The rise of YouTube and its attendant online celebrity millionaires has created opportunities for venture investors to launch new marketing and advertising platforms, like the new startup FameBit, catering to brands wishing for these virtual stars to hawk their wares.
YouTube ad revenue for 2013 totaled $5.6 billion for 2013, according to eMarketer, or roughly 13% of the $42.8 billion spent on online advertising in 2013. Broadcast television numbers were $40.1 billion over the same period.
The new online marketing and distribution platforms can bring more cash into the pockets of YouTube’s “talent”, who see 45% of the ad dollars generated from their videos go straight into YouTube’s pocket.
At Santa Monica, Calif.-based FameBit, developers led by company co-founder and chief executive David Kierzkowski are working to build a marketplace for brands to find, hire, and collaborate with YouTube content creators for product and service endorsements.
The company raised $1.4 million in a round of seed funding from investors including the “technology studio” Science; the accelerator 500Startups; the Japanese technology conglomerate DeNA, and individual investors like Allen DeBevoise — the founder of gaming-related content website Machinima.
FameBit has a bounty model which allows brands to post products and services and have YouTube content producers directly build video segments around a company’s virtual or actual wares.
Investors in Los Angeles argue that technologies developing new channels for media and advertising will be a large component of the startup company ecosystem that the city is creating.
Companies like FameBit, or MiTu, which announced a $10 million round on Friday from investors including Allen DeBevoise, and Upfront Ventures, which backed the multi-channel network Maker Studios. In fact, Walt Disney’s acquisition of Maker Studios, was one of the early exits that have validated how valuable an investment in YouTube-generated content can be.
Since the second quarter of 2013, venture investors have spent over $350 million on YouTube-related businesses, according to CrunchBase data.
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Unsurprisingly, many of the investors who have been active in backing new deals, like MiTu and FameBit, are returning to the ground that brought them so much success with Maker Studios. “I was a personal investor in Maker in the early days when they first started,” says Michael Jones, the chief executive and co-founder of Science. “Even then we saw the power that YouTube brings to brand exposure.”
The investment fits a thesis that Jones and his fellow investors at Science share. “We love platform companies that focus on emerging social platforms and the way that brands can connect with influencers,” he says.
Since its launch, FameBit has brokered 1,200 video campaigns for over 200 brands and has 3,000 active YouTube personalities producing roughly 500 videos per month.
While YouTube is a massive platform on its own, many of these multi-channel networks — like MiTu — are operating much more like digital-first studios, giving a new generation of media personalities broad distribution options for their content.
“We are exclusively focused on working with Latino content creators and helping them connect with Hispanic audiences in the U.S. and Latin America,” says Roy Burstin, one of the co-founders of MiTu and a former Bertelsmann executive. “When you think about starting up a media company from scratch you think of digital first.”
For Burstin, YouTube is just the first, and broadest, avenue to reach a Hispanic market dominated by traditional broadcast gatekeepers. Gatekeepers who haven’t done a good job of opening enough gates to meet demand for certain kinds of content.
“They do a bunch of things really well, like novelas, sports, and news, but they leave a lot of whitespace in areas like beauty, ‘DIY’, technology and comedy,” Burstin says. “If you were a latino content creator in the U.S., you had to be lucky, connected, or attractive to get deals. Now you can get worldwide distribution for almost no fee.”
Already, MiTu has seen its talent begin to move beyond YouTube. “We have an agreement with Headline News to adapt one of our YouTube formats for the programming format,” says Burstin.
With the new $10 million in financing it received, MiTu plans to add more staff to develop new technology and grow its in-house content production team. The company boasts about 1,200 content creators on its network generating 400 million monthly video views. Its channels count 40 million subscribers and generates 120 million unique cookies — a measurement YouTube itself counts for traffic purposes.
“A lot of people look at [MiTu] as a YouTube business,” says Burstin. “As far as a distribution platform, YouTube is the first step. We have signed deals with companies like AOL and Univision to provide them with our content. The third leg of that stool is something we’re going to start implementing now — creating destinations primarily on the Web.”
As Burstin notes, any business built on a single platform is not a hugely attractive business model, but with YouTube as the largest player in online video, it’s the best test-case for building video-focused, new media brands.