Creator Economy Startups: Not All Are Creator-Friendly

The Rise of the Creator Economy

A decade ago, individuals earning income through YouTube advertising and brand collaborations were often dismissed as not having legitimate employment. Today, those who generate revenue from their creative endeavors are recognized as participants in the burgeoning creator economy, a rapidly expanding industry.

Growth and Statistics

A prominent report by SignalFire, a venture capital firm, identifies creators as the fastest-growing segment of small businesses. Despite its relatively recent emergence – roughly ten years – the creator economy now encompasses 50 million individuals who self-identify as “creators.”

Interestingly, data from SignalFire reveals that a greater proportion of American children aspire to become YouTube stars (29%) than astronauts (11%). This shift in ambition naturally fuels the development of new startups focused on providing tools and resources for creators.

A Growing Market and Potential Pitfalls

The expansion of this market has led to a surge in companies offering services like creator-focused credit cards, community-building platforms, and product design assistance. However, a concerning trend has emerged amidst this growth.

Not all businesses targeting creators are genuinely beneficial. Some may even operate in a predatory manner, potentially exploiting those they aim to serve.

Risks and Considerations for Creators

What happens to creators if an all-encompassing creator platform were to collapse? How do significant tech acquisitions affect the revenue streams of those who rely on these platforms? As venture capitalists increasingly view creators as startups, how can creators safeguard themselves against unfavorable terms and conditions?

The Importance of Contingency Planning

Startups serving the creator economy must establish robust contingency plans. These plans should ensure that creators are not left vulnerable if the startup fails to achieve long-term success, such as becoming the next Patreon.

I have begun to prioritize these questions when evaluating startups that position themselves as “one-stop shops” or “all-in-one solutions” for creators.

Fourthwall's Approach

Fourthwall has demonstrated a proactive approach to this issue. The company maintains a reserve of emergency operating expenses equivalent to three months, designed to facilitate a smooth transition for creators to alternative platforms in the event of unforeseen circumstances.

Furthermore, Fourthwall has committed to open-sourcing its platform should it become necessary, providing creators with continued access to their work and data.

Balancing Freedom and Responsibility

The creator economy presents an inherent paradox: the promise of financial independence is coupled with the realization that this freedom comes with inherent risks. As startups strive to connect creators with brand opportunities, develop monetization tools, and launch new social platforms, creators must remain vigilant.

They need to be aware of potential pitfalls and proactively protect their interests. Simultaneously, startups must adopt a creator-centric mindset, recognizing the moral and financial obligation they have to those who entrust them with their livelihoods.

The Peril of Platform Dependence for Creators

The acquisition of Anchor, a widely-used podcast creation service, by Spotify in 2019 triggered concern among podcasters. Amanda McLoughlin, CEO of the independent podcast collective Multitude Productions, however, had previously witnessed similar large-scale acquisitions. Having been a content creator since the inception of YouTube, McLoughlin possesses insights into industry shifts from both artistic and commercial viewpoints.

McLoughlin recalls receiving numerous messages expressing anxiety regarding the implications of this significant consolidation for those earning a livelihood through podcasting. She responded by revisiting the lessons gleaned from Google’s 2006 acquisition of YouTube: diversify revenue streams, avoid over-reliance on individual platforms, and recognize your inherent worth.

Prior to establishing an independent podcasting studio, McLoughlin’s professional background was in finance. As her podcasts, “Spirits” – a show offering a queer, feminist perspective on folklore and mythology – and “Join the Party” – a Dungeons & Dragons focused program – gained traction, she applied her business acumen to create a collective dedicated to supporting creator sustainability.

The YouTube acquisition was a period marked by considerable uncertainty, representing a novel event in the digital landscape. A comparable situation existed with LiveJournal, which was purchased by a Russian holding company years prior, resulting in immediate changes. Consequently, when news of the YouTube deal surfaced, predictions of the platform’s demise were widespread.

At that time, creators hadn’t fully considered strategies for audience retention in the event of platform disruption or substantial changes. Even today, creators frequently depend on social media platforms for audience access, leaving them vulnerable to sudden setbacks – such as having a substantial following erased due to arbitrary guideline violations.

McLoughlin advised fellow creatives to utilize these tools when beneficial, but to simultaneously begin planning for audience independence from YouTube. She shared this advice with TechCrunch, emphasizing the importance of proactive preparation.

Since then, McLoughlin has consistently advocated for creators to cultivate multiple income sources. For instance, YouTube creators should not solely rely on ad revenue; they should explore options like fan membership programs, newsletters (which also provide a direct communication channel should a platform like Vine cease operations), merchandise sales, and expanding their presence on alternative platforms.

“The acquisition ultimately injected capital into the ecosystem, but it underscored a crucial point: a platform is not an ally. There is no inherent obligation owed to you,” McLoughlin stated. “Your value is measured only by metrics like upload volume, as reported to investors.”

McLoughlin emphasizes the paramount importance of the creator-audience connection. Without a dedicated audience, creators are unable to pursue their work. Fans support Multitude not only for its podcasts but also because they align with the collective’s values – a growing trend among Gen Z consumers.

Multitude is a staunchly pro-union organization, demonstrated by their commitment to utilizing union labor for projects like the audio sitcom “Next Stop.” However, upholding ethical principles necessitates difficult business choices. This year, Multitude severed sponsorships with HelloFresh, citing union-busting practices, and with StitchFix, due to unfavorable working conditions.

Accepting advertising revenue from companies whose values clash with Multitude’s could jeopardize the collective’s relationship with its audience. “Once you erode your audience’s trust, rebuilding it is exceptionally challenging, and that trust represents your most valuable financial asset,” she explained.

Navigating the Complexities of Content Creation as a Business

For many emerging online content creators, a transition occurs where their work becomes their primary source of income. This shift necessitates a grasp of business fundamentals, including contract law and tax obligations.

Fortunately, specialized professionals exist to provide guidance. Quinn Heraty, of Heraty Law, offers legal counsel to businesses and entrepreneurs within the entertainment, media, and technology sectors.

Expertise in Creative Industries

Heraty’s firm represents a diverse clientele, encompassing prominent figures like authors Roxane Gay and N.K. Jemisin, popular podcasts such as “Call Your Girlfriend” and “Sleep With Me,” and numerous other independent media professionals.

Her services include assistance with publishing agreements, trademark and copyright issues, contracts related to podcasts, television, and film, and company incorporation.

The Importance of Due Diligence in Collaborations

Heraty emphasizes the need for caution when selecting collaborators. She notes a prevalence of talent managers approaching creators who lack the requisite expertise to provide effective representation.

“We often see individuals who are skilled and successful in platforms like TikTok, Instagram, or long-form YouTube, yet they connect with individuals lacking genuine business acumen,” Heraty explained to TechCrunch.

Understanding Contractual Obligations

While being compensated for sponsored posts may appear standard, creators must carefully examine the fine print. Contracts may include stipulations restricting endorsements of competing brands for extended periods.

Exclusive brand partnerships, similar to the relationship between Tiger Woods and Nike, are common. However, creators need a full understanding of the implications before committing.

Such agreements can be mutually advantageous, but this isn’t always the case.

Contract Negotiation and Creator Awareness

“Many new creators don’t initially recognize that a contract is fundamentally designed to protect the interests of the company offering it, not their own,” Heraty stated.

“The expectation is that the creator will advocate for their needs, but realistically, few young individuals possess the skills to effectively negotiate complex contracts.”

The Role of Legal Counsel

While managers and agents may assist with contract review, Heraty strongly recommends engaging a lawyer, particularly when dealing with long-term or exclusive agreements.

A legal professional can ensure that the creator’s rights are protected and that the terms of the contract are fair and equitable.