Who Owns Nebula?
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This would match what Standard have said about the setup, would match the Wendover documentary and its reference to "wizardwry" making it all work, and provide for input from creators and revenue to creators. Combining this with the phantom stock and how a sale would be handled, I think calling this "ownership" when summing it up in a single word for the purposes of a YouTube advert is... uncontroversial?
The alternative would be having each creator on the cap table, and my understanding is that is actually quite tricky to do at scale, and brings significant legal and tax implications for the creators and Nebula.
While this is all very interesting, and I appreciate the blog post, I do wonder if the answer here just boring.
A co-op is structurally as much about ensuring that employees can’t transfer their equity to non-employees as it is about ensuring that employees have equity. You can’t get the semantics of a co-op ownership structure just by doing regular things with a C-corp; you need extra hacks, like these bylaws.
Ownership is a nuanced concept, and taking a hard line on just one feature of ownership is not necessarily the right choice in general discussion.
In the case of startups, which are not yet public companies, even less so, as those shares can be dilluted, etc.
In the case of public conpanies I see them much in the same way I see shares of conpanies I buy in the stock market. I have no meaningful ownership of the company in those cases, it is just where I park some money looking for a return in investment.
A coop is actually a form of ownership, even if ironically you can't sell that ownership.
They have to explicitly restrict selling of the shares through contract means. That's because ownership is the legal right to possess, use, or give away (sell) a thing. Likewise, Nebula has to explicitly restrict selling of partial ownership through contract means.
No, you don't own stock when you own stock options. A stock option is a right to purchase stock at a particular price, and you own that right. Just like owning, say, an easement on a piece of land, doesn't mean you own the land. (And both a stock option and an easement have a value, and you may be able to sell those things themselves — but the value they have, and their sale price, is often disconnected from that of the underlying asset the right exercises against.)
You know how you can very easily tell when you own something? Because governments almost always tax transfer of ownership of a thing. You don't pay taxes when you acquire options, because you haven't yet acquired ownership over anything. You do pay taxes when you exercise those options — exercise that right to acquire stock at that price — because now you do own something you didn't before.
Another way to tell that you own a thing, is that you have the ability to directly pledge that thing as collateral on a loan. You can pledge stock, but you can't pledge options[1]. This is because you can contractually grant the bank the ability to confiscate your stock in event of default on the loan, in a way that guarantees that they will succeed in this confiscation. But you can't contractually grant the bank the ability to confiscate your options, in a way that is guaranteed to succeed.
And that's for exactly the reasons you outline: there may be contractual stipulation on the exercise of the options, that mean that the bank can't immediately liquidate the options, and thereby can't balance the loss-of-lendable-assets coming from your default and/or might risk the company's share-price falling, or even the company going bankrupt, before the options may be exercised.
Also, sometimes the bank wouldn't want to exercise a contingent asset they've acquired, but just wants to sell that contingent asset on to someone else who wants to hold and exercise it at a future date. ESOPs in particular usually have voidability clauses that say that not only can't you transfer the option, you can't even build a financial instrument around the option that has the semantics of transferability. Banks very much do not appreciate restrictions like that.
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[1] Yes, you can show your holding of options as a demonstration of assets, to increase the amount a bank is willing to lend you. But this, like any other demonstration of assets — e.g. a demonstration of employment, or of ownership of revenue-generating assets — goes into a Net Present Value-adjusted future-cashflow projection calculation that the bank does, to determine how likely you will be to be able to make your regular loan payments when everything is going well for you. In the breach, they still need collateral to be pledged out of stuff you actually own — i.e. can guarantee them the right to as a creditor.
Many people do, in fact, pay taxes when they acquire options. You seem to be saying that people who have filed an 83(b) election own options, but people who haven't don't. This is not correct.
In general, your error appears to be that you either own something or you do not. This is not generally how proprietary rights work.
Ownership is a bundle of rights that is not uniform across property or time.
Honestly Nebula always felt off to me because of this marketing. They never sold it as a place where creators had a more equitable share, or where they had more creative freedom and control (which seem to be true), but they used the idea that they were "fighting the man" by going at it alone. It always felt like a half truth which, turns out, it is.
Also the price always felt too good to be true to me so I always suspected some sort of investment from somewhere to create a loss leader. Though the jury's still out on that. But having worked on video streaming online myself I know first hand how expensive it can get so I wonder how profitable the company is.
You can totally scale this type of ownership.
For smaller co-ops that don't bring in members very often or who are just getting started they often create an LLC and put in the articles of incorporation that all future members will receive an equal share and equal voting rights. This does require filing paperwork for every new member, but keeps taxes easy.
For co-ops that expect to have lots of members rapidly (consumer co-ops that sell shares in their store to whomever wants one, for example) they normally form a corporation and allocate a certain number of shares up front and indicate that any member has equal voting rights, etc. this makes the taxes harder, but is a lot less paperwork since you have to file stuff about the number of shares sold at the end of the quarter (or whenever, I forget the exact reporting details, been a while since I've done this) but not every single time you add a member.
Georgia (and a lot of other states) also have specific laws for EMCs and other specific types of co-ops, so it's really fragmented. Take this with a grain of salt, it's just two examples of how a lot of smaller co-ops do things.
I'm not in the US, so I can't comment on the options for Nebula, but where I live coops are a specific type of legal company which would encompass what Nebula want - a company where profit is divided between members in proportion to their contribution. As part of that the only owners allowed are contributors, and the only people who can receive a profit share are the owners. If you want to stop contributing you have to stop owning, and there's no value to the shares.
So you can't take on equity funding, only debt.
This structure seems to be made to work around that, structuring it like a regular stock company but with a sale trap to make it unappealing to sell for a quick return.
Is this a huge problem?
It depends on what the company is trying to build.
The dollar amount of debt a company can take is limited by its revenue because it requires ongoing payments to service that debt. Whether it's debt from a bank business loan or by issuing corporate bonds, they both require real revenue to make those payments.
Equity investments don't have a ceiling capped by the company's present day earnings. This is important if the company has ambitions to build something that can't get any meaningful revenue on day 1. Instead, they need the money to pay salaries, cloud bills, office rent, etc to build the product and hope the later revenues will justify the investment. E.g. the early Google startup in 1998 took $25 million VC investment and didn't have meaningful revenue until +4 years later in 2002. A company with $0 revenue can't get a $25 million loan with a 4-year deferred payment plan. Yes, there's such a thing as "convertible debt-to-equity" but that's a financial vehicle for investors that doesn't apply to co-operatives.
An external party could agree to debt funding with deferred repayments, but they can't link repayments to profit.
Hence the structure of Nebula - a regular stock LLC with a constitution that has an exit trap.
According to the blog post, they get 50% of the profit which would be much lower than 50% of the revenue. This is worse than other profit-sharing platforms. But hey, you own 50% of a shadow equity or whatever that means.
> Nebula the streaming video service (which controls the streaming revenue) is Watch Nebula LLC, which is about 83% owned by Standard Broadcast LLC, with the rest held by Curiosity Stream. All control and all board seats belong to Standard Broadcast LLC.
> We use shadow equity for platform creators because assigning LLC-level equity would make signing new creators logistically impractical, and would have complex tax implications for every creator we bring in. US securities laws also are skewed in favor of the wealthy: it would be very expensive or potentially impossible for us to comply with them if we were issuing securities to small creators who aren’t accredited investors.
> If substantial control of the streaming service ever changes hands, we are contractually required to split the proceeds 50/50 with the creators on the platform. 50% of streaming profits are distributed to creators based on watch time. Additionally, 1/3 of the revenue from any subscriber is allocated to the creator responsible for bringing in that subscriber.
> Weird that he didn’t just ask.
— Dave Wiskus, CEO of Nebula https://www.reddit.com/r/Nebula/comments/1ffnaza/comment/lmx...
For tax purposes, if the LLC is taxed as a partnership, these are all considered partnership interests.
Cameron did quote someone who asked him and the answer he got was "it’s complicated". There is no reason to think that asking again would have resulted in different/better answer.
Plus, as we see, it's not that complicated. He explained the situation fully in one paragraph so why didn't he when asked in the past?
For the record, Nebula is primarily owned and operated by creators. Those creators are:
* Dave Wiskus
* Brian McManus (Real Engineering)
* Alex (LowSpecGamer)
* Devin Stone (Legal Eagle)
* Thomas Frank
* Sam Denby (Wendover Productions)
The other creators are getting scammed.
This is not an uncommon model. This is almost identical to how edX was structured and the marketing literature is nearly identical too. It was owned and run by universities. Just not the universities who made up the "consortium."
If there were no scam, there would absolutely no reason for the non-public non-answers. If Nebula weren't scamming, they would disclose the "financial and legal wizardry."
None of this prevented me from giving Nebula money. As I said, this kind of issues comes up literally every time I do due diligence. I am disappointed in specifically Brian McManus for being involved in a scam, but this kind of scam is omnipresent with quite literally every organization I've done due diligence on, and usually much worse.
The structure is opaque which indicates there might be some scam but how would one know what it is?
It sounds like a few creators can sell the equity that is built by many creators at any time, but that all the other creators can only realize their equity if and when the company exits.
If someone bought tickets to a steam ship that stipulated that in the event of an imminent iceberg collision, they can only get on the life-boats after a small group of people ransacked the ship and left on the first life-boat, I might assume that they'd been scammed to. But perhaps they were just desperate or didn't think icebergs were a risk. Regardless, I just know I wouldn't buy that ticket.
And who would be buying shares if the company is sinking so badly? How does the ransacking work in the analogy, and does it even make a difference?
The part that sounds scary is that they're on the "first" life boat and everyone has to wait until "after" they're done ransacking, and that part doesn't sound like it maps to the real world at all.
But backing up to the more general sense, shadow equity is a reasonable way to do the profit sharing but you have to have real equity somewhere. Accepting that there are two tiers makes sense to me. And the reason it's a "small handful" with the realer equity is because those people either built the company or paid lots of money to the people that built the company, that's pretty fair.
With the false advertising, it's pretty darned unfair.
That's misleading because an exit (i.e., a sale or an IPO) is usually the only way that owners of real equity in a startup can cash out.
This is not the case. It is owned and operated by the founders and some investors.
If someone donates believing they're supporting Extra Credits, Practical Engineering, or a similar channel, they're likely being misled about how much they're contributing to it. Indeed, they may believe they're supporting a creators' co-op, which they're clearly not. If Nebula sinks, the support is what they expected. If it swims, it's going to be a lot less.
I consider this to be tantamount of fraud. That's as much a statement about myself as about Nebula. My standards for what constitutes fraud are much lower than e.g. the FTC's. However, I (again, personally) believe that if the FTC shared my standards, the economy would be more efficient and the world would be a better place. That is a personal opinion, but researched, and based on the work of David Landes (a well-regarded economist at Harvard, who had nice work about the role of social capital in economic growth).
That, it's not.
As a footnote, this also explains why channels like Wendover are promoted so strongly by Nebula over, quite frankly, better content.
but that's not really a difference between the two channels; real engineering manages to pack plenty of misstatements into videos that are equally superficial
The problem I have is that it's trying to do electronic engineering, fusion, and now history. The worst is interviews / human interest / travel / behind-the-scenes, etc. My question is always: Why? Why do you think you're at all qualified to do a better job than the people who specialize in this?
If I had a choice, the Nebula-exclusive content would go more into math or deeper engineering: How does a jet engine work? That kind of thing.
But yes, Practical Engineering is very, very good.
if you want to know how a jet engine works i think your best bet (other than library genesis and google scholar obviously) is integza
Accuracy doesn't generate clicks.
Thank you for the pointer to integza. I have not watched the videos yet, but from the high-level, that's exactly what I was looking for (albeit for slightly different reasons; for a different project).
I told him not to that unless he has actual knowledge, and he got very angry at me. On the occasion he made a very poor analysis of political and social situation of an African country (that's all I remember).
Cultural sidenote:
I do the same (although in personal conversation; I would obviously never do that on Youtube). I am very happy to espouse on topics I have little knowledge of, as did most of the community I spent time in when I was in grad school. This is looked down upon in most mainstream cultures, but it's actually very helpful. If I espouse something incorrect, someone can correct me. I learn something. It's a form of constructive / interactive learning which I find hyper-productive, and we did that all the time.
It's also helpful in social situations. The point isn't to convince you of something, so much as to communicate the state of my brain to you. That makes it much easier for us to debug who is wrong where.
Of course, that's completely incompatible with:
> he got very angry at me
Conversations got heated but never angry. There's a distinction:
https://www.nytimes.com/2017/11/04/opinion/sunday/kids-would...
What I struggle with is that in mainstream Western culture, this mode of communication comes off as arrogant, and conveys many subtexts which I don't want to convey. Part of that is that we expressed too much confidence when making those statements, but that's maybe 10% of the problem; even expressed with modesty, it mostly breaks in mainstream Western culture (and 90% of the other cultures I've been in; parts of Eastern Europe tolerate this a little bit better).
a big part of the problem is the nature of the youtube medium, which is effectively a 10-minute monologue desperately begging for mass attention. if it turns out something you said was wrong, you can't go back later and add a correction in the middle of the video. the best you can do is add a pinned comment or delete the erroneous video. people correcting you in the comments will only ever be seen by a tiny fraction of viewers. previously there was an option to add a "card" that overlaid the video at a given timepoint with text, but youtube removed that some years ago
When it came with specific book recommendations, it was extremely helpful in some cases (and in a few others, I didn't have time to read the books, so I shut up until such time will come).
It's less then helpful generically.
I find it funny that the author writes
> It’s equally possible, however, that the system was set up in order to keep any meaningful power away from the creators.
Does the author really think that the chance that all of these creators are lying to their audiences is just as likely as them all telling the truth?
Also, the author even admits
> As I mentioned previously, some ownership of Standard has since been offered to other creators through stock options, but it’s unclear how much or what type of stock those options represent.
Owning equity (and thus voting power) in Standard also means that the creator has the ability to vote on how Standard operates Nebula. So the conclusion that the creators have no control over Nebula literally cannot be true. So the statement that "the creators own 0 percent of Nebula" is just misleading, and yet this is somehow the important conclusion that the author wants readers to know...?
The author basically spends the entirety of one sentence dismissing the idea that there could exist a corporate governance model that allows creators to have a meaningful way to direct the company's decision making process and spends the rest of the time on a wild goose hunt to figure out the "actual" ownership percentages.
It was pretty obvious from the beginning given the repeated mentions of complex ownership models that the "real" numbers were not going to mean that creators owned "real" equity in the company. An investigation about what this actually means would've been a much better way to write this kind of essay.
Instead all we got was a long article with a conclusion that was reasonably obvious in hindsight, and no real evidence to support the thesis that "it's all just smoke and mirrors".
The conclusion that there’s nothing like a co-op at all is not what I would have expected and I really think does suggest that it’s all smoke and mirrors. If this “ownership” doesn’t consist of anything more than a right for creators to be paid based on their view counts, isn’t it just a YouTube contract with extra steps?
The author says: "Unfortunately, without access to one of their contracts, we can’t know for sure what power the broader group of creators actually has."
While the accusation of the creators being tricked might be between the lines[1], I think the more direct accusation is the subscribers being tricked.
The subscribers are made to believe:
1. the creators get 50% of Nebula's profit
2. their money goes into a co-op of creators
3. Nebula hasn't taken VC money
My reading is that the author claims, that only the first point is true.
[1] To the best of my knowledge, none of them has come forward with any accusations. On the other hand, we probably only should expect this to happen once Nebula gets in trouble or is actually sold.
I very much suspect the latter. Otherwise why be so circuitous and secretive about it.
I've never heard of shadow equity before. But clearly it isn't equity, ie it isn't ownership. So it almost certainly has no governance rights. Now it may entitle the creators to 50% in the event of a sale, but who's to say it's Nebula that's sold, vs Standard, and who's to say it's sold at all. Rather the standard (excuse the pun) approach of selling off the assets without selling the company.
To my untrained eye, this just seems like owning stock without voting privileges, which seems okay? Is the fear that the voters will eventually just change the creator profit sharing to zero and milk the company dry rather than selling it?
Shadow Equity usually doesn't pay dividends. So if the stock devalues due to payed out dividends (and the shadow stock has no voting power), it's the creators paying out the investors from their share.
I appreciate that in a full co-op dilution is a concern if they need external investors (e.g., Curiosity Stream) but you could have a structure with 50% co-op ownership and 50% capital ownership, so dilution as the platform expands would only affect the other co-operative owners.
After reading the article, I walked away with "well, they were vague about the terms, but the real terms sound fine to me."
But your comment changed my mind somewhat: it definitely isn't a co-op, and the "creator owned" language is misleading.
Then why shell them into a separate vehicle?
The purpose is to create two tiers of creators. That's fine. Some took a risk. Others didn't. But it's dishonest to then claim one is being transparent when the only reason for this structure, apart from incompetence or convenience, is obfuscation.
To put this to an extreme: If only the six owners were creators they could claim 100% goes to the creators without lying.
Surely this must be 6 million USD. I first thought this is a typo, but it is like that in the original SEC filing. Is this some convention I am just oblivious about?
> Total Amount Sold $6,000,000 USD
You're referring to the note 2 of the prospectus supplement no. 12[2]. It indicates the following at the top of the notes section:
> (in thousands, except share and per share data)
[1] https://www.sec.gov/Archives/edgar/data/1881238/000188123821...
[2] https://www.sec.gov/Archives/edgar/data/1776909/000121390021...
Nebula is a streaming service.
It has a parent company (Standard Broadcast) which owns $83% of the service and has 3 out of 4 board seats.
An external public company (Curiosity Stream) owns the remaining 17% and 1 board seat.
Standard Broadcast is owned by 6 individuals, some of them popular YouTubers.
Content creators who post on Nebula get 50% of the service's total profits (based on watch time).
Content creators (other than the 6 mentioned above) don't own any shares in Nebula, but if the service is ever sold, they get 50% of the proceeds from the sale. This doesn't, however, apply to Standard Broadcast or Curiosity Stream, which can and are sold/traded independently.
Whether Nebula is "creator-owned" or not, as they proudly proclaim front and center on their website and marketing materials, is left as an exercise for the reader.
Essentially, all the money collected by subscriptions is paid to creators based on the number of views on their videos.
[0] https://nebula.tv/videos/tldrbusiness-how-does-tldr-really-m...
I usually enjoy an unnecessarily inflammatory hit piece on something uncontroversial because it's the investigation along the way that makes things interesting but there's none of that.
I was always suspicious of the "50:50 SB/Ceator" deal. The real way to do something like this imho is via a cooperative, with investors like CuriosityStream and SB providing capital loans.
That said, the "ownership" claim is apparently provably false and I've been lied to. The company has operated dishonestly, and frankly the biggest reason I had a subscription was because of what I thought was an equitable ownership structure for creators.
To me, the fact that many of them clearly find Nebula a more suitable arrangement for them is still an indicator to me that, if I want to support the creators, Nebula is a better way to do that. Obviously, you can make your own decision on that, and sure, if you feel lied to, I can appreciate being upset about that. But maybe most of these content creators are less concerned with the ownership (they get 0% stake in Google, after all) and more concerned with the profit sharing arrangement. If so, I'm still happy to support them in that.
I supported Nebula because I think a creator's co-op is a beautiful project. I was willing to compromise on the co-op idea when I thought it was a 50:50 ownership structure but this is nothing close to equitable in my mind.
I'll spend the money I save on Nebula on monthly donations to creators. I look forward to supporting a creators co-op if a promising one is ever made.
You'll split your 3-6 dollars between multiple people? So that after fees they'll each receive a dime?
I'd rather be supporting the creator's co-op I thought I was, but I'll have to settle for this until that exists.
1) a group of content creators created a company
2) that company runs a streaming platform where they also allow outside content creators to use with (at least) a profit sharing agreement that includes ongoing profit as well as profit from the a sale of the company, should they sell it.
3) that platform also took in a single minority investor at some point
4) some rando on Medium is getting wrapped around the axle because they think the outside creators are calling this "ownership."
I love Nebula. But it's obvious that there is a shady component to their structure that prevents transparency that senior leadership knows about and knowingly obfuscates. I'm not arguing for a creator-owned co-operative; that would render the equity worthless, and they want (and should) retain the option to sell. But Nebula et al made a big fuss about refusing VC because of the incentives that creates while legally creating a two-tier structure that mimics those same incentives.
[1] https://nebula.tv/videos/realengineering-how-nebula-works
1- Bulk Purchase, like Nebula (Sam from Wendover and other fellow youtubers); One subscription buys you access to ALL the channels in the network.
Pros:
* Single payment for users
* gets better as more creators join
* usually discounted if you consider per-channel cost
Cons:
* requires trust between the creators
* can cause clash between creators on division of funds
* requires a certain minimum output to maintain basic service
* one cancelled creator can sink the service
____
2-Per-channel subscription, like Floatplane (Made by Linus from the LinusTechTips channel); You have to pay seperately for each channel you want to get access to.
Pros:
* Can be cheaper if you only want access to a couple of specific creators
* creators are not dependent on each other to maintain the service
* you are seperate from other creator drama somewhat
Cons:
* Can become costly quickly if you want to subscribe to multiple creators
* not that competitive with youtube premium
* can cause comparison strife between creators for difference in subscription fee
* can't take advantage of the synergist effect.
_____
Basically Nebula has the advantage of having many high profile creators, and if you have a smaller following, you can take advantage of the rising tide and get a boost from them by joining the service.
Also, Nebula seems to have ~ 50-ish creators from some pretty diverse set of topics, so it's not pigeonholed as Floatplane.
Buuuuut...it's unsustainable I feel. As the number of creators increase, the disparity of what each creator brings and what they are owed will be unteneble.
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Floatplane, OTOH, has half the number of channels as Nebula, and they are mostly tech friends of Linus, so it's not only pigeonholed, but overshadowed by the anchor store that is LTT.
By having seperate silos, you are unlikely to catch the wake of a rising ship to boost yourself.
However, I feel that by cutting money out of the equation (Floatplane gets a fixed cut, rest, you earn of your own merits) it is in theory more sustainable; you have your own silo, and if one is sinking, you are not concerned.
Also, there is a gun channel on the website, and they are there because they are tired of the censorship from Youtube. Being free from drama is a plus...don't subcribe if you don't want to watch!
but not that free; they are still bound to the whims of payment processors, so if VISA/MASTERCARD/Whatever block them, they are SoL.
They are not Only Fans level of free.
___
TBH, it's a pain to get people to pay, the friction is just too high. Nebula makes it easier than Floatplane, on the onset, even if it's not the best choice. But since when have people used logic where money is concerned?
Give dave an award for being awesome and running a successful company with a single investor.