Online video stars reach new, profitable heights

The top five YouTube stars have more subscribers than the population of Mexico. Followers of their channels are double the number of all U.S. cable television viewers. And some video bloggers, or vloggers, are making as much money as Hollywood’s biggest stars.

That success is no accident. It is an outcome of strategic corporate planning and the commercial interests that are now shaping the modern era of online video, executives and analysts say. Despite the shaky, homegrown feel of the productions, online video has evolved far from its freewheeling origins into a more carefully crafted launching pad for brand-wielding Internet stars.

This week, an estimated 1,000 companies are flooding the world’s largest online video conference in Anaheim, California, up from just a few hundred last year, organizers said. YouTube, which just marked its 10th year, now has 300,000 ad-supported channels compared with 10,000 three years ago, according to OpenSlate, a YouTube analytics firm.

Ad spending on digital video is expected to increase to $9.5 billion this year, up from $7.8 billion last year and $6 billion the year before, according to Terrance Kawaja, a partner at media venture capital firm LUMA Partners.

“This is a huge opportunity,” Kawaja said.

Top online celebrities still constantly churn out new content on YouTube, as well as platforms such as Snapchat, Instagram and Vine, cashing in on the advertising dollars that are tied to their video views. But with the quiet backing of production companies, many of these stars now have the clout to establish their brands beyond the digital world, signing deals with television and movie studios as well as merchandisers.

Smosh, for instance, one of YouTube’s most-watched channels, was discovered and promoted by former Disney executive Barry Blumberg. In 2006, Blumberg reached out to the duo behind the comedy act, Ian Hecox and Anthony Padilla, and asked whether he could fly up to Sacramento to meet with Hecox’s father.

“I told them … if we did it right, they would never have to work a regular job in their life,” said Blumberg, chief content officer for Defy Media, a production company.

At first, corporate sponsors, studios and others didn’t know what to make of the act, Blumberg said. Nine years later, the duo has a team of about 50 editors, producers, writers, and assistants to help with a handful of YouTube channels that operate under the Smosh brand. The group attracts 21 million subscribers.

“People said you guys are theoretical millionaires because we had all these views but weren’t making money,” said Padilla, 27. “When we teamed up with Defy … that’s when things really took off, and we went from two guys making videos to an actual brand.”

Celebrity and riches have followed. This week, they will be honored with their own statues at Madame Tussauds in San Francisco. On Friday, “Smosh: The Movie” will be released for digital download, produced by Defy Media and Awesomeness TV, a joint venture of DreamWorks and Hearst. 20th Century Fox is distributing the film.

Such breakthroughs were far easier when online video was nascent.

Beauty guru Michelle Phan, 28, rocketed to online stardom after posting simple YouTube videos in 2007 that instructed viewers how to put on make-up. She still makes a decent salary from selling ads against her YouTube channel — about $163,000 a year, according to OpenSlate. But Phan said in an interview that her mail-order subscription company, Ipsy, which sells makeup and beauty products, generates more than a $100 million in sales a year (the figure is hard to verify because her company is private). She also has her own make-up line with L’Oreal.

“I can see more Michelle Phans in different genres, like baking and comedy,” she said. When asked if the market is saturated for talent, she said there will “always be interest in hearing people’s stories.”

But Phan broke out when there was far less competition for eyeballs. And while truly homegrown videos can still strike it big and captivate the Internet for a week or two, it has become difficult for such folks to hang onto their audience over a longer time period without the help from companies (Remember BatDad? What happened to him?).

There are now more than 6,000 channels for comedians, 76,000 channels for gaming, and even 1,000 for pets, according to OpenSlate.

“The ocean is getting bigger so to be a buoy of excellence in a big sea of average makes it hard to get discovered,” said Max Polisar, a senior vice president for talent management firm BigFrame.

YouTube’s biggest star these days is an often shrieky Swedish video gamer known as PewDiePie who makes $4.7 million a year just from YouTube ads, according to OpenSlate. PewDiePie, whose real name is Felix Arvid Ulf Kjellberg, drew twice as many views for a two-minute clip showing him singing with his pug dog than any of the NBA Finals games. Over his career, the 25-year-old has logged 9 billion total video views.

Such stars are being courted more aggressively by big corporate marketers as consumers shift away from television. Ratings for broadcast and cable television have declined, in some cases by double digits for networks such as MTV and Comedy Central. TV advertising in the first quarter fell 5 percent, according to a report by Standard Media Index.

Meanwhile, YouTube announced last week that the amount of time people spend watching videos on the site was up 60 percent during the first quarter. More men ages 18 to 49 watch YouTube than any TV network.

That has prompted more companies to shift their ad dollars online. Some marketers, such as RedBull and Toyota, are even creating their own popular channels on YouTube with millions of subscribers.

“If you are a brand marketer this has been a pivotal year. You’ve seen cable TV ratings fall double digits for the first time, which means your main conduit just fell off a cliff,” said Mike Henry, chief executive of OpenSlate, which provides YouTube data to Fortune 500 firms. “I haven’t had a single conversation with a brand that hasn’t shifted money into digital.”

But a commercialized online video world doesn’t leave much room for grassroot efforts from ordinary YouTubers such as Kaitlyn Larson.

Larson, 15, just launched her own channel a month ago and has so far garnered 300 subscribers. With turquoise rubberbands around her braces that match her turquoise print top, Larson was standing alone in a hallway outside industry panels at VidCon and talking to another newbie YouTuber who had traveled from Hawaii.

“When YouTube started it was more organic, like kids just posting after school. Now it’s young adults that are producing videos in a much more professional way,” Larson said. “That makes it hard for people starting out to get an audience.”

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