TIKTOK INCOME: Pay on TikTok is horrendous. Now,
before you go to comments section and leave angry remarks, let me explain. TikTok only pays about
$0.02 to $0.04 per 1,000 views, so even if you get a ridiculous amount of views, you’re not making
much. Take Khaby Lame for example. He’s the most followed TikToker on the planet with a whopping
159 million followers and nearly 18 billion views. But, in terms of ad revenue from TikTok,
those 18 billion views only translates to $540,000. That’s not a bad amount by any means,
but keep in mind, we’re talking about the most followed TikToker in the world. For perspective,
if you got that same number of views on YouTube, your total earnings would be closer to $54 million
assuming a $3 RPM. Now of course, these TikTokers don’t just rely on TikTok adsense. They also do
brand deals and sponsorships and affiliate marketing and all that stuff which pulls
in a whole lot of money. But, the disparity between TikTok adsense and YouTube adsense is
still staggering. I mean, we’re talking about a 100X difference. And it’s not just creators
who are feeling the pain. TikTok is also very much feeling the pain having lost $7 billion
last year and it’s only getting worse. Vine was facing this same challenge 10 years ago
and this is the main reasons that they eventually shut down. All of their most popular Viners would
translate their audiences over to YouTube. This includes Drew Gooden, David Dobrik,
Danny Gonzales, Cody Ko, and of course Logan Paul and Jake Paul.. We’re starting to see
the exact same thing happen with TikTokers as well. Notable examples are Charli D’Amelio,
Bella Poarch, Addison Rae, and KallMeKris. Fun fact, some of these creators have already
earned substantially more on YouTube than TikTok. KallMeKris for example has earned around $350,000
on TikTok but she’s already earned millions on YouTube. This is not a great sign for TikTok
as this is hard evidence that people are simply using TikTok as a springboard for YouTube or to
jumpstart their music career while the platform is burning billions trying to stay afloat. So,
here’s TikTok’s monetization crisis and the uncertain future of the platform.
HESITANT ADVERTISERS:
By far the largest shortcoming of TikTok is advertisers. Advertisers simply do not
want to advertise on TikTok. It’s easy to blame the medium for this reluctance. Most
advertisers simply aren’t used to making short form ads in portrait mode. And this is true to
a certain degree but it’s not the main reason. I mean companies like Apple and Coca Cola have
marketing budgets in the hundreds of millions if not billions. And they have hundreds if not
thousands of employees who’s full time job is to simply figure this out. So, the reason that
companies are reluctant to advertise on TikTok is not because they don’t know how or can’t figure it
out, it’s because they don’t want to. Why you ask? Well, for one, it’s not a very lucrative audience.
41% of TikTok users are between the ages of 16 and 24 which means that most of them don’t have
any money. For perspective, this is how YouTube’s audience demographic looks like. As you can see,
it’s a lot more evenly dispersed. This in itself is a big turn off for advertisers but the issue
goes much deeper than just demographics. Likely the biggest concern for most advertisers is brand
optics. It’s no secret that the content on TikTok is how should I say it “edgy”. You’ve got thirst
traps, a bunch of cursing, and all this other stuff that YouTube tells you not to include. This
is actually what has made TikTok so popular in the first place but there’s a reason that YouTube
doesn’t lean into this content. Advertisers simply do not want to be associated with
this type of content. I mean, if you were Apple, would you really want your ad to play after this?
I’m gonna guess no. And this makes a far larger difference than you might think. At this point,
I think we can agree that TikTok is very much a worldwide platform. In 2021, it was literally
the world’s most popular domain for crying out loud. So, clearly, it’s extremely popular across
the globe but guess what? 80% of TikTok’s revenue still comes from China. And if you didn’t know,
the TikTok that we use is actually banned in China. You see, the CCP decided that mainstream
TikTok is simply too vulgar and unproductive for the youth. So, instead, they have a healthy
version of TikTok called Douyin. Fundamentally speaking, it’s the same app. The difference is
the type of content that is posted and promoted on the platform. Douyin primarily promotes science,
educational, and historical content instead of lip syncs and dancing. Furthermore, younger
generations are limited to just 40 minutes of Douyin per day, so no hours of mindless scrolling.
Douyin is extremely popular in China but it doesn’t quite stack up to TikTok. Douyin boasts
730 million monhtly active users while TikTok boasts 1.05 billion monthly active users. So,
TikTok is not only more popular but people tend to spend far more time on TikTok. But despite this,
China is able account for 80% of TikTok’s revenue because advertisers are actually interested
in appearing next to Douyin videos. So, until TikTok is able to address advertiser hesitation,
TikTok will continue to face major monetization issues leading to more creators migrating away.
SHORT FORM HELL:
Advertisers no doubt play a massive role in how much is paid out to creators,
but they’re not the only issue plaguing TikTok. You see, short form is simply fundamentally
harder to monetize because views are worth substantially less. On TikTok, for example,
the average video is only 36 to 42 seconds depending on the size of the account. Even
if we assume that these videos have 75% audience retention on average, each view only translates
to about 30 seconds of watch time. Now, compare that to what we see on YouTube. Using myself as
an example, my average video gets just under 7 minutes of average watch time, which by the way
thank you. This means that the average view on my channel is worth about 14 views on TikTok. Why do
I bring this up? Well, monetization has more to do with watch time than views. I tend to put an
ad break once every 3 minutes which means that the average view translates 3 ad impressions.
For simplicity, let’s say that TikTok shows an ad once every 3 minutes as well. Since each video is
only watched for 30 seconds at best, a viewer would have to scroll through 6 TikToks before
reaching an ad and that’s the best case scenario. More likely, they’ll have to scroll through 10 or
15 TikToks before seeing an ad but we’ll call it 6 to give them the benefit of the doubt. This means
that each view on TikTok only translates to 1/6th of an ad impression. Putting this next to YouTube,
we’ll see that each YouTube view translates to 18 times more ad impressions. So, if we want to
really create an accurate comparison between how much advertisers pay on YouTube vs how much they
pay on TikTok, we can’t compare views to revenue, we have to compare ad impressions to revenue.
YouTube generally pays about $3 to $5 per thousand views in most niches. And as we previously touched
on, TikTok pays 2 to 4 cents per thousand views. But, if we normalize based on ad impressions,
we’ll see that TikTok is actually paying 36 to 72 cents for the same number of ad impressions that
you would get from 1000 YouTube views. Still about 7-8 times worse than YouTube but also 18 times
better than what the upfront numbers suggested. The only way to work around this obstacle is
move towards longer form content which is exactly what TikTok and its creators have been doing. What
started at a maximum video length of 7 seconds has grown all the way to 10 minutes. TikTok has also
been testing with landscape mode, but increasing the average view duration isn’t as easy as just
getting creators to post longer videos. The algorithm highly values audience retention,
so if TikTokers want their long form videos to perform well, they have to increase video length
without sacrificing audience retention. Also, we see all those articles about our ever decreasing
attention spans. And if that’s true anywhere, it’s true on TikTok. So, TikTok is very much fighting
an uphill battle when it comes to monetization due to the fundamental nature of their content.
GIVING UP: Hearing all this, you might be saying
that this isn’t just an issue on TikTok. Instagram and YouTube have also been promoting short form
content. So, they should be facing the same issues right? Well, you’re right, YouTube and Instagram
are indeed facing the same issues. With YouTube shorts, for example, you can expect to earn 5
cents per thousand views. But, here’s the thing, YouTube and Instagram are not tied down by short
form content. Short form content is not their golden goose. It’s simply an expansion effort.
And they’re already starting to decide that this expansion effort isn’t worth it. You see, platform
monetization is a two sided coin. If creators aren’t earning much money from ads, neither is
the platform. At least, the creators can go out and get brand deals and sponsors and affiliates
and all that. For these platforms, their only revenue is ad revenue. So, if that’s garbage, the
entire revenue from the whole effort is garbage, and that’s what seems to be playing out. In fact,
according to Mark Zuckerberg, revenue from Reels is so garbage that Meta is losing $500 million per
quarter because of users watching Reels instead of scrolling through pictures. Yeah, I don’t
think you’d be surprised to hear that Meta has stopped offering Reels bonuses to creators. So,
while Instagram and YouTube are very much in the same position as TikTok with shorts, they’re also
not. They have the luxury of pulling back and focusing on what they were already doing. The
same cannot be said about TikTok. But then what is the solution? Well, unfortunately for TikTok,
there is no clear solution to their monetization problem. Again, this is literally why Vine shut
down. What TikTok really needs is time. They need time for brands to become more open with the idea
of advertising on TikTok. In the meantime, their best bet is to tinker with the algorithm to
push longer form content that’s more advertiser friendly. But, this is also a pretty big gamble.
This can lead to a sort ad apocalypse like we saw with YouTube back in 2017. More edgy creators got
pushed off the platform as family friendly content got pushed to the top. But, the thing to note is
that YouTube always had a good mix edgy and family friendly content, so the shift towards family
friendly content was more natural. With TikTok on the other hand, we’re primarily dealing with edgy
content so the shift is a lot more jarring, and it’s not clear how many viewers TikTok would push
off the platform by making such a change. But, with their peers already dropping out and pulling
back, this might be the hail mary that TikTok needs to make to stay relevant over the long term.
THE STATE OF TIKTOK:
As you can see, TikTok is very much facing a monetization crisis and there is no easy solution,
but there is a silver lining for TikTok. Unlike Vine which was backed by Twitter which was in
itself not a profitable company, TikTok is backed by Bytedance which has been posting
record profits. In fact, they made $25 billion last year. So, losses from TikTok are definitely
something that they can sustain even over the long term. Also, even if Bytedance can’t pull it off on
their own, they’ve got the backing of the CCP. You can bet that as long as TikTok is popular,
the CCP won’t let them go under as TikTok is literally a goldmine for them.
So, from a financial perspective, they very much have time on their side. But they may not be able
to say the same thing about their creators or viewers. Their creators are naturally pivoting
towards YouTube to build stronger businesses with more revenue. And as for viewers, TikTok
faces the risk of their viewers growing up, kind of like what SnapChat is dealing with right now.
So while TikTok may not be on the clock for financial reasons, they’re very much on the clock
due to trends amongst their viewers and creators. Will they be able to beat the clock? Only time
will tell. While all of this madness has been going on with short form content, podcasts have
actually been doing better than ever on YouTube. If you wanna learn why, check out this video.