YouTube's new Connected TV interface for creator content—which was revealed during last week’s “Made On YouTube” event—looks much like Netflix’s TV interface. Nielsen’s The Gauge has shown YouTube and Netflix to be long-time market leaders competing for attention in the living room, and Netflix has consistently mentioned YouTube as competition in its letters to shareholders and earnings calls. 

At the same time, Netflix is pivoting its production economics lower. Both Bloomberg and Deadline reported that Netflix is asking “top talent” to consider reducing their fees “by between 20-30%, in exchange for giving them twice that amount on the back-end if the show or movie is successful”. 

Its new economics will be nowhere near YouTube's, which does not directly subsidize creators’ productions. But, Netflix’s lower budgets are trending more lower and opposite to early free-spending years. 

The two converging tactics reflect a competitive dynamic that Netflix Co-CEO Ted Sarandos described to the Fast Company Innovation Festival last week: “If you look at revenue, engagement and profit, our businesses are very, very similar, almost identical.” But, “[YouTube] is a very different business model” because it’s “all advertising” and “mostly user-generated”. Netflix is “barely advertising” and has “no-user-generated [content].”

YouTube creators Colin and Samir offered another way of describing this competitive dynamic on X/Twitter yesterday: “Creators are becoming Hollywood faster than Hollywood is becoming creators”.

Netflix’s model seems less “creator-friendly” in Hollywood’s “new business of living room content” than YouTube, which indirectly subsidizes creators. That reads counterintuitively, but it is the story that has emerged in recent weeks.

Key Takeaway

Netflix seems more tied to old Hollywood than to creators who are redefining Hollywood on YouTube. That means it may be evolving more slowly than it should be and investors may need it to.

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