Can Netflix take on YouTube?
Opening up new markets with the Wedge Strategy.
Back in May 2022, I wrote a piece titled Content is King but Distribution is God.
The argument was simple. Netflix had something that most of the streaming industry did not: distribution. And that was the real moat.
It wasn’t enough to own a library of high-value content. You needed a global distribution-machine capable of putting that content in front of hundreds of millions of people.
Within three years the stock 8X'd – later correcting by 50% and moving back to its 200-week moving average, this July.
That's when I published Leveraging Distribution.
One of my points was that Netflix could take on YouTube, not by trying to recreate it – but by attacking its moat.
Give proven creators another home – an alternative to YouTube.
They wouldn’t have to leave YouTube. Netflix would simply give them another audience, another distribution channel and another way to monetise their work.
By August, YouTube was reportedly offering some of its biggest creators millions of dollars to stay away from Netflix.
The first wedge was in 🧀
What happens if Netflix becomes the second major home for creators?
The Existential Crisis
Creators are finding out, super fast, that their following is not theirs.
As a creator, all your hard work in building an audience could suddenly become meaningless when the algo changed.
I think it was TikTok that catalysed the process – with their infinite-scrolling For You page.
TikTok changed the game. Other platforms had little choice but to adapt by following the trend themselves.
A social platform would thrive for years off the content of the individual creator – whether on Instagram, YouTube or X.
Creators would allocate time and resources to grow a following and monetise it, either by selling products or a service to their audience.
The Algo Problem
But there came an inflection point where The Platform had to choose between its own survival, and the survival of its creators. And you can guess what they did.
The Platform unleashed chaos with a new recommendation algorithm, diluting the footprint of existing creators that had established followings.
...And that's where everything went to 💩
Scrolling has become unhinged while screen times are getting longer.
"Users" are scrolling without stop hoping to get that satisfactory payoff and stop scrolling – but it never comes...
Besides the obvious consequences to mental health, this has the reciprocal effect of making content even sloppier while putting creators (and other influencers) to the wall.
The Adaptation Phase
Creators aren't stupid – they see this trend and are adapting, fast.
They’re adapting to the algorithm. Shorter videos. Faster hooks. More sensational content. Whatever it takes to win distribution.
But they’re also adapting away from it. They’re diversifying their audiences by posting across multiple platforms. They’re diversifying their revenue through products, services and brand deals.
There is a war being fought between The Creator and The Algorithm – and the creator doesn't want to sit around and get sucked into the algorithmic dark hole of nothingness and bankruptcy.
So he's looking for off-ramps and ways to adapt.
And one of those off-ramps could be Netflix.
The Netflix Opportunity
Netflix is actively poaching influencers from YouTube, and offering them licensing deals and a second home.
Ms. Rachel and Mark Rober were two such deals that closed last year, with Drew Binsky signed this year. Binsky has 7.3mln subscribers on YouTube and is going live on Netflix on September 19th.
Other names include the Stokes Twins, Nick DiGiovanni, Rhett & Link and the Sidemen.
All these are major content wins for Netflix – which uses its global distribution base to match content to viewer tastes, monetise the content profitably and keep the creators happy... and YouTube doesn't like this one bit.
Remember when Jeff Bezos said, "Your margin is my opportunity."
I've been warning for time that Big Tech is now trampling over each other's feet – think if you will one big Venn Diagram with each circle representing the market of a single Megacap.
For years, each Big Tech player had near-absolute domination over its own market. Competition was weak, and profits were huge.
This is what's happening to YouTube, and they aren't happy.
YouTube Reacts 😤
Gone are the days where YouTube just sat there passively and everyone uploaded content to their platform, no questions asked.
YouTube is now forced to make deals with their biggest creators, because that's what keeps their platform running.
...because those creators now have options!
YouTube is approaching their best creators with offers to sign multi-year deals – even if those creators weren't looking to move to Netflix!
Based on the reporting, this is what's happening:
Offering cash for exclusivity windows
Offers to roughly 15 top creators with deals ranging from low seven figures up to ~$10M to keep videos off competing platforms (i.e. Netflix) for a set period. Some deals even include project financing – this means YouTube is implicitly getting in the content creation game, again.
Brand‑deal leverage
YouTube is offering guaranteed slices of major brand campaigns it controls as part of the package. Conversely, creators who publish on Netflix at the same time may be excluded from certain brand‑deal pools or preferred ad programs.
Marketing & Events
Preferred creators get more in‑platform marketing, features in YouTube’s own campaigns, and invites to high‑profile events. Those who work with Netflix risk being left out of marketing pushes and events, even if they stay on YouTube.
YouTube was previously too distant to even acknowledge how much it needed all those creators – commitment issues?
It's now ready to "get in bed" with all those creators and tie the knot ❤️ Tie them to YouTube that is!
Creator Economics – the Hi and the Lo
As you know, Netflix is used to paying up for content. It's done so since the first day of its existence – but not YouTube.
YouTube is now tightening the screws on small creators by raising the hurdle to get monetised. Last month YouTube announced changes in their YouTube Partner Program, in short this is what changed.
Basically, the hurdle to get monetised just doubled. Someone has to pay for all the money Google is offering creators to stay on YouTube 😂
It's War!
But Netflix doesn't need millions of creators to move to Netflix, it doesn't even need them to entirely abandon YouTube.
It only needs the creators with the highest total watch hours to make their content available to Netflix because:
1) it stops losing watch hours to Youtube
2) it monetises it by making a margin off whatever it pays each creator
3) it can build whole brand ecosystems around these creators
4) like putting them in Netflix Originals productions etc.
It creates a whole new business line for itself without ever having to replace YouTube.
The End Game?
If Netflix proves that it can make this new creator-oriented model work, it won't even have to poach them from YouTube anymore.
They'll be banging on Netflix's door to get in.
And that's exactly what Netflix needs to keep ramping up its Advertising business – something I discussed in Leveraging Distribution.
🧀 WEDGE STRATEGY: SUCCESSFUL ✅
Philo 🦉
P.S. Case Study 4 of the course at Philo's Academy was about how Netflix took on Legacy Media.
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