Tech

Shira Ovide is a Bloomberg Gadfly columnist covering technology. She previously was a reporter for the Wall Street Journal.

Amazon CEO Jeff Bezos has become used to hobnobbing with Hollywood stars thanks to his company's Netflix-like video streaming service. Next, we may start seeing Bezos hanging out with PewDiePie and Hank Green.

Who, you may be asking? 

They may not be on tabloid magazine covers, but PewDiePie, a foul-mouthed video-game player, and the mild-mannered Green have hugely popular Web series on YouTube. With videos such as Green's discussions about Ebola and physics lessons, some of these YouTube stars are making millions of dollars a year from their popularity on Google's Web video service. Like the Hollywood talent agencies, a whole industry of so-called multichannel networks such as Fullscreen and Maker Studios have sprung up to represent YouTube stars and to sell ads next to their Web video shows. 

Now Bezos wants new media pros to create Web videos for Amazon, with a program that sounds just like YouTube's stable for professional video makers -- though Amazon's goals are a bit fuzzy. 

Digital Video Eruption
There has been an explosion in advertising tied to Web video on YouTube, Facebook and other digital hangouts
Source: MagnaGlobal via Bloomberg Intelligence
Note: Figures for 2016 and 2017 are estimates.

This isn't the first company making a play for YouTube's video professionals. Facebook has being trying to grab YouTube stars for a couple of years to make exclusive programming for the social network. So has Vessel, a subscription Web video service that promised YouTube hit makers better revenue-sharing terms and more control over who watched their programming and when. Twitter-owned Vine, Snapchat and other mobile apps are likewise luring Web video pros who can draw a crowd and help the services attract more advertising money from the same big marketers that buy TV commercials. 

Amazon's new program is borrowing liberally from YouTube's playbook for homegrown stars but with more flexible terms and money-making opportunities that the Hank Green types have been demanding from Google. Participants in Amazon Video Direct can sell or rent their Web videos to Amazon customers or choose to make videos free and split with Amazon the money from advertising spots and other sources, the company said.

Amazon is also offering the PewDiePie types a shot at a $1 million monthly bounty "based on minutes streamed." Some of the YouTube stars have fled to other services including Vessel for a chance at richer cuts of ad revenue or more control over how and when their videos are distributed.

Trying to become more like YouTube won't be cheap. Amazon is spending a growing share of each dollar of sales on "technology and content" expenses, which include people and computing resources devoted to "new and existing products and services," as well as for its cloud-computing operation. Amazon's technology and content operating expenses rose to 11.7 percent of net sales in 2015, up from 8.8 percent two years earlier. 

Amazon's Costly Ambitions
As Amazon expands its Web video offerings, the associated costs are eating a growing share of the company's total sales
Source: Amazon

As with many initiatives at Amazon, the "why" behind the company's YouTube poaching is unclear. It's obvious why YouTube, Facebook and Snapchat are hunting for stars who have figured out the right formulas for engaging Web video. Those services make all their money from selling ads, and the stars of online video have lured millions of people -- particularly younger people who are ignoring television and other traditional advertising vehicles. Amazon doesn't make much of its revenue from ads. 

Does Amazon believe people who watch its Prime streaming-video service want a PewDiePie break between their binges on reruns of "The Good Wife"? Are the YouTube stars a hedge against the rising costs of buying TV shows and movies from media powers such as Disney and Warner Brothers?

If nothing else, Amazon's announcement should have spurred a round of emails in Google headquarters. YouTube is the giant of Web video, but Facebook and now Amazon are formidable rivals. Even if Amazon doesn't stick with its new media stars for the long term, more competition for Web video acts means YouTube will have to do more and pay more to keep the hit makers in its stable. As usual for Amazon, it doesn't have to win to make life difficult for its competitors. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Shira Ovide in New York at sovide@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net