A6
BUSINESS DAY
FT
C002D5556
Monday 13 August 2018
ANALYSIS China’s high-speed rail and fears of fast track to debt Critics say project is dependent on unsustainable government subsidies Tom Mitchell and Xinning Liu
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YouTube: How vloggers became the new Oprah Winfreys Some web stars make millions of dollars, but the stress of creating daily content can take its toll Hannah Kuchler and Emma Jacobs
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hen Marcus Butler told his parents of his plan to devote himself to his YouTube channel, he was earning just “tens of pounds”. That was eight years ago, when the excited 18-year-old had just returned from VidCon, the annual online video extravaganza in Los Angeles, where he met vloggers who had bought houses with their earnings. “There was something material that showed there was potential in it,” he says. Having travelled to LA as a “weird kid who liked YouTube”, he came back a wannabe entrepreneur. “I never had that vision when I started that it would be a business,” he says. Mr Butler became part of the “British invasion of YouTube”, one of a group of friends including Alfie Deyes, Zoella and Caspar Lee, who have boosted each others’ profiles. His biggest hit was rapping on helium with US vlogger Tyler Oakley, which received more than 8m views. Now, Mr Butler has bought rental properties in his hometown of Brighton, set up a subscription healthy snacks box and a music management company. He started generating income from his share of YouTube ads that ran next to his videos. Like other successful vloggers, he also promotes brands, products and services. Other revenue streams include tours, book deals and merchandise. In short, he has become a role model for a new generation of YouTube wannabes. Those budding YouTube vloggers face an uphill struggle as they try to break through. They now have to compete on a crowded platform where it would take eight years to watch the content uploaded in 24 hours — including that produced by stars from film, music and other areas of entertainment. YouTube itself is wary of competition in video content from Facebook on one side and in streaming music from Spotify on the other. Before the careers of their peers have even started, younger vloggers have the strain of running a complex business in full view of their followers. Nevertheless, the opportunity is huge: anyone with a smartphone can try to reach YouTube’s audience of 1.9bn signed-up users. The size of the YouTube creator economy is hard to estimate. Alphabet, Google’s parent company, does not even break out YouTube’s revenue. But the number of channels making more than $100,000 a year has increased by 40 per cent year on year, according to the company. For YouTube and its parent, Google, which bought the channel
for $1.7bn in 2006, this world of content is a key way of keeping users on its website rather than its rivals’. Rich Greenfield, analyst at BTIG, estimates YouTube revenues to be in the high teens of billions of dollars. Of the 1.7bn views YouTube received in the first quarter, 84 per cent were for the self-created content of so-called “influencers”. While that category includes the channels of major artists, the best-known vloggers rival them in reach: Logan Paul, who created a storm of controversy this year by showing an apparent suicide victim in one of his videos, has 18m subscribers for his channel, more than Adele (17.8m) or Beyoncé (17.1m). Chart on Facebook and YouTube vloggers “The vlogging landscape has grown tremendously over the past 10 years,” says Greg Goodfried at United Talent Agency. “You can make an exceptional living having a large audience on YouTube.” Creators can quickly reach audiences in other countries: 48 per cent of European vloggers export outside their home country, with three quarters of UK creators’ audiences outside the UK, according to research firm the video analytics company Tubular Labs. “The growth and scale have created a really wonderful opportunity for creators being able to reach a global audience and build a real business,” said Kelly Merryman, vice-president of content partnerships at YouTube. Vloggers have been a key part of the YouTube model since its early days. In May 2007, just over two years after the platform was launched, it brought in the programme where creators receive 55 per cent of the revenue their videos generate — which has since expanded to 97 countries. Now advertising is not the only option — or even the majority of incomes — for vloggers. As larger creators started making the most of their money from partnerships with brands, YouTube bought FameBit, a marketplace to connect creators with marketers, in 2016. At this year’s VidCon, YouTube announced that vloggers can now sell memberships to their channels that give fans exclusive content and create their own merchandise through the platform. “When creators start on YouTube, they are telling their story. Over time, they create a brand, a community, a fanship. It reminds me of what Oprah Winfrey did withsyndication at 4pm in the afternoon when I was growing up,” says Ms Merryman. “She reached out to us in our households and told us about life: Oprah’s book club, recommendations of movies to see,
household goods to buy, because we trusted her.” Some of the top brands partnering with YouTubers include Epic Games, maker of the hugely popular online game Fortnite, Old Spice, the consumer label, and Kay Jewelers, according to Tubular Labs. Many creators secure external representation with an agency or manager. Scott Fisher, a founder of Select, a management company for digital creators, has done deals for his clients with brands including Starbucks and Revlon. Making “seven figures” is now commonplace on YouTube, he says. Creators with large followings often have even more employees — from video production help to lawyers, accountants and sometimes stylists — than traditional celebrities. “The world is now much more favourable to an independent creator than to be on a show for five years,” Mr Fisher says. Only a select few, however, can become the next mini-Oprah, even on the internet. Unjaded Jade, an 18-year-old from Berkshire in the UK, has more than 200,000 followers of her channel, with more than a million views for her 5am school morning routine video. She says advertising revenue is a lot lower than people assume. “I couldn’t live on it. It’s pocket money,” she says, although she makes more through brand deals on the video platform and through her Instagram account. The hardest part is getting noticed. Mathias Bärtl, a professor at Offenburg University of Applied Sciences in Germany, found that the top 3 per cent of YouTube channels received 90 per cent of the site’s views in 2016, up from about two-thirds in 2006, shortly after YouTube started. If your children want to become YouTube stars you should “do them a favour and crush their ambition now”, he says. Jonathan Saccone Joly, who started his channel in 2010 when he was already at the ripe old age of 30, is aghast at the idea of school-leavers aspiring to be professional YouTubers. “It is a massively saturated audience. People are trying to do more extreme things to get recognised,” he says. “It’s like playing the lottery, being an actor or a musician.” Myles Dyer, who has 48,000 subscribers to the channel he uses to promote social change, says people were doing provocative things to get clicks, but insists it is important to not be a “slave to the algorithm”. “People are now doing more subscriber and sponsored content. I’ve never made enough out of YouTube to pay the bills,” he says. Mr Dyer is now using Patreon, an online subscription service, to receive donations from fans.
n a recent weekday morning, Liu Ai’jun boarded one of eight daily high-speed rail services between Urumqi, capital of China’s north-western Xinjiang region, and Hami, an oasis town 614km to the east. The trip, along the longest and most expensive line in the country’s HSR network, took just three hours and cost Rmb167 ($24). Previously Mr Liu, a self-employed elevator salesman and technician, used to rely on infrequent and expensive flights between the two cities. Before the new HSR line was completed in 2014, the train between Urumqi and Hami took seven hours. “If you’re not in a rush, why not take the train,” Mr Liu said. “The train is a lot more relaxing [than flying].”
Prof Zhao estimates that China Railway’s overall debts will grow 60 per cent over the next few years, reaching Rmb8tn by 2020. China Railway did not respond to interview requests for this article. China Railways interest payments exceed operating profits In the first quarter of this year, China Railways reported a net loss of Rmb376bn. During the same period, bank loans accounted for Rmb156bn, or more than 60 per cent, of its total funding. The company’s interest payments on its debt have exceeded its operating profit since at least 2015.
The convenience to Mr Liu has come at a considerable cost to stateowned China Railway Corp, which over the past decade has built the world’s largest HSR network with 25,000km of track. Today, just a decade
Earlier this week, China Railway announced it would invest more than Rmb800bn this year, 10 per cent more than originally budgeted. The company intends to expand its HSR network to 30,000km of track by 2030. The Lanzhou-Xinjiang line along that Mr Liu travelled is the longest, and most controversial, link in China’s HSR network. Built at a cost of Rmb140bn,
after construction began, two-thirds of the world’s HSR tracks have been laid in China. The December 2009 debut of China’s first long-distance high-speed rail service, which raced 1,100km between the southern city of Guangzhou and Wuhan in central China in just three hours, was a dramatic example of the Chinese Communist party’s debt-fuelled response to the global financial crisis. Such investment projects fuelled demand for concrete, steel and other industrial commodities in the world’s second-largest economy in the years after the crisis. But they have also saddled China Railway and other state-owned enterprises with huge amounts of debt. In the decade to 2016, Chinese corporate debt levels rose from 100 per cent of gross domestic product to 190 per cent, or Rmb141tn. As of March, China Railway’s total debts stood at Rmb5tn. According to Li Hongchang, a transport expert at Beijing Jiaotong University, as much as 80 per cent of the company’s debt burden is related to HSR construction. For critics of China Railway, the HSR network is a debt crisis waiting to happen, dependent on unsustainable government subsidies with many lines incapable of repaying the interest on their debt, let alone principal. “China Railways has always depended on financial subsidies and continues to raise new debt to pay off old debt,” says Zhao Jian, a colleague of Prof Li’s at Beijing Jiaotong University. “[This] will inevitably lead to a railway debt crisis.”
it connects three large north-western provinces inhabited by 53m people — a relatively low total for China — in a combined land area bigger than Argentina. This flies in the face of the basic economics of high-speed railways, which work best at relatively short distances through densely populated corridors. “The sweet spot distance is 300500km,” said Jonathan Beard, head of transport consultancy for Arcadis Asia. “Any shorter and road tends to be more competitive. Any longer and air tends to be more competitive.” Designed to handle 320 trains a day, the Lanzhou-Xinjiang HSR currently has only eight daily services. “Because of this large amount of idle capacity, [the line’s] annual revenues are not enough to pay for its electricity costs,” said Prof Zhao. China’s high speed rail boom While few supporters of China’s HSR network would disagree that the Lanzhou-Xinjiang line is a white elephant of enormous proportions, they say that looking at one line in isolation misses the very point of the network. They argue that profitable lines such as China Railway’s lucrative Beijing-Guangzhou HSR corridor, which links six provinces with a total population of 430m, will ultimately balance out lossmaking ones. “The lines will be here for the next 40 years,” said Gerald Ollivier, a senior World Bank infrastructure specialist who focuses on China HSR projects. “You need to look at that timeframe, which distributes the fixed costs over many more years, and passenger growth to understand the true financial story.”