The Lex Newsletter: the cratering creator economy

Dear reader,

It would be an exaggeration to say that internet “creators” are the real victims of the tech industry downturn. It might be apt for the solipsistic world so many internet stars inhabit, however. Those outfit-of-the-day selfies, gaming videos and interior design uploads simply are not worth what they once were.

Last week, Pinterest ended its Creator Rewards programme. Snap has cut payouts for creators on its short video format. So has Instagram. All were hoping to replicate the popularity of short video app TikTok with mixed success.

The “creator economy” grew up in response to a flaw in the original business model of social media. This envisaged high margins for all. Users, after all, would be donating plentiful free labour by posting their videos, texts and images online.

The trouble, as we all now know, is that much of the content is boring, stupid or poor quality. If companies want to attract high-quality advertisers, they need high-quality content as well. That meant giving users a share of the rewards if they can drive traffic to a platform.

The 2010s, therefore, became a boom time for “creators” such as PewDiePie and the Kardashian dynasty.

A lucky, talented or glamorous few garnered millions of followers. Brands offered ad deals and platforms began to share ad revenue. Competition for content was so fierce that some platforms even began to pay creators to entice them to post. Everyone from Tumblr to LinkedIn wanted to join forces with popular users able to drive up site traffic and ad revenue.

The tech stock sell-off has put this model into a tailspin. Social media companies are now thinking twice about handing out money to creators.

The risk, of course, is that creators will put down their iPhones and ring lights and think about moving their content to rival platforms willing to offer a better deal. Some already try to manage audiences across multiple platforms, concerned that if one disappears they could lose their entire following and income.

YouTube’s revenue-sharing model, in which creators take 55 per cent of revenue from ads that play during their videos, has generated impressive loyalty. PewDiePie, a Swedish YouTuber who plays video games for his 111mn subscribers, has not tried to jump ship to newer platforms such as TikTok.

This summer, YouTube announced that short video creators would get their own revenue-sharing model, receiving a 45 per cent cut of advertising revenue.

TikTok has started its own revenue-sharing model, though it is narrower. A 50 per cent ad revenue split is only available to creators of the top 4 per cent of popular videos.

What will happen to content creators on platforms such as Pinterest? The company, which grandly calls itself a “visual discovery engine”, is keen to point out that its rewards programme was a pilot and not available to everyone. It says it will focus on other moneymaking ideas for creators, such as tagging products for sale. This may end up being more lucrative for them. Plus it will save Pinterest money.

Pinterest has been affected by the same advertising slowdown that has hammered Meta, Snap, YouTube and every other ad-dependent social media platform. But at least it is growing. In its last set of quarterly earnings, it reported that revenue had grown 8 per cent to $685mn. But user numbers did not rise. In the US and Canada, its most lucrative audience, user numbers dipped 2 per cent compared with the previous year. Shares are down a third this year. Snap shares are down 80 per cent this year. Meta’s are down by two-thirds.

Even at YouTube, keeping content creators happy will be more difficult as advertising revenue growth slows. In the third quarter, YouTube reported a 2 per cent year-on-year ad revenue drop — the first decline since parent company Alphabet began separating out its figures in 2020. Advertising budgets are now being crimped as companies reconsider annual spending plans.

The era of big creators with vast audiences is in decline. Companies such as newsletter platform Substack and porn-oriented site OnlyFans are helping creators find a smaller, passionate audience willing to pay for their content. Social media companies will need to find new ways to convince popular creators that it is worth sticking around.

Elsewhere in tech news

It seems as if everyone I know in San Francisco has spent the past week sharing artificially generated conversations with ChatGPT, an experimental chatbot from San Francisco company OpenAI. Want to see a computer write poetry, explain maths puzzles and create biblical verses about sandwiches? Now’s your chance.

Slate asks whether the internet is having a midlife crisis.

An interesting deep dive into investor Cathie Wood and her indefatigable belief that tech stocks deserve vastly higher valuations, from local San Francisco publication The Information.

Enjoy the rest of your week,

Elaine Moore
Deputy head of Lex