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There are few certainties in modern broadcasting but Dominic Smales is “100 per cent sure” that he knows one of them: the small-screen stars of the future will be minted on social media. “In a few years it will seem totally outmoded to have a commissioning editor deciding what goes on our television screens and then forcing performers in front of an audience,” he says fervently.

We are talking in a small office in London’s tech district of Shoreditch, out of which Smales, 41, runs Gleam Futures, one of Britain’s first “social talent” agencies, and from where he is determined to shake up the staid world of traditional media.

Listening to his strictures about the limitations of scheduled telly it is easy to forget that Smales didn’t start out as a digital revolutionary. A former radio producer, he set up Gleam four years ago with a much simpler objective. His plan was to advise big brands on how to project themselves on social media websites such as Facebook and YouTube.

Pretty quickly, however, he discovered that the real action on the Google-owned video website lay not in slick films produced by wealthy companies. “The videos discussing brands that got the most traction were the ones where the brands themselves weren’t involved,” he explains. Rather, it lay in the artless visual offerings of a new class of young and enthusiastic online presenters known as “vloggers”.

The epiphany came when Smales encountered Sam and Nic Chapman, two sisters from Norwich known collectively as “Pixiwoo”, who had started giving online make-up tutorials.

They had stumbled across YouTube after a client asked them to explain how to do a “smoky eye” – a fiendishly fiddly make-up application that remains the platform’s most frequently demanded beauty tutorial. The pair realised that it was easier to film it than explain it.

“I was amazed at the power of what they were doing,” recalls Smales. “They were posting videos of themselves and being in the top five or 10 in the world almost straightaway, among the ones of crashing Ferraris and dogs on skateboards.” And, significantly, no one was directing their output. “They were the editor-in-chief, the commissioner, the broadcaster, the crew; they were everything to it.” Yet they were also attracting audiences, supporting their offline business and – over time – making money out of YouTube directly. This, Smales concluded, was the future of broadcasting.

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Smales ran with his insight and now directs a growing roster that includes some of Britain’s biggest YouTube stars. Backed by a team of 12 “talent managers”, who busy themselves at a long table that runs down the centre of Gleam’s office, he has become a sort of Svengali figure to such YouTubers as the beauty vlogger Zoella and the video diarists Alfie Deyes and Marcus Butler.

Vlogging is a close-knit business and there is a strong family flavour to the list. So alongside the Chapman sisters (1.7 million subscribers), he manages Tanya Burr – Sam and Nic’s one-time assistant, who has 2.6 million subscribers to her beauty channel – as well as their brother (and Tanya’s fiancé) Jim, who vlogs on men’s fashion and lifestyle issues, and another brother, John, of the fitness channel “The LeanMachines”.

Such ties help each YouTuber to bootstrap up others by appearing on their channels and cross-promoting offerings, Smales explains.

It has been quite a year for his young business. A number of his charges have broken through and now attract the sort of fame and attention normally accorded to the likes of the boy band One Direction or celebrities such as the model Cara Delevingne. Covering everything from fashion to pranks and relationship advice, their short films regularly garner millions of hits.

Dominic Smales in his office, with cut-outs of Jim Chapman, Tanya Burr and Alfie Deyes

Gleam guides these relative ingénues as they navigate the world of corporate deals and sponsorships. With more than 6.5 million subscribers on YouTube, a star like Zoella is a dream advocate for many of the fashion and beauty brands she talks about in her films.

The mentoring Smales offers is loose, he insists. “We’re not puppetmasters. We give them the best advice we can but they make their own decisions.” He is keen also to scotch any suggestion that the company might be after a quick buck. “We’re not in the business of having one-hit wonders or trying to monetise them aggressively over the next two years,” he says. “ I feel an almost paternal, personal responsibility to make sure they have a really great long career because that’s what we are in for.”

But some of his charges are already flourishing financially. Thanks to advertising on her short films and some astute offline deals – she’s a brand ambassador for Unilever – Zoella earned about £300,000 last year according to her inaugural set of accounts at Companies House.

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The breakout success of some YouTubers hasn’t just added to Smales’ bank balance and sense of vindication. It is also sending a frisson through the media industry. These stars may represent just a fraction of the programming uploaded to YouTube – music videos still account for more than half the six billion hours of content watched on the social media platform every month. But commercially they are disproportionately important.

They have certainly caught the attention of the marketing industry. Advertisers have spotted the ability of YouTube stars not only to drive audiences but also to shift products. When YouTubers recommend something, their followers listen – and often act.

The offline deals YouTubers have struck bear witness to this uncanny power. Pixiwoo, for instance, have launched a hugely successful make-up brush brand in Britain that is also growing fast in the US. And when Zoella decided that writing was a “passion of mine”, Penguin promptly paid her £50,000 for a two-book deal.

Will Awdry, an advertising director lately at Ogilvy, calls vloggers “crowdsourced people’s champions”. In their mouths, he says, even marketing messages seem to become something akin to honest personal recommendations: “It’s as though the audience has taken a TripAdvisor advocate and willed them into a celebrity.”

Most of their fans inhabit a chunk of the audience demographic that is known as the “lost generation” – those in their teens and twenties who neither consume conventional media nor watch much TV. In the UK viewing among so-called millennials has dropped sharply. Since 2010, the amount of television watched by those aged 16-34 has fallen 15 per cent.

It’s no surprise then that online games makers, clothing brands and others seeking to tap into pop culture are keen to exploit the power of these YouTubers on social media. Companies such as Pepsi now advertise more on digital platforms (mainly YouTube and Facebook) than they do on conventional media.

Pixiwoo (Beauty). 1.7m subscribers

The biggest hump to get over for most companies is to trust some unscripted vlogger with their brand. But many are now passing editorial control to the YouTube stars they work with.

“We hand the reins over willingly,” says Sebastian Micozzi, head of marketing at Pepsi UK. “We ask them: ‘What is the story you are trying to tell?’”

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There’s a little more wariness among TV bosses, especially those who cater to younger audiences. For instance, the UK commercial broadcaster Channel 4 recently pulled almost all of its content off YouTube.

But media owners are starting to investigate what works on the platform. Last year the celebrity chef Jamie Oliver, who has a valuable mainstream TV franchise, established a foothold on YouTube called Food Tube. He now has 20 chefs doing shows on the platform, teaching everything from Thai food to how to cook on a tight budget. Food Tube has already garnered 1.1 million subscribers and three of the chefs now have books out. “Fans engage with YouTube in ways that just aren’t possible on TV,” Oliver says.

“The appeal for us is partly that it’s a largely complementary audience,” says Richard Herd, who is in charge of networks at Food Tube, Oliver’s online venture. “It’s a global platform. That means you reach 200 countries when you put out a video.” The data you get on YouTube, he adds, is “simply amazing compared to TV”.

The online version also reaches a different UK demographic. “The average watcher is a 30 to 40-year-old bloke looking for a quick fix,” says Herd. “They might watch a five-minute YouTube clip – they’re not going to plough through a 30-minute programme.”

Tanya Burr (Beauty), 2.6m subscribers and Jim Chapman (Health and lifestyle), 1.9m subscribers

But the biggest advantage is that it allows Oliver to experiment with new formats. “Low production costs means we can put on chefs we wouldn’t normally be able to work with,” says Herd. “Niche areas like barbecues and cupcakes – these are pockets of audience we can only reach online.”

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YouTube’s emergence as a commercial and creative playground is a sign of how much the platform has changed under Google’s ownership.

Originally an online venue for amusing but crudely shot home videos of domestic accidents and cats doing tricks, it has steadily morphed into something akin to a TV network.

Having devised technology to rid the platform of its deserved reputation for serial content infringement, Google set about finding ways to encourage “creators” to use it to produce more resonant and appealing content.

“Early on we realised this sort of on-demand video content had a pretty strong tailwind,” says Ben McOwen Wilson, director of content partnerships for YouTube in Europe. “Because of technology, more and more people around the world were going to be able to create content and if you had a platform that allowed people to find the stuff they wanted, you were going to be in the middle of something quite exciting.”

Google’s offer was simple: it would sell advertising on creators’ behalf, its take coming through a 45 per cent revenue share in return for hosting and publishing their videos.

The LeanMachines (Health and fitness), 172,800 subscribers

This certainly stimulated the creative juices. Creators have flocked to the site and by last year 100 hours of content were being uploaded every minute, double the number in 2011.

YouTube is now investing to help creators make their output look more professional. Since 2012 it has opened production facilities in Los Angeles, London and Tokyo, and another is on the way in New York. These are available free to YouTubers who have 5,000-plus subscribers on their channels, although there are workshops for beginners. Hundreds use their sound stages, editing suites and screening rooms every month.

But the fruit of all this creative endeavour has yet to flow through to the bottom line. Numbers are hard to come by but the general view is that YouTube is roughly breaking even. While rising, its ad revenues are still a fraction of the $66bn research firm eMarketer estimates US television coined in 2013. Analysts expect them to be somewhere between $3bn and $5bn globally this year.

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YouTube may account for an extraordinary 57 per cent of online viewing and 55 per cent of digital video advertising worldwide, but eking a living from all this activity is surprisingly difficult. The biggest problem is that the “pre-roll” advertising it sells – the short film that its AdSense software plonks before the main clip – is both skippable and unpopular with the mainly young audience.

Zoella (Beauty), 6.5m subscribers

“The model is based on these ads and, guess what, the kids don’t want to watch them,” says Peter Bazalgette, chairman of Arts Council England and someone with a foot in both camps as a board member of ITV, Britain’s largest commercial TV network, and a serial investor in digital media.

Rates are already low because of the difficulty of placing your ad next to a specific clip. “Companies don’t want to find their brand placed alongside tasteless user-generated content,” explains the media analyst Claire Enders.

But when nine out of every 10 viewers also skip the ad before a video, the proceeds can shrivel quite fast. Analysts calculate that even one million hits – a substantial number for a YouTube video – can produce less than £1,000 in ad revenue. And that’s before YouTube takes its 45 per cent bite.

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The tiny number of celebrity vloggers may earn higher rates, but they do not live off their AdSense income alone. One of Gleam’s key roles is to develop relationships with companies that want to place their products directly on screen with the stars – and will pay for the privilege. Most of Smales’ charges have such relationships. Tanya Burr has worked with beauty brands such as Dove and VO5. In the case of the video diarist Marcus Butler, it is Office shoes and Topman clothing.

45%

The share in advertising revenue that Google takes in return for hosting and publishing videos made by its “creators”

Product placement is a sensitive issue as it threatens the all-important attribute of “authenticity”. It is never easy to be a consumers’ champion when, at the same time, companies are paying for your voice.

Smales sidesteps any suggestion of conflict by saying that his stars only work with brands they admire anyway. The numbers of placements are small (“less than 1 per cent of videos”), and viewers are advised about paid content in the description box below the film.

“Whatever amount of money was put on the table, the talent wouldn’t work with a brand they didn’t like because it’s not worth sacrificing your relationship with the audience,” he says. “This is something the audience clearly understands.”

Money isn’t the only question mark over YouTube. The platform is known mainly for its quirky short-form content. For instance, Smales’ charges spend a lot of their time on air playing silly games and chatting rather aimlessly about relationships. Some wonder whether this is really enough to hold audiences. Won’t they ultimately default back to more substantial fare?

Bazalgette says it is the wrong question. “It’s a bit like asking whether people will still eat peanuts and crisps if there’s a four-course meal available,” he says. “There’s a role for meals and there’s a role for snacking. And that’s effectively what YouTube is: snacking.” As mobile connectivity improves and more people have tablets and smartphones, he thinks the tendency to catch a five-minute clip while waiting or on the move will only go up.

YouTubers get ready for their close-up

Perhaps predictably, Dominic Smales is much more convinced of YouTube’s staying power: “My idea is that swathes of this new audience will take this medium through to adulthood and beyond,” he says. “Someone who loves watching Jim Chapman on YouTube now won’t suddenly get to the ripe old age of 24 and say, ‘Right, do you know what, I am going to just crank up the old television and start watching ITV much more often.’ They’ll take their viewing habits with them and the talent will evolve their content production as they engage with the audience as they all grow older.”

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The rise of online competition has made life harder for mainstream broadcasters. Able to download what they want, young audiences increasingly spurn TV schedules when looking for something to watch. This is the first “on-demand generation” says Bazalgette. “They want to watch whenever they choose to do so and on whatever device they prefer.”

YouTube, with its smart technology and cast of exciting young vloggers, has acted like a magnet for this millennial traffic. Its open-source approach has attracted creators making innovative content. However banal it may seem to watch Zoella picking through a “haul” of goodies from Primark, this is stuff that viewers want to watch.

57%

of online viewing is now carried out via YouTube

Whether those millennial viewers will automatically stay as they get older is another matter. Claire Enders does not share Smales’ view that they are lost to mainstream TV for good. “YouTube is like the new version of rock music or MTV; it’s become one of the places where the young go to indulge their dark side and rebel,” she says. “When millennials get to 25 and settle down, they will drift back to the sort of sophisticated narratives and stories that only mainstream TV provides.”

Not that these returnees will stop watching YouTube altogether. Rather, the audience is likely to become “bipolar”, craving both TV shows with mainstream appeal and also that cupcake-baking food show online. In this new world, each platform will have to slug it out.

Broadcasters need to take on board some of the characteristics that have made the online platform popular, accommodating the shift away from schedules towards on-demand. “We need to do more short-form content and find ways to engage with our audiences better online,” says Jonathan Allan, head of sales at Channel 4.

For its part YouTube needs to broaden its repertoire. This means developing more sophisticated long-form programmes which may require a different funding model. Google is already looking at launching a subscription model online. This could take it into the world of content commissioning and rights acquisition. This week’s news that it has struck a deal to license music with the rights agency Merlin is a first step down this road.

When he is asked to peer into the future and say which media platform will prevail, Bazalgette likes to cite Riepl’s law. Dreamed up more than 100 years ago by a German journalist, Wolfgang Riepl, in 1913, this says that innovations in media never wholly replace what came before them. “So radio didn’t supplant newspapers, film didn’t supplant radio and so on,” says Bazalgette. There’s a charming lack of certainty to it all. As he contemplates his world without commissioned TV, Smales might wish to reboot his crystal ball.

Jonathan Ford is the FT’s chief leader writer

YouTube by numbers

1. In the beginning . . . 

The first YouTube video, “Me at the Zoo”, was uploaded at 8.27pm on April 23 2005 by the site’s co-founder Jawed Karim.

2. “Gangnam Style”

Korean musician PSY’s global hit is the most popular video in YouTube’s history. It has been viewed more than 2.13bn times.

3. Smart buy

Google purchased YouTube for just $1.65bn back in 2006. In comparison, Facebook recently paid $22bn for the instant messaging service WhatsApp.

4. April Fool tricks

YouTube enjoys an annual prank: in 2012 it “offered” users the chance to buy a DVD set of every video on the site.

5. Spoilt for choice

100 hours of video are uploaded to YouTube every minute – that’s about six millennia worth of video a year.

6. On the go

Almost 40 per cent of YouTube views come from mobile devices.

7. Star vehicle

Lucas Cruikshank’s character “Fred Figglehorn” was the first YouTube channel to gain more than a million subscribers. Fred’s popularity earned him feature film starring alongside Pixie Lott and John Cena.

8. Top three

YouTube is ranked as the third most popular website in the world, behind Google and Facebook, by Alexa.com, an internet traffic data provider.

9. Six billion and beyond

More than six billion hours of video are watched on YouTube every month.

10. PewDiePie

With more than 32 million subscribers, the Swedish vlogger is the most followed user on the site.

11. Power crazy

In 2007 it was estimated that YouTube was consuming as much bandwidth as the entire internet did for the year 2000.

Illustration by Jean Jullien

Photographs: Finn Taylor

Copyright The Financial Times Limited 2017. All rights reserved.
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