(Bloomberg) -- Aaron Jay Brown dreams of becoming the next celebrity restaurateur, specifically the next Bobby Flay. Currently, Brown, a 52-year-old, lifelong barbecue enthusiast from South Los Angeles, posts videos of himself cooking on a YouTube channel with almost 2 million subscribers, making him one of the site’s most popular food personalities. He’s already bringing in enough money—upward of $60,000 a month—to open a restaurant, Elmer and Jasper’s Craft BBQ in Rancho Cucamonga, California, and to buy a house in Las Vegas on a half-acre of land. But to take his business to the next level, he needs help.
Brown wants to hire marketers and editors to distribute his videos across Instagram and TikTok. He needs people to help build out his line of cutting boards and barbecue sauce. And he would like to open a second restaurant, this time in Las Vegas, combining southern barbecue with Cajun flavors. The initial bill for the restaurant alone could amount to more than $500,000.
To get the funds, Brown recently turned to Spotter Inc., a startup in Los Angeles, which paid him a large upfront fee for the exclusive licensing rights to his past videos. Under the arrangement, Brown will continue to own his past work, but whatever revenue his YouTube library generates from advertising over the next five years will flow to Spotter. Exactly how much the deal is worth, Brown and Spotter declined to say.
“I could have waited, but why not move when I’m hot right now,” Brown said. “If they are willing to give me some money to license content in the past, why not bet on myself?”
Over the past few years, Spotter has pioneered a new way for social media influencers to raise money and grow their operations. So far, the company has advanced $350 million to roughly 150 creators, including YouTube stars such as MrBeast, Dude Perfect, and Like Nastya. Jeff Bezos’s brother Mark is an investor, and the company just raised another $200 million that it will use to license additional back catalogs and to build out new tools for its clients.
“Creators are sitting on massive libraries and want access to capital.”
The idea of advancing artists money against their future earnings isn’t novel. In 1997, rock star David Bowie made headlines when he raised capital against future royalties from his old song catalog. These days, similar deals are commonplace in multiple creative industries. But for the fledgling business of online content creators, the model is new. Spotter is one of the first companies to value YouTube videos like a predictable asset with long-term value, not so different from a song library, a movie catalog or a rental property.
The growing popularity of such deals among creators has inspired other competitors to join the fold. Jellysmack, which distributes videos for creators on Facebook and Snapchat, just raised $500 million to license back catalogs. Like Spotter, Jellysmack is backed in part by SoftBank Group Corp.
The volatility of the online video universe can make it difficult for creators to rely on standard commercial banks for assistance. So other companies, like Creative Juice, have sprung up, offering online video creators a banking service that is tailored to their industry-particular needs.
“Creators are sitting on massive libraries and want access to capital,” said Ezra Cooperstein, a co-founder of Creative Juice and president of Night, which manages YouTube stars such as MrBeast. “But they can’t walk into Wells Fargo and get a loan.”
The idea for Spotter grew out of the wreckage of a previously heralded class of companies known as multichannel networks, or MCNs. In the early days of YouTube, various entrepreneurs started businesses that serviced the emerging class of content creators. They helped sell advertising, wrote video titles and selected thumbnails to boost views. Some produced original programming.
Before founding Spotter in 2019, Aaron Debevoise worked for Machinima, an early MCN that catered to video-game enthusiasts. It raised tens of millions of dollars from venture capital firms and media conglomerates, and became one of several MCNs to earn a lofty valuation. Many of these startups eventually sold out to legacy media companies eager to tout their relevancy on YouTube. Along the way, Walt Disney Co. paid more than $500 million for Maker Studios. AT&T Inc. and the Chernin Group shelled out even more for Fullscreen Inc.
But all too often, MCNs wound up providing too little value while trying to service too many YouTube personalities at one time. They provided creators with some money to be a part of their network, but not enough to substantially alter their business model, and the cash typically came with strings attached. If the network didn’t recoup its investment, the creator was indebted to the MCN. One after another, the MCNs eventually crumbled.
“The thing we all got right was the idea of trying to help lots of creators and the power of aggregation,” Debevoise said. “But it was really hard to provide the same level of services to all creators.”
“Creators are sitting on massive libraries and want access to capital.”
Debevoise and his partner Nic Paul are now pursuing a different strategy. Spotter offers creators larger sums of money—as much as $40 million ahead of time—and assumes all the risk. If Brown, the YouTube barbecue guru, doesn’t deliver, Spotter isn’t going to claw back the money. It’s betting that as the broader market expands and matures, Brown’s catalog of videos will appreciate in value, generating returns that are greater than it costs to license now.
A decade ago, valuing YouTube videos was nearly impossible because the platform’s advertising business was still so new and small. But now that YouTube is generating around $30 billion a year in advertising sales, the job has gotten more feasible as the underlying data sets have grown more robust. Spotter can look at the past year or two of views for a video and then project, based on its model, how much that particular piece of programming is likely to generate over the next three to five years.
The company is focused on specific categories that tend to be consistent and have staying power, such as programming for kids and videos about food and gaming, which tend to be evergreen. Spotter avoids topical videos about news or other time-sensitive events. Inevitably, over time, some creators are going to flag in popularity. So Spotter aims to sign up enough different people to create a diversified portfolio that can handle the risk. Whenever they pick a niche, such as people who make videos of themselves playing the game Minecraft, they tend to do deals with several creators across the category.
“The hardest part was convincing debt and capital markets that YouTube was a reliable, predictable content opportunity,” Debevoise said.
Many veterans of the YouTube economy worry that some of these companies are destined for the same fate as the failed MCNs. To deliver a return on its investments, Spotter will need its videos to keep generating views and advertising sales. They will need the creators to maintain their level of productivity because older videos are recommended off of new ones. They’ll also need YouTube to avoid the kind of brand safety scandals that in the past have occasionally prompted major advertisers to pause spending on the platform.
For creators like Brown, who posted his first video almost five years ago and quit his day job in 2019, the access to capital feels like a springboard to bigger things. Spotter first approached Brown at a conference last year. He said that at first he didn’t understand the angle. He figured the company was trying to hustle him. But after he did some more research, he came around.
“If you ask me, they are taking the risk,” he said. “They look at how much I’m making and my growth—everything is pointing straight up.”
©2022 Bloomberg L.P.
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