How to become a YouTube millionaire
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
How can a four-year-old be raking in more than the UK prime minister earns?
That was the first question that entered my mind when it was recently reported that YouTube’s most lucrative channel in the UK did not feature a pop superstar, a legendary rock band or the biggest TV show around . . . but a child from Lancashire.
Gabriella — or Gaby, as she is known to her 12m-plus subscribers — beat the likes of Ed Sheeran, Queen and Britain’s Got Talent to be named the country’s biggest YouTube sensation by social media analytics company Social Blade. It reckons that Gaby could be pulling in between £2,100 and £40,000 a day, depending on daily views, with earnings of up to £1m a year.
This feat seems all the more remarkable — and bemusing — when you see her videos. Gaby playing with Barbie dolls. Gaby dressing up as a Disney princess. Gaby and her five-year-old brother, Alex, splashing about in the bath in swimsuits, then acting out nursery rhymes — this one got 425m views and counting.
To be fair, I am hardly the target audience. Laura Edwards, co-founder of Viral Talent, the channel’s agent, points to its success in engaging pre-school viewers with cheerful, colourful content. Children are drawn to the jolly soundtrack, cartoonish graphics and so-called “unboxing” moments in which brand new toys are gleefully unwrapped, a phenomenon that one marketing expert called “toddler crack”.
And the cuteness belies a carefully choreographed operation. Toys and Little Gaby is no side hustle but an increasingly professional channel run full-time by Gaby’s mother, 28-year-old Sabine Vilumsone. New videos are posted two or three times a week and Companies House records, filed by Ms Vilumsone, reveal the business had net current assets of £188,175 as of April 30 2018.
From gamers and pranksters to make-up artists and trick shot specialists, they are among a new generation of entrepreneurs sharing the spoils of YouTube’s vast advertising revenues. These are not reported by its parent, Google (a subsidiary of Alphabet), but were estimated at $3.36bn last year by market research firm eMarketer.
First unleashed on to the world in 2005, the site began as a repository for amusing short clips — remember the sneezing Panda? — and has gradually evolved into a vast alternative broadcasting empire. It has competition, of course: Instagram is increasingly populated by videos (though they last less than a minute). But marketing experts say the greater attention span and all-important “engagement” required to be successful on YouTube has made it more commercially valuable.
So could I become a YouTube millionaire? If a four-year-old can achieve what Gaby has — albeit with the help of a savvy “momager” — surely anyone can? The truth, I soon discover, is far more complicated.
Launching channel ‘Me’
While setting up a YouTube channel is free and easy, producing golden content is another matter. “It has never been more accessible but it has also never been more competitive,” said Amee Fairbank, director of Manchester-based video production company Lizardfish TV. Her clients include the BBC, Vogue magazine and Madame Tussauds.
“Standards are getting better all the time. It takes much more creativity, much more engaging content to really stand out from the crowd these days. And nobody wants to watch shaky, badly shot content with poor audio,” she said.
Oh dear. The first videos I published on YouTube last year were shot on my old iPhone and in portrait mode — a rookie error. I should either upgrade to a smartphone with a cutting-edge built-in camera or specialist vlogging cameras. These typically cost between £200 and £1,000. Ms Fairbank’s “good-value” picks range from £419 (for Fujifilm’s X-A5 mirrorless camera) to £795 (for the Sony A6400).
Then I will need some microphones, ideally with a minijack input, to boost the audio, an LED light, a tripod and possibly accessories such as sliders, gimbals and stabilisers. At this rate, I will be lucky to get change from £500.
Still, I can save by shopping around for low-cost accessories. And Ms Fairbank reckons there are some “excellent” free editing options for beginners, such as iMovie and Lightworks.
The main investment required is time. I can learn basic filming and editing techniques on (where else?) YouTube, but there are no shortcuts. Ms Fairbank said: “You will need to vlog on an almost daily basis to build a following, and even then it could take years to reap the rewards. It takes dedication to create constant video content with no immediate benefit.”
The business model
I could be waiting some time for the money to roll in. To novices like me, YouTube’s advertising system is incredibly complex and opaque. Fundamentally, the more popular you are, the more advertisers are prepared to pay. But you need to clock up 4,000 hours of viewing time for your videos in a year and have at least 1,000 subscribers to qualify for the Google Partner Programme, which provides a share of ad revenue.
Under this programme, vloggers can select a common option in which they get a share of advertising revenue ranging from 5p to £7 for every 1,000 “monetised” views — that is after YouTube takes 45 per cent. Only 40 per cent to 60 per cent of overall views are deemed worthy of advertising spending, based on various factors such as the location of the viewers and their level of “ad engagement”, that is, how much they skip or click on ads.
YouTube also recently changed its rules so that creators are only paid if viewers watch their videos for more than 30 seconds. The other option is cost-per-click advertising, where they are paid each time viewers click on ads surrounding the video.
A YouTube spokesperson said the site offered resources designed to help channel creators, such as the YouTube Creator Academy and analytical tools. “YouTube is an open platform that enables creative opportunities and a distribution platform for original content creators and advertisers large and small.”
Hmm. The chances that I will ever make a living, let alone become filthy rich, from YouTube are starting to look slim. According to research published last year, those who break into the top 3 per cent of YouTube’s most popular videos, attracting about 1m to 2m views a month, will typically earn just $16,800 a year from advertising revenue. Only the top 1 per cent, getting more than 2.2m views a month, will earn more.
The study, conducted by Mathias Bärtl at Offenburg University of Applied Sciences, was based on a representative sample of 19,025 channels and an advertising rate of $1 per 1,000 views. It is a pretty accurate benchmark, according to the experts, but it is still informed guesswork. YouTube is highly secretive about almost every aspect of its business model, from basic information such as the number of channels in existence to the workings behind “The Algorithm”, the hallowed programming code that plucks out recommendations from the site’s vast sea of content.
Nonetheless, the research confirms what many have long suspected: the YouTube rich are getting richer. The top 3 per cent of channels scooped up 90 per cent of all views in 2016, up from 64 per cent in 2006. And the odds are increasingly stacked against newer channels, though it is still possible to break through where supply is weak and demand is strong. For instance, gamers are 14 times more likely to succeed than traditional vloggers who upload to the overcrowded People & Blogs category.
Making an impact
Competition on YouTube is brutal, with more than 500 hours of video uploaded every minute. Most of the experts who spoke to the Financial Times agreed that one or two videos a week was the bare minimum now required for success. Dan Middleton, a British gaming star who earned £25m last year, recently admitted working 12-hour days to post daily videos and stay ahead of the algorithm, which was recently tweaked to reward busier creators. Just missing a day can drastically reduce your views, subscribers and overall revenue.
Small wonder that “influencer burnout” is on the rise. Last year saw a flurry of confessional videos from full-time YouTube stars charting their mental health problems. Many have taken digital detoxes to recover; some have retired from YouTube altogether. One vlogger with about 80,000 subscribers, who wished to remain anonymous, told me: “My most popular videos get six-figure views but the maximum I earn is a few hundred pounds. When I think about all the research, time, skills and promotion I put into each video, I wonder just how sustainable it can be.”
Mark Brown is the face of the Editors Keys channel, which reviews technology and publishes tutorials on how to achieve YouTube success. “You feel a constant need to put out content — to be successful, you have got to put up hundreds of videos a year and for each one, you have got to think of something original to say. It is actually quite hard,” he said.
“I’m seeing kids drop out of college because they see these channels where you can apparently get a Ferrari and sit on the beach working. But what you don’t see is the hard work. You’ve got to love it and be prepared to do it for free, because you won’t be paid for at least a few years.”
Harry Hugo, co-founder of influencer marketing agency Goat, said: “It’s much harder starting out on YouTube today than ever before.”
“The algorithm and how it promotes things is a lot different today from what it was years ago. As more advertisers spend money on the platform, different content prevails at any given time.”
YouTube currently favours 10-minute videos that feature more advertising in the middle, known as “mid-roll”. “It makes more money from those videos and therefore will promote them to a larger audience via the algorithm on the homepage,” said Mr Hugo. “The videos then get even more views, more advertising is spent on them, and so on.”
Persons of influence
But YouTube advertising is not the only game in town. Creators increasingly make extra cash from influencer marketing. This ranges from affiliate links, where influencers earn a fee every time viewers click on a product link, right up to highly sophisticated brand collaborations.
The anonymous vlogger said he typically earns a four-figure fee for such partnerships. One video he produced in conjunction with a streaming service was a moving, heartfelt and deeply personal monologue about mental health. I had to remind myself it was promoting a TV drama — particularly because the partnership was far from obvious, flagged by way of a subtle link to the programme in the drop-down description.
Successful vloggers, and the agents managing their careers, can be cagey about the sums earned from influencer marketing. However, prying some numbers from leading agencies, I found that someone with at least 7m subscribers could earn about £250,000 for a sponsored video, while someone notching up 1m subscribers would command about £100,000. Even so-called “micro-influencers”, defined as having between 3,000 and 100,000 followers on any given platform, can earn between £2,000 and £50,000 for sponsored posts or videos.
But influencers need to tread carefully. The government has recently tightened rules around online paid content and the Advertising Standards Authority has cautioned hundreds of influencers for failing to declare commercial interests, such as free gifts and loans.
Creators need to tick a “paid promotion” box before they publish anything that advertises a third-party service and label the commercial relationship clearly and accurately. The ASA has detailed guidance on its website about most commercial scenarios that vloggers will encounter and how to deal with them.
“Over-promoting brands now has very negative connotations,” said Mr Hugo. “Audiences are more aware today that YouTubers have to fund their way to creating more great content that stays free. But creators tread a fine line between this and selling out.”
It is a problem that many smaller, cash-strapped creators would like to have. Instead, they rely on more humble affiliate marketing. The biggest scheme out there is run by Amazon, with commissions ranging from 5 per cent to 15 per cent. This explains why YouTube is stuffed with videos recommending Amazon products, though other schemes are available, such as Awin, Shopify and Skimlinks.
Mr Hugo also recommends Patreon, the peer-to-peer subscription content service, for those who cannot or do not want to work with brands. Fans are given the opportunity to pay a set amount to their favourite creators through Patreon in return for extra perks, such as exclusive material or merchandise.
Creators also need to be tax-aware. If your YouTube profits are under £1,000, they will be covered by the £1,000 trading allowance introduced in 2017-18, and there is no need to declare it to HMRC. But anything higher will trigger the need for you to submit your takings on a self-assessment tax return. You can then deduct the £1,000 allowance from your profits.
Mr Brown has a final word of advice: “There is a saying in the YouTube community that the riches are in the niches. But a lot of the main ones are covered so you’ll have to go micro-niche. Instead of cats, go for cat food or cat accessories.”
Got it. In order to achieve YouTube stardom, I will spend the next two or three years editing, posting and promoting the world’s best daily videos about litter trays. On second thoughts, I think I’ll stick to personal finance.
Iona Bain is founder of the Young Money blog and has launched a YouTube channel on personal finance
Climbing the YouTube profit ladder
1. Google Partner Programme
Any creator can get paid a share of ad revenue through an AdSense account, so long as their account is “advertiser-friendly” — so no nudity, violence or copyright infringements. You choose what kind of advertising you would like (such as skippable videos) and how you would like to be paid: by cost-per-1,000 page impressions or by cost-per-click advertising.
2. Google Sponsored Programme
This option is only to channels with 100,000 subscribers. Here, fans pay a fixed monthly subscription to their favourite creators for exclusive perks such as badges, downloads, live chats or meet-and-greets.
3. Google Preferred Programme
This gives advertisers access to the most popular 5 per cent of channels, which get premium rates in return. But this elite club is fiendishly difficult to crack.
4. YouTube Premium
Premium subscribers cough up a monthly fee to forgo the ads and access exclusive content. Here, creators are paid based on how much viewing time they notch up.