Recently, I was subject to a (pretty long) rant from a friend of mine. We were both into the same youtube channels, kept up to date with the latest controversies, and fought regarding the same topics. The main gist of his manifesto of misery was that in recent times, Youtubers have spread themselves way too thin and made some eerily coincidental changes to their channel pertaining to content and its authenticity. Honestly, I agreed. There was a time when we eagerly waited for vloggers to do shallow “challenges” which nevertheless had a whimsical quality to them. We respected and appreciated independent, unbiased journalism from news media which covered grave topics we didn’t even know existed or had any relevance but apparently had great implications on most of the worlds’ lives. Now, these same vloggers sacrifice authenticity, personal integrity, and their original USP, their niche, for better camera quality and more crew members we didn’t need to know existed. Those same independent media have, what we perceived to at least, dubious sponsorships, which strangely enough led to more and more tame topics covered. This made me wonder, why are niche channels using AI voiceovers, indie media showing signs of quality disintegration, and most of all, why are youtubers selling confectionaries? They shouldn’t be held responsible for what I am putting in my body, MNCs should!
This wondering led me to an answer, though not a full explanation of these changes but a possible one and not trivial to investigate nevertheless; Private equity in Youtube channels.
There’s actually a surprisingly high number of those channels which I never suspected had PE backing: Veritasium, Fern, Vice and Dude Perfect, all extremely popular among the youth and have generally maintained a reputation for high quality content. In fact, such is the nature of the big bad hand of PE that they influence some very major decisions of these Youtube mammoths. Some of the most popular youtube channels owe their popularity to a certain host or main personality attached to the channel. This makes a channel vulnerable to the character and potential controversies of the person instead of the content of the channel itself. To reduce the risk associated with this lack of the ability to separate the art from the artist or more catchily, to mitigate the keyman’s risk, new hosts are introduced or other personalities are added, much like diversifying your investment portfolio. This is just one of the few business consultancy parallels we can now draw, what with the commercialization of non-legacy media too. This may be illustrated by the exit of Stevin John, the face and founder of the kids’ content channel “Blippi” after it got acquired by Moonbug Entertainment, and enterprise backed by the PE Blackston Inc, coincidentally also the owner of the beloved infants’ animated channel Cocomelon.
PE’s venture into such a niche and rather unorthodox sector can be explained by this very quality; its uniqueness. The logic is rather simple and just as banal as why PE acquires firms in almost every other sector: flush with cash PE firms saw a golden opportunity on these channels (which are now viewed as firms producing content en masse). These have low overhead costs and, given the algorithm continues favouring them, have great scalability and thus serve as lucrative investments. As shown by Blippi and Cocomelon, PE like any other industry makes a diverse portfolio of content creators.
This runs parallel to the decline in investment in new-age digital legacy media. These have high overhead costs which don’t justify their operational scale. These have corporate offices in premium location with substantial back-offices, and somewhat large workforce on high salaries. These firms thus have high burn rate of their revenues and incur debt anyways with lower ability to service debt. They do not signal to PE for investment due to their subpar financial health. Buzzfeed, as an example of this category, according to its Form 10K, spent almost 31% of its revenue in FY 2023 in general administrative costs, as opposed to a healthy firms’ 10-15%.
I also found reporting on niche topics to be kryptonite of sorts for PE. Buzzfeed with its cost profile has only a very narrow distribution channel through youtube and facebook and reports on niche subjects. This compromises scalability through limited channels which arrest maneuverability and also the extent to which revenue can be maximized as advertisers do not prefer content creators catering to a certain limited albeit loyal niche, further limiting revenue generation. Maybe this is why your favourite youtube channels seem a bit more generic than before?
But before we move on to blame big bad PE for ruining the things we like, I did the blasphemous thing and came to my personal conclusion that in this field, PE is actually beneficial. Hear me out.
The main risk posed to content creators on YT is the extremely fickle nature of fame; one moment you are the bee’s wax and the next moment you are nothing, just because of some ludicrous misunderstanding in the online world. As a content creator you are the forefront of this extremely credible risk. At the mercy of the algorithm, ad revenues depend highly on viewership, which again depends on how often your content is recommended on every user’s feed. Theoretically, even if you have a high amount of subscribers, you have low potential to grow if trends on what most of the audience prefers changes and your content isn’t pushed in users’ feeds. Your revenue stream is somewhat unreliable. I believe this is when PE steps in to ensure certainty and stability.
Expansion into different types of content or to explore different markets takes time, money, crew and other resources. Ad revenue is often not enough to support these ventures. Funding from private equity thus serves as this much needed seed funding to expand and diversify in good times, and also insurance against bad times when viewership ebbs from average highs. I do believe that in this way PE helps in innovating content too instead of making it even more monotonous as it provides a backup to those who want to try something new but are afraid to fail. The problem is merely the direction this diversification takes; to something more inventive or more of the same safe but boring thing which panders to a large audience.
If I adopt the perspective of a content creator, not as an artist but as a person wanting to survive and thrive in a competitive economy, PE is beneficial too. As PE takes a more hands on approach to how a business (in this case a channel) is managed, creators receive help in identifying what works as content to ensure a reliable and stable source of income. It helps them become the ally of the Youtube algorithm, not to beat the market or rebel against it only to be left in the dust of irrelevance and thus financial instability, but to ensure income. Though it sounds blasphemous to me too as someone who likes good art, it is what it is.
The help in consultancy actually goes farther. As Buzzfeed illustrates the problem of financial mismanagement, creators are creators, they should not be expected to be burdened with accounting skills. They should have the right to follow what they want to do with full gusto and dedication and that is create content. PE steps in to maintain financial discipline, optimize labour, manage the financial side such as avoiding high burn rates and thus, mitigate the decline of a channel which is probably the baby of a highly dedicated creator. It thus also serves as a good exit for founders who can cash in on the brand they worked hard to build and want to move to a different chapter of life, by selling their channel to private equity.
Another thing I have noticed as someone who has an infant cousin is that demand for animated infant oriented kids content, or even entertainment in general as a field, is a rather inelastic good though in theory it’s not a necessity. Though we grumble and mumble when we feel that the quality of a certain channel of a certain genre is falling, we still watch other channels of the same genre at least, and this case is even stronger particularly in cases like low-stakes infants’ content. My 1 year old cousin won’t care or even detect the slide in quality of Blippi, heck even I can’t. And even if she does, she can just move to Cocomelon. Guess what, both channels are owned by the same PE firm. So even if Cocomelon increases its viewership at the expense of Blippi, for example, the dividends generated by the PE remains mostly constant. The worst case problem posed is cannibalization. The reason why our financial health also, to an extent, relies of the health of these PE firms, is that these firms are funded by banks and investors who have our money too- our retirement funds and insurance premiums. The less volatile the dividends generated by PE firms, the safer our own funds are. Hence, the usual and very dangerous risk of our money not receiving the promised and low-risk interest owing to the limited liability of these PE firms is mitigated, i.e., the infection of these tranched bonds is contained.
This is not to say that underwhelming aspect in the involvement of PE in this seemingly benign field of entertainment is non-existent.
The issue with PE is very much how it is structurally and legally defined. The proliferation of PE in the business world actually leads to a vicious debt cycle. PE firms borrow from banks, offering their portfolio of funded firms as collateral. However, the responsibility to service debts actually falls on PE funded firms. PEs invest with the intention of receiving dividends from firms, which keep acquiring debt. The legal structure makes these firms responsible for debt servicing, so may force these content creators out of business. Also, since PE is not liable for debt payment and only loses initial investment if venture fails, it may put safe AAA category bonds at risk as they are not liable to pay the guaranteed return on low risk bonds. Our own funds may thus be in danger.
The reason I felt it is an interesting field of PE investment is because entertainment and particularly social media content is a recently new sector of investment. In the dawn of this investment, this was a niche and underexplored market. Social media content was seen as more risky and unreliable than legacy media. So, acquisition prices for PE in this sector was 4x-6x EBITDA as opposed to legacy media’s 10x-15x. However, with the massive competition 2026 onwards in the sector caused by ever increasing PE involvement has resulted, as social media content is now seen as high-growth. The rest of the implications are simple- high growth means high returns implying higher valuations and thus inflating acquisition bids. The advantage over other sectors in the form of low acquisition prices and lower risk of your money not receiving the promised interest rates owing to debt defaulting seems to reduce. Massive competition in yt media as though initially yt was seen as more risky than legacy media, these sold to PE for 4x-6x EBITDA as opposed to legacy media’s 10x-15x. Now the industry is maturing, valuation of creator content as ventures for PE is getting standardized through empirical metrics, competition rises and initial low risk through cheaper acquisition advantage is going away in the “sophomore year” 2026 of content creation PE investment.
Once interest rates go up in the economy and no buyers would be willing to invest, system may come crashing down. This is the same arbitrage problem traditionally present in PE firms, though I infer to not be as serious as in other, already matured and mainstream sectors.
Elaborating on the exit strategy, while it does give a breather founders who want to quit, PE decisions may lead to burnout for content creators who would like to continue. The standardization of content actually has led to an observable reduction in content quality due to PE control favouring consistency and algorithm pandering reducing creative content. Worst case scenario from a creative standpoint (as I type with fists clenched) is a post-human market. It’s not even that far-fetched; AI content personas and the AI slop factory of content on Youtube and Facebook has duped and annoyed most of us unfortunate audience.
The bottom line is a bit of a harsh truth: content creation might seem ever so increasingly soulless, but at least it will survive. It’s good for content creators who worked hard to build a brand but need mobility when they need to move on. Low inelasticity of dopamine addicted audience makes these investments still less risky than other PE investments , now that PE is here to stay anyways, especially if there is a logical route of diversification adopted by PE managers.
I feel, if your money is going to PE anyways, it helps if it goes in a safer and more benign direction, at least for the time being.
Ishaan Nag - My diary of the human society. 