(Bloomberg) -- Earlier this summer, the Federal Trade Commission began holding private talks with YouTube officials, part of a burgeoning investigation. The video service stands accused of breaking laws overseeing kids’ web habits, placing a massive library of media and accompanying revenue in jeopardy. Neither YouTube nor the regulators have discussed the talks publicly.
Yet despite the secrecy, a small British marketing firm started emailing some marquee YouTube advertisers about the developments. Reports indicated that the FTC would hit YouTube with a record fine and force its operations to change -- something, the emails noted, that would "be of interest" to YouTube's sponsors. "Regardless of what size the fine actually is, it represents a shift in the world for children's digital privacy," read the message. "Look forward to seeing you soon.”
The emails were from SuperAwesome Ltd. Toy makers, animators and other brands pay the company to place online ads or access tools like the startup’s “safe, moderated” system for internet comments. In July, SuperAwesome added another offering: a video service, called Rukkaz, that works much like YouTube. Amateur broadcasters upload videos, sponsors back them and kids watch. Only the startup pledged to work with only hand-picked broadcasters, and pitched the service as a way to abide by privacy laws and avoid the demented footage lurking on the open web. "This is something that Google and Facebook, and arguably Apple, should have been doing for the past five years," said Dylan Collins, SuperAwesome's chief executive officer. "And they haven't."
Waves of new media darlings have tried to unseat YouTube, with no success. But Collins is one of several entrepreneurs trying to strike while YouTube is in turmoil. The video behemoth, owned by Alphabet Inc.'s Google, has earned a reputation as a Wild West of media, a place where young viewers have too readily stumbled on footage of crass humor or bloody violence. Lawmakers have asked about this, part of the scrutiny of the privacy practices and dominance of big tech. The FTC is probing whether Google violated the Children's Online Privacy Protection Act (COPPA), which prohibits tracking the personal information of minors under thirteen. YouTube's frequent tweaks to its all-powerful algorithms and ads policies have left video creators disgruntled. A handful of upstarts are hoping this momentum will help their cause. They've roped in venture financing, licensing deals and customers with the promise of creating kid-safe internet real estate.
The FTC is inadvertently playing a role, too. Uncertainty over the case is producing panic in parts of the YouTube community, prompting some stars to hunt for alternatives. News reports surfaced that the FTC may force YouTube to move all children's videos to its Kids app or cut them off from ads. YouTube has offered no public statement on the issue and rumors have filled the vacuum.
"No one really has a sense of what is going to happen," said Michael, who runs KidCity and two other YouTube family channels. He is one of more than 150 YouTubers jumping to Rukkaz. He isn't moving off YouTube, but will cross-post select YouTube clips with the startup, which will share ad revenue. He asked that his last name not be revealed to protect the privacy of his two children.
Kid's media online is booming as millions of children swap Saturday morning cartoons for streaming and smartphones. Most streaming services, like Netflix, run curated, slickly produced shows for kids, while YouTube relies on a mountain of unscripted, user-generated content. Multiple people who make these videos said that, in recent months, support representatives from YouTube have halted contact without explanation. A chief concern for many creators is that their videos will be restricted to YouTube Kids, a much less popular service, where Google runs fewer ads. “That would put everyone out of business. I mean, almost overnight,” said Michael.
YouTube is unlikely to do that, or to cut off all its kids and family footage from ads. Instead, to comply with the FTC, YouTube is planning to end “targeted” ads on videos kids are likely to watch, Bloomberg News reported on Tuesday. That solution would make it harder for the creators behind those clips to earn more from ads, although it's a less draconian move than some other rumored options.
A problem with this approach, though, is defining kids’ videos. COPPA applies to any web service “directed to children.” While most clips on YouTube Kids, such as nursery rhyme cartoons, clearly are, other huge swaths of YouTube, like footage of video game streaming, arguably aren’t. Yet it’s an open secret that younger viewers love watching people play video games. Roughly a quarter of the YouTube ads one major toy company buys run on Minecraft videos, according to a media buyer with knowledge of the matter who asked not to be identified discussing private data.
“The difficulty here is determining what is ‘kid’s directed,’” said Ashkan Soltani, a privacy researcher who previously served as the Chief Technologist for the FTC. “It’s not a bright-line rule.”
Once the line is drawn, YouTube creators do not want to fall on the wrong side. Many, like KidCity’s Michael, now describe their productions as “family-based play” or “co-play” – videos that feature adults and, the hope is, that adults watch.
YouTube is not the only major player in an uncomfortable spot; other tech platforms are under similar pressure. The FTC fined Bytedance Inc., the owner of popular app TikTok, for violating federal guidelines on minors. Critics have complained that Facebook Inc. illegally tracks children’s online behavior. Many in children's media don't expect a viable solution to come from the household names. "It doesn't make sense that big internet companies can take something they designed for grown-ups and make that for kids," said Kevin Donahue, an early YouTube executive who now runs Epic, an e-book startup. "You have to create something new." (Donahue said has no interest in rivaling his old company, though. "We're not at all doing that," he said.)
For most newcomers, that something looks like Netflix: A subscription service with a limited selection. The idea is that parents would pay for some parts of YouTube popular with kids: the toy unboxers and niche animators, without the pratfalls of an unlimited content library. Three years ago, Epic added video to its $7.99 a month e-books app. It offers a few thousand clips, all reviewed by staff members. Kidoodle.TV, a Canadian company, offers children’s videos on set-top box services like Roku. Another, JuniorTube, had a slate of curated amateur videos available on a subscription-based app. Earlier this week, Roku added a new curated kids and family section.
Highbrow, a London-based startup, sells a $6.49 monthly service with a tagline “trusted by schools and parents worldwide.” Priyanka Raswant, a corporate lawyer, formed the company as she was preparing to have her first child. She found most videos available on YouTube Kids “nonsensical” and the app unhelpful for parents. “If you see something outrageous, you have to report it,” Raswant said. “They’ve put the onus on the parents. Most parents don’t even have time to brush their teeth.” Highbrow has partnered with telecoms in Latin America and India for distribution, but doesn’t share sales data. The service carries videos from Pinkfong, the studio behind mega-hit “Baby Shark,” as well as smaller shows like “Travel With Kids” from PBS.
SuperAwesome is one of the few borrowing YouTube’s model of free, ad-supported programming. The startup is set to book $60 million in revenue this year. (YouTube doesn’t share sales, but estimates place the yearly sales from its kids’ content north of $700 million.) Collins said his company is profitable. Of course, the uncertainty surrounding kids’ online video could also threaten those profits. His ad business is competing against those at the twin giants of Google and Facebook. The benefits of SuperAwesome’s ad services might not be as apparent if YouTube passes through the FTC probe unscathed and grows its Kids’ app.
That could mean that more is riding on Collins’ video service. For Rukkaz, Collins is targeting YouTube's blind spots. Most of YouTube Kids caters to preschoolers, so Collins is recruiting creators aiming for an older audience. He's also approaching creators with between 500 thousand and a million subscribers on YouTube -- enough to earn livings from the site, but not to be inculcated from its swings. "This entire community is really being orphaned by YouTube," Collins said.
Michael, who runs the KidCity channel, is optimistic about Rukkaz. He’s planning to use SuperAwesome’s feature for hosting video comments, which he finds useful for getting audience feedback. YouTube shut off comments on videos with children earlier this year, but allowed a select group of channels to keep them with the condition they “actively moderate” the posts. Filtering those comments, though, requires using a manual system. “You have to go in there and spell the dirty words,” he said.
His attempts to find footing beyond YouTube haven’t succeed in the past. On KidCity, the Texan father and his two children perform long skits dressed up as familiar cartoon characters – Marvel Comic’s Wolverine or Disney’s Queen Elsa. They tried to post one of these clips on Amazon’s self-publishing service, Prime Video Direct, but the company rejected the videos citing intellectual property concerns. A KidCity clip of his son donning a Spiderman costume and testing a Spiderman toy has over 85 million views on YouTube. YouTube’s laissez-faire approach to media has brought scathing critics, but it has also enabled countless careers online.
"That's the creator platform for kids," said Michael. "The only one, unfortunately."
At least one would-be YouTube rival has already bit the dust. JuniorTube, a company based in Indiana, made a paid app and recruited a few established YouTubers. Like the others, it managed the costs of hosting video and other back-end services, splitting sales with video producers. In May, these producers received an email that JuniorTube had shut down "due to very poor business performance and audience interest."
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