With the popularity of YouTube, there is no better way to distribute new media to the masses. The hosting is free, the social tools help attract new viewers, and the subscription system helps keep the current ones watching. But new media isn’t just videos of a cats making a cute purr; it is full fledged, albeit low budget, productions and that carries with it a cost that needs to be recouped. So how do YouTubers make their money?
One of the most obvious ways that new media producers make money on YouTube is through the partnership program. The partnership program, if you are not familiar, gives a percentage of the ad revenue generated by any channel to the owner of that channel. This is YouTube’s clever way of encouraging quality content on YouTube, and thereby maintaining YouTube’s dominance as a new media distribution outlet. The partnership program is great for new media producers for a number of reasons. First, it is available to almost anyone on YouTube. It used to be restricted to channels that generated certain thresholds of viewership, but the marketing team at YouTube realized that making partnerships available to more people is good for everyone involved, both the content creators and YouTube itself. In this system, content creators start making money as soon as their channel starts getting hits, which helps offset the production costs of the channel as they build their audience. Second, it turns the channel into a source of passive cash flow for basically no upkeep cost. Since the channel generates money off its views indefinitely, any time someone goes back and watches old videos that archive will continue to generate revenue. One of the biggest areas for monetization of content in the mainstream old media world is the after-market, such as syndication for TV shows or DVD sales for movies; YouTube provides the archival and after-market as part of the monetization bundle that is the channel partnership program. Admittedly, however, the partnership revenue pales in comparison to even the after-market of old media. Luckily, YouTube stars aren’t limited to the partnership program for their income.
One of the more common ways to make money on YouTube is through product placement or sponsorship. When it began on YouTube it caused a great deal of controversy, and it still carries a certain stigma to this day, so it has to be handled with a great deal of tact when used. It also isn’t used exclusively to provide bigger paychecks to the channel owners or talent. Just as often, it is used to cover the initial production costs of the videos, so the channel can do even bigger and more courageous videos that require a larger budget to be made. A great example of this is the channels that specialize in action scenes and special effects, the most famous and most popular of which is Freddie Wong (account name: freddiew).
Freddie Wong started his channel as a passion project with himself as the star; his production partner, Brandon Laatsch, doing the shooting and directing; and the pair working together on the editing and special effects during post-production. Both graduates of USC, they would often elicit the help of various connections they had in the Los Angeles area to get their projects done. Over time, however, they were able to grow their business to the point where they can afford to support a loft-style workplace in Los Angeles, shared with several other YouTubers, and their productions can support a small production crew with location managers and props people. So how is this possible? For starters, they release videos weekly and those videos generally hit over a million views during that first week of release. That provides solid revenue from the YouTube partnership, which will continue to pay out any time those old videos are watched and ad revenue is generated. But that isn’t the only way money is generated. Another way is through indirect sponsorship of a video by a brand. Recently, Freddie Wong’s channel did a video about some guys fighting over a sandcastle accidentally being destroyed. At the beginning of the video there is a bit where they explain that the video was all shot on a cellphone, and the cellphone is put in frame for a few seconds. Then it cuts to the footage they shot and goes from there. If you watch the behind-the-scenes, Wong and Laatsch talk about how they are frequently asked by aspiring filmmakers what gear they should buy to get started. Wong and Laatsch always answer that professional equipment isn’t necessary to get started, just a good idea, and that sentiment evolved into a concept for a video that demonstrated how much you could do on a very low-budget with amateur equipment. It just so happened that Samsung wanted to show off the video capabilities of their new smartphone, the Galaxy S III, so that is what the guys used to shoot their video. Now whether the video was entirely in service of a deal they had with Samsung, or if they had the concept in mind and this was just a serendipitous opportunity for them, is unclear. Similarly, I can only guess that Samsung paid them to provide that service. But this kind of YouTube exposure is so good, why wouldn’t a brand pay for it?
Using this sandcastle video as an example, let’s talk about the exposure that Samsung is getting. First, in the original video a Samsung Galaxy III is shown in the opening shot in what advertisers call “the hero shot” while the purpose of the phone being in frame is explained. Second, the video demonstrates that the video capabilities of the phone are good enough to shoot a video in HD that looks as good as any of the other Freddie Wong stuff shot on high-end video equipment. Third, all Freddie Wong videos contain a link, in frame, to the related behind-the-scenes content that is hosted on another channel. In that behind-the-scenes video, the guys call out Samsung and the brand of phone, Galaxy S, by name. Four, in the behind-the-scenes they talk about the details of the phone’s capabilities, including explaining why it isn’t as good as the professional stuff they usually use but that it still takes incredible footage. This spreads the product placement over two channels, allowing for double the exposure, and since each video has a different tone, the kind of advertising in each can be tailored to the style of video, making people feel less manipulated by the product integration. The regular video features the phone looking cool and sexy, without calling too much attention to its placement, and the behind-the-scenes lets the brand be called out by name, so that customers know what to look for when they are ready to buy.
Another way that YouTube videos can make money is through collaboration. Collaboration is the currency of new media producers, and on YouTube it has become a term that refers to any project that puts two personalities together in the same video. While collaboration in its usual definition could mean the creative team of one channel doing the directing, shooting, and editing with another channel’s stars as the leads, on YouTube it usually means two star personalities in the same video that they worked on together. So how does this become money? Collaboration is a great way to build a channel, since the viewers of one personality or channel will now be exposed to the other personality or channel in the same way that Batman toys in Happy Meals is cross promotion for both a Batman movie and McDonalds restaurants. This grows partnership revenue by increasing viewership, but obviously doesn’t represent an alternative revenue source. However, a similar idea has potential.
In the early days of YouTube, content creators wanted to back their new media productions with music. However, since copyrighted music is an issue for anyone making money on YouTube, they had to find ways to score their videos without using popular music. Most of these producers were young enough and inexperienced enough to not know about license free music archives, or simply couldn’t afford that type of alternative. What many of them did instead was turn to musically talented fellow YouTube artists. A sensible deal would be struck something like: “I get to use your song in my video for free, and in exchange I will give you a shout out either in the video description or the video itself.” Either way, the musician drives traffic to their own YouTube page, their iTunes content, their personal website, or wherever they want traffic driven, and the content producer gets a song to score their video. This has been immensely successful for getting some artists that kick they need to start getting noticed, and several musicians have written about how YouTube has done wonders in launching their careers. While I don’t know of any documented cases of this collaboration process being done for money, it’s easy to see how it could be. An indie label, or a smaller wing of a larger label, is looking to get exposure for an up-and-coming artist they manage. Why spend hundreds of thousands on marketing when you could pay a popular YouTuber (over a million hits a week) a tenth of that to use one of the songs in a video?
A final way in which some YouTube content can be monetized is through direct sponsorship. Like in sports, when the halftime show is brought to you by Tostidos, sometimes a segment on a popular show will be “brought to you by,” although they don’t always make it that explicit. An obvious example of this was the Movie Club segment that was a feature for some time on the Phillip DeFranco Show. The Phillip DeFranco Show is a part vlogging, part news, part opinion, part community interaction based daily new media show developed by Phillip DeFranco, one of the hardest working men on YouTube. He manages at least three different channels, each of which produces videos every weekday, and is a walking one-man example of how to find ways to make money on YouTube without upsetting your viewers. I’ve already talked about some of the other ways above, so in this case, I’m going to stick with the direct sponsorship of his Movie Club. The idea of the segment was to pick a movie each week for everyone to watch and then in video-responses, one of YouTube’s social tools, viewers could post micro-vlogs where they shared their feelings about the movie. Like a book club, but instead of books it was movies, and instead of some friends at a coffee shop it was anyone in the world and on YouTube. The segment was sponsored by Netflix, who also provided a one-month free membership each week to be given away by raffle to one of the posters of a video-response. This is a win-win-win for everyone involved. Phillip DeFranco gets monetary support for his channel, Netflix gets the exposure they desire for their service, and the viewers get an awesome new media experience and the potential for free stuff. Netflix’s win is the biggest win, though, as the segment serves to demonstrate one of their current core values, breadth of available movies, and the free thing they gave away is one of their preexisting marketing hooks. Free samples are a time-honored way to land repeat customers.
There are probably many more ways to make money on YouTube, some I’m not yet aware of and some that may not have been invented yet, but it is clear that new media presents a great opportunity for both the advertisers and the video producers to work together to monetize great, free content for the web. The techniques may be old, with direct sponsorship dating back to early radio programs, but the way they can be used is being redefined by the way in which YouTube’s strengths, such as its social media tools, video descriptions, playlists, and in-frame annotations (both text and hyperlink), change the way media is consumed from a strictly passive activity to a partially interactive one. How many times have you watched a TV show, been leveled by the soundtrack, and thought: “What is that song, and where can I buy it?” On YouTube it would be as simple as one click away.