stingy royalty payment structure. But it also represents a potential new source of revenue for YouTube. Plans for Music Key were already underway when Ms. Wojcicki arrived at YouTube, but she describes them as a “first step” toward more subscription services without ads.
The subscription model, like everything YouTube does, is an experiment. Despite its size and dominance, YouTube remains a work in progress. For all of the countless hours of programming created for the site, YouTube has yet to produce a truly premium show. It may be hard to imagine something like Netflix’s “House of Cards” or Amazon’s “Transparent” on YouTube, but if the company wants to generate more revenue, it’s going to need more professional content.
Toward that end, Ms. Wojcicki is awarding development deals to creators. YouTube has been down this road before. A couple of years ago, it invested more than $200 million in 100 new channels; a number featured mainstream celebrities like Shaquille O’Neal and Ashton Kutcher. YouTube calls the effort a success, though the consensus in the entertainment industry is that it failed to create any real breakout channels.
Either way, the conclusion was that YouTube is its own entertainment universe with a unique breed of programming and talent. This time, the company will invest only in native YouTubers, spending an undisclosed amount to help cover the production and marketing costs for a number of new shows. “We want to invest in people who understand the environment,” Ms. Wojcicki said.
These investments are part of a broader effort to quell the long-simmering revolt among YouTube creators. “They have the recognition so they’re kind of halfway there,” Ms. Wojcicki said, “but how do we give them the same options or the same economics that they would be able to get in other places?”
The goal is to bridge the gap between Silicon Valley and Hollywood, to turn YouTube stars into just plain stars. To help get them there, Ms. Wojcicki has led a major marketing push — YouTube’s first — with billboards, magazine ads and even traditional TV commercials for some of its most popular celebrities. She has also been wooing potential advertisers. During her first few months on the job, she met with representatives of a variety of major companies, including PepsiCo, L’Oréal and Unilever. (Picture: PewDiePie, a 24-year-old Swede who provides humorous commentary while he plays video games, has a huge YouTube following.)
In the past, when advertisers bought packages on YouTube, they never knew quite where their ads would appear — a big problem, given the wide range of material on the site. Ms. Wojcicki is trying to solve that in part with a new product called Google Preferred, which allows companies to target the site’s best-performing content across a variety of categories. Early signs have been encouraging: YouTube’s anticipated advertising revenue for 2014 is up 40 percent from last year’s. The net effect of these initiatives is that YouTube is doubling down on its biggest stars. “That’s always been my struggle with them,” said Brian Robbins, the founder of AwesomenessTV. “Look, if you guys want to get into this business, you have to make bets and you have to market those bets and you have to get lucky. That’s show business, and it’s exactly the opposite of their business: ‘We don’t promote anything; we let the community decide.' ”
 It’s a logical move for the company, but not without risk. The power of YouTube is bound up in its grass-roots, democratic identity — in the possibility that a group of college students in China can upload a goofy video in their dorm room that will be seen by millions of people all over the world. YouTube’s multitude of smaller creators and hobbyists may not be attracting advertising dollars to the site, but, taken together, they give the site its defining feature: its towering scale. Without them, YouTube would no longer be YouTube.
While I was in San Bruno, I sat in on a meeting in a small conference room about the beta version of Music Key. A group of marketing executives and engineers — a few with “play” button stickers on their laptops — were gathered around a table, listening to a run-through of the early numbers: how many sign-up requests, how many mentions on social media, how much news coverage. Ms. Wojcicki was seated at the head of the table, not so much directing the conversation as guiding it with questions and suggestions.
Most of the talk revolved around the feedback YouTube had received from its partners and users and the changes the company might make to the service in response. It struck me as unusual that a company would introduce such a major product with so much fanfare, then immediately begin discussing how to tinker with it.
I asked Ms. Wojcicki about it later, after a party honoring YouTube employees who were promoted in recent months. “Whenever we launch a product, there’s always something we didn’t expect,” she said. “Things are always changing. Part of being successful here is being comfortable with not knowing what’s going to happen.”
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