The biggest open secret in short form video has nothing to do with the algorithm. The secret is that you can’t get rich on TikTok as even the most viral creators earn a negligible portion of their income from the platform itself.
TikTok remains wildly dominant over the copycat short video feeds that competing social media giants have developed in recent years, such as Instagram Reels and Snapchat Spotlight. But according to reports from the New York TimesYouTube Shorts is gearing up to announce an ad revenue sharing model that could revolutionize short videos and give TikTok a run for its money — literally.
Revenue sharing is in, creator funds are out
YouTube was arguably the first platform that made it possible for creative people to earn a living posting interesting content on the web. In 2007, just three years after YouTube was founded, the platform unveiled its affiliate program, giving creators 55% of the revenue earned from ads running before or during their videos.
But TikTok pays creators through the Creator Fund, a $200 million pool unveiled in the summer of 2020. At the time, TikTok said it planned to expand that pool to $1 billion in the US in the next three years and double that internationally.
That may sound like a lot of money, but by comparison: YouTube paid creators over $30 billion in ad revenue over the past three years.
A major reason why TikTok and other short video apps haven’t unveiled a similar monetization-sharing program yet is because it’s more difficult to figure out how to distribute ad revenue fairly across an algorithmically generated feed of short videos. You can’t embed an ad in the middle of a video – imagine watching a 30 second video with an 8 second ad in the middle – but if you place ads between two videos, who gets the revenue share? The creator whose video appeared immediately before or after? Or would a creator whose video you’ve previously viewed in the feed also earn a down because their content encourages you to keep scrolling?
“We’re still in the early stages of how to make money with this stuff, but I’m an optimist and I think the industry will figure it out,” said Jim Louderback, former CEO of VidCon, in a conversation with londonbusinessblog.com this summer. . “They will have to, because otherwise makers will go where the money is.”
But YouTube may have just discovered it. The company reportedly plans to announce an affiliate program-like ad revenue sharing model on Tuesday at its Made on YouTube event. If the rumors are true, YouTube Shorts creators would get 45% of ad revenue — a smaller discount than YouTube videos, but a substantial upgrade compared to a paltry payout from the Creator Fund. As Louderback said, creators will follow the money.
The problem with making money on TikTok
Can’t get rich on TikTok? What about Charli D’Amelio, who started posting dance videos from her bedroom in high school and then made them? $17.5 million in 2021? But that money does not come from TikTok itself. Instead, she and her sister Dixie D’Amelio got rich through massive brand deals, a reality show, and venture capital investments. Even the YouTuber MrBeast (Jimmy Donaldson), who made every other creator earn more by making $54 million last year, can’t seem to make good money on TikTok.
That’s because TikTok’s Creator Fund model just doesn’t work. The Creator Fund is a static money pool that is distributed to users each day in TikTok’s creator program based on the number of views they get – but since the pool isn’t growing, that means that as TikTok gets bigger, creators make less money.
Long-time internet creator Hank Green said in a video about the Creator Fund that he initially earned about 5 cents per thousand views, but the number of creators in the program exceeded the growth of the program itself. So over time, his payout dropped to about 2 cents per thousand views. At that rate, a very impressive 10 million views per month would only get you $200, which isn’t exactly going to pay the rent.
Of course, TikTok can be life-changing for creators building an audience on the platform. Charli and Dixie D’Amelio may not be making their millions from the TikTok app itself, but they wouldn’t have gotten the chance to work on their own fashion line and reality show if they hadn’t had their TikTok stardom.
The father of these TikTok stars, Marc D’Amelio, is the CEO of the family’s businesses, such as D’Amelio Brands.
“I’ve read how TikTok is working on an ad-sharing model and that would be great for the maker economy,” Marc D’Amelio told londonbusinessblog.com via email. “TikTok has built an amazing platform and changed the lives of tens of thousands of creators by giving them a platform to share their creativity with the world. It would be an incredible next step if so many of these creators could turn their creativity into full-time jobs.”
D’Amelio refers to TikTok Pulse, a program unveiled in May that allows brands to place their ads next to the top 4% of videos on the platform for a fee. For the first time, this allowed creators to earn 50% of the ad revenue generated through that particular program. For now, this program is only available to creators with over 100,000 followers who also happen to create the platform’s top 4% videos. But YouTube Shorts’ potential ad revenue sharing program could further democratize access to this type of revenue.
“I think TikTok is great in terms of awareness. Whether you’re a brand or a maker, it’s a great place for people to get to know you,” Louderback says. “But when it comes to conversion, whether you’re a brand looking to sell a product or a maker looking to sell a Patreon, [subscription] or merch, YouTube can be a better platform in many ways.”
When creators build their audience on TikTok, the platform won’t be their bread and butter for long.
“I’ll say I don’t trust it anymore,” says Tyler Gaca (ghost honey) told londonbusinessblog.com in June. “When [the Creator Fund] first came out and it was first established, I was in that period where I was making seven videos a week, and it did help cover some of my bills.
But when the Creator Fund payouts became less reliable, Gaca turned to podcasting and other writing projects for a more sustainable income.
“The Creator Fund isn’t helping that much anymore,” he said. “But that’s because I’m not that active, I guess.”
Some creators can successfully use their TikTok following to sell products or join them on other more lucrative platforms, but that’s no guarantee.
“With my funk band Scary Pockets, we built a TikTok presence pretty quickly and gained 100,000 followers on TikTok in three to six months,” Patreon CEO and co-founder Jack Conte, who also plays in several bands, told londonbusinessblog.com. “We were pumped about it until we realized, wait, this really doesn’t mean that much to us. For example, we can’t send these people to Spotify. It’s hard to get them to buy merchandising or join them.”
Conte thinks this is because TikTok’s algorithm is so hard to understand.
“Sometimes you post a video and it gets a million views, and sometimes you post a video and it gets 100 views,” Conte told londonbusinessblog.com. “That is the essence of that algorithmically composed ecosystem. Essentially what that does is it reduces a creator’s ability to build connections with their followers.
With these challenges, running a maker business can seem unsustainable, but with the amount of value creators generate for these platforms, it shouldn’t be.
“It seems to me that every content creator friend I’ve spoken to, we all share the same fear that one day everything will just collapse under your feet,” Gaca told londonbusinessblog.com. “So I found myself at the beginning [on TikTok] absolutely overloading myself, like doing full, minute-long comedy skits with costume changes and background changes, seven days a week. It was great building an audience, but then I had a massive crash and burn.
This is YouTube Shorts’ best chance at TikTok. to surpass
In recent years, attempts by major social platforms to keep up with TikTok’s exploding popularity have been laughable.
To lure creators to its platform, Instagram even offered to pay huge bonuses for posting viral Reels — in November, a creator told londonbusinessblog.com that they had gotten $8,500 for 9.28 million Reels views on Instagram. But users still don’t seem to want a TikTok-like experience from Instagram. Instagram even had to roll back some TikTok-esque changes to its app after users (including Kylie Jenner and Kim Kardashian) expressed such deep distaste for them. So said Instagram head Adam Mosseri: Instagram is lagging behind YouTube and TikTok in metrics important to creator satisfaction, according to a recent report from The Information.
While Instagram’s parent company Meta has poured a wealth of resources into building out Reels, internal docs leaked to the Wall Street Journal revealed that Instagram users spend a total of just 17.6 million hours per day with the product. That’s less than ten percent of the time TikTok users spend on the platform, totaling 197.8 million hours a day.
Meanwhile, more than 1.5 billion logged-in users watch YouTube Shorts every month, but the company hasn’t shared any statistics on how engaged these users are. TikTok reached 1 billion monthly active users about a year ago.
If it can realize this ad revenue sharing model, YouTube Shorts now has a chance to prove itself as the best way for short video creators to earn a living. In fact, we know that social apps like to copy each other. If YouTube Shorts’ new monetization structure can entice other platforms to come up with their own monetization models as soon as possible, then we’re in for another boom in the creator economy.