- Startups like Jellysmack and Spotter are spending millions buying up old YouTube videos.
- The investment strategy is similar to the practice when buying music and film rights.
- However, some experts said that buying YouTube catalog content comes with unique risks.
“Am I dreaming right now? Somebody pinch me,” Nathan Graham, creator of the YouTube channel Unspeakable, told viewers in an eye-popping video titled “I Bought a Private Island House.”
In the video, which has garnered nearly 9 million views since it was posted in August 2020, Graham, then 22, showed off his new “vlog resort” on a private island outside of Houston. There is a private beach, an Unspeakable basketball court and a cinema, among other things.
Graham said he bought the $3 million home with cash from a startup called Spotter.
Spotter paid Unspeakable millions of dollars for the rights to monetize its old YouTube videos. Founded in 2019, Spotter is backed by Softbank’s Vision Fund 2. Spotter has already spent hundreds of millions of dollars buying old videos, an investment it hopes to recoup through future YouTube ad revenue.
“It’s helped me tremendously,” Graham told Insider of the Spotter payment, declining to disclose his exact payout to the company. “If I hadn’t taken that opportunity, it would have taken three or four years to build that income.”
Spotter is one of several startups that have built businesses related to YouTube advertising in recent years, generating $8.6 billion in revenue last quarter, according to YouTube parent Alphabet.
Both Spotter and Jellysmack — another Softbank-funded company that works with developers to monetize content on platforms like YouTube, Facebook, and Snapchat — see catalog investments as the next frontier in monetizing YouTube content. The two companies are betting that future advertising revenue from older YouTube videos will replace the upfront cost of paying creators for their content.
“We have very good insight into how their catalogs have performed over time,” Jellysmack president Sean Atkins told Insider in January. “There’s a lot of value in the library that these creators, especially on YouTube, have generated , but you generally have to wait a long time to extract the entire tail of that value.
SoftBank has invested in a number of creator economy startups over the past few years, including e-commerce platform LTK, live-streaming tool StreamElements, and NFT newcomer The Sandbox. Yanni Pipilis, a managing partner at SoftBank Investment Advisers who led the Series C round with Jellysmack, told Insider that the firm has seen YouTubers evolve from hobbyists to profitable business owners.
“If you go back 10 years, there was no concept of your job being a social media entrepreneur,” Pipilis said. “Now it’s not only a dream for a lot of kids and a big source of income for a lot of people, but it’s also become a major way consumers will consume media.”
The new world of YouTube catalog investing is all about data
Like music catalogs and movie libraries before it, buying old YouTube videos requires significant capital. Spotter told Insider that it’s already spent over $350 million buying content from creators like Unspeakable (Graham’s channel), MrBeast, Dude Perfect and kitchen creator Aaron Jay Brown.
The company said it intends to spend an additional $650 million over the next 18 months — for a total of $1 billion invested.
Jellysmack told Insiders that it is committing $500 million in catalog content.
“This is quite an indication that a wide variety of investors are beginning to see the value of investing in individual creators,” said Gary Young, CEO of royalty marketplace Royalty Exchange. “This is a wave that will not stop for a long time.”
To make big bets, companies rely on large amounts of data about how influencers’ videos are performing to predict future ad revenue. Founded in 2016, Jellysmack says it now has over 200 data-focused employees out of a total of more than 1,000 employees.
“Data makes a big difference in that,” said Pipilis. “Having a good grasp of the data and history and really being able to think about the value of each creator is incredibly important to properly assessing them.”
Spotter also carefully evaluates data, particularly RPMs (or how much a creator earns per 1,000 views) and how viewers interact with the videos.
“We have trillions of data points that have allowed us to look at how YouTube has performed over the last 10 years by video, channel and category, which not many people have,” said Aaron DeBevoise, Founder and CEO of Spotter. “We’re confident that we can accurately predict thousands of channels out of the box, but it took a long time to get there.”
The risks that come with spending millions on old YouTube videos
While companies like Jellysmack and Spotter use historical data to assess the future value of YouTube content, some entertainment analysts question whether YouTube videos are predictable enough to be a viable investment.
Compared to the song catalogs of Bruce Springsteen or the Beatles, YouTube is new. While unlikely, monetization on the platform could change abruptly, or another platform like TikTok could step in and overtake it.
YouTube’s revenue also depends on two tricky variables: personalities and advertising. Unlike music catalogs, which make money from radio plays, sales, streams, and gigs, YouTube back catalogs make money from advertising.
“Where it’s similar to music publishing, you’re going to be fueled by digitization trends,” said Vania Schlogel, founder of private equity firm Atwater. “But compared to music rights, this is much more tied to advertising and there is a lot of concentrated risk in terms of CPMs.”
YouTube content often revolves solely around the creator’s personality, which means that if that YouTuber’s reputation is damaged, their catalog earnings could take a hit.
“There’s always a risk of a creator going wrong,” Young said, adding, “When you build a large portfolio of YouTube royalties from tons of different creators and categories, you can mitigate that risk.”
Concerns about YouTube creators being suddenly demoed are not unfounded. When YouTube began removing ads from videos that its algorithm deemed inappropriate for brands in 2017, a number of creators saw the platform’s ad revenue take a huge hit.
Companies like Spotter and Jellysmack are aware of the risks involved in monetizing YouTube videos. For example, Spotter avoids certain industries, such as politics or news content, which are more likely to lose ad dollars.
“It can be risky to have a channel just as it would be risky to do a movie,” DeBevoise said. “By doing a lot of deals, we can weather the storm much better than if we were too focused on kids’ content or games.”
“This is not a pork belly futures trade,” Jellysmack’s Atkins said. “This is about appreciating the value of content and its predictability over time. As with any media property, there is an inherent risk of the talent doing something or the platform doing something.”
“If you and I had a channel called ‘Blow stuff up and pranks,’ we probably wouldn’t get a call,” he said.
Both Jellysmack and Spotter said they are targeting creators who appear to want to invest in growing their channels, as more followers likely means more views for those old videos.
Graham, for example, said he put almost all of his Spotter money back into the business to buy equipment, fund expensive videos and hire staff.
Spotter and JellySmack — and their investor SoftBank — are hoping such deals will pay off for them, too.
“We absolutely think of every opportunity on a return-on-equity basis,” Softbank’s Pipilis said. “I believe the strategy would absolutely support its own cost of capital over the medium term.”