You've probably heard about artists recently selling parts (or all) of their songs for huge checks. You might have also heard about companies paying upfront cash for future music streaming royalties. But did you know companies are starting to offer money to license your YouTube videos too?
In fact, Spotter just raised an additional $200 million to license YouTube videos from creators. And while the company is certainly one of the biggest doing this, they're by no means the only one.
So what does it mean and how does it work? Let's dive in to the recent trend and talk about why a creator might be interested in these types of deals.
What Does It Mean When A Company Licenses Content?
"Licensing content" can mean a lot of different things depending on the type of content and the terms of the deal. And while some licensing deals are massive and make headlines (like Spotify licensing Joe Rogan's podcast), many licensing deals are much smaller and more common.
The first thing to know is that "licensing" is not the same thing as owning. So when an artist sells their publishing catalog for millions of dollars, they're selling a portion of that song's value into perpetuity. They won't get it back — unless they buy it back.
But when an artist licenses their income on Spotify, they're not ultimately selling that song. They're just selling the money that song makes from Spotify over a certain period of time. And after that time period is up, the artist goes back to collecting that money for themselves.
So just remember that licensing your content is most commonly associated with taking upfront cash from a company (or an individual) in exchange for letting them get the money that content generates over the agreed time period.
How Does Licensing A YouTube Video Work?
YouTubers make money a lot of different ways. But YouTube videos primarily make recurring money from ad revenue. Yep — when you see an ad before a YouTube video, the person who owns that video (usually the channel creator) is getting a portion of the money from those ads, assuming they hit the qualifying metrics.
And YouTube videos continue to make money from ads no matter how old they are. As long as people watch them and ads are enabled, creators get paid for them.
So that's where a company like Spotter comes in. Spotter goes to YouTubers with a catalog of videos making money from ad revenue. They essentially offer that creator a deal: if you agree to let us collect the ad revenue this video makes over a certain period of time (often five years), we'll pay you a big chunk of money upfront.
In that instance, Spotter becomes the one to collect the money every month. This can happen a few ways, including issuing a "letter of direction" for payment from YouTube, meaning YouTube will pay them instead of the creator.
Why Would A Company Pay Upfront To License YouTube Videos?
Companies writing big checks (often in the millions of dollars) for the opportunity to collect ad revenue from YouTube videos have formulas for success. These companies will often do the math and evaluate the risks of shelling out a bunch of money all at once.
So companies like Spotter believe that they will ultimately make more money over 5 years by licensing a YouTuber's ad revenue. It's just a simple math game for them. Spotter's average check is about $1.5 million and their average licensing term is five years.
According to Spotter CEO Aaron DeBevoise, their target recoupment period is four years. Which means they hope to make their initial $1.5 million back after four years. That means the final year's worth of ad revenue is all profit for the company.
And when your company's primary purpose is doing these licensing deals, that means you can focus on doing a lot of these deals to a point where there's a consistent churn.
Why Would A YouTuber Want To Do This?
So why would a YouTuber agree to license their YouTube videos if they would ultimately make more money by just waiting? Well, there are a few big reasons.
The first is that it might be the cheapest form of capital for a creator. Let's say you really want to invest in a new studio space. Or you want to fund some really wild, out-of-the-box ideas. Or maybe you just want to chill out for a bit and take some time to yourself.
Getting a $1.5 million check upfront is a huge financial relief for a lot of creators. In many cases, it may also be the "cheapest" money, too. For instance, if you wanted to take out a $1.5 million loan instead, there's a decent chance you'd end up paying back more on the loan than what you "lost" by Spotter having your ad revenue rights.
And remember — licensing deals aren't permanent. You'll begin collecting your ad revenue for yourself again later.
Plus, these deals don't include future videos. So you could take a big check upfront to turn around and make better content that grows your channel. This in turn likely increases the value of your older videos, which Spotter is in this case collecting on.
To put it simply: in the ideal scenario, everybody wins with a licensing deal.
What Are Some Potential Issues?
As with any agreement, there is risk. If you're not savvy with the cash, you may find yourself burning through that check much faster than if you were collecting monthly.
Plus, when you get a big sum of money upfront, there are always tax implications. And there's always the potential for some of your past content to blow up, meaning you may have sold your revenue for much less than it's now worth. Of course, this stings a little less considering you will eventually get those revenue streams back when the licensing deal is done. But just think — if you have a hockey stick moment with your content, your most valuable assets may not actually be making you money at the time.
And don't forget: if you need a big capital injection because things are going well for you and you need some money to fuel the fire, licensing may not be the cheapest route. You just might find a lender, investor, or partner willing to fund you for what ultimately amounts to less money than what you'd lose over the term of the licensing deal.
It all comes down to math, knowing your content's value, and being honest with yourself about what you need capital for.