Considerable press is being devoted to the YouTube purchase. Some press is being devoted to the falling numbers for the last flip-up darling, MySpace. The web developers and their investors are beginning to see that the web did not change the dynamics of the entertainment industry any more than it made business frictionless. Entropy has a way of shaking its finger in the faces of those who accept the proseletyzing pundits pronouncements of the next new thing being somehow bigger better and newer than the last new thing. The dynamics of business are determined not by the distribution channel but by the reasons for the transactions themselves.
1. YouTube provides content of a different quality than MySpace. As long as it can provide that, it can grow. The dynamics of user-generated video and the long tail of talent determine its limits. The long tail will cause stars to emerge and their longevity and productivity will determine the stickiness of YouTube.
2. Teens want to be alone as much as they want to be in company. They are the most fickle audience of all as any musician or actor can tell you. Sites like MySpace may evolve into business sites just as high school get togethers evolve into business oriented cocktail parties. Corporations have more reasons to create and keep conversations going with the same people than teen-agers do.
3. The objective of a site builder is to drive enough traffic to a site to make it worth purchasing for several orders of magnitude of its development value. This is precisely the model of pop music and for exactly the same reasons. Some sites are one-hit wonders that are worth visiting for a summer, and others last for several decades.
What happens? The big dollar buyouts are the blips not the recurring peaks of the purchasing cycle.
The flip costs will be reduced proportionally and will evolve toward the same kind of deals made with bands for points where the initial investments don't go straight to the pockets of the band but to the producers, in this case, the VCs. To make the big dollars site developers will need the kind of legal help that enables them to renegotiate their contracts after they prove the sustainability of the traffic to the site just as music lawyers renegotiate with music labels after the third platinum album. Until then, the developers live on subsistence wages just as the bands do with million selling hit songs and just enough money to get to the next gig.