Want To Make Money On Google's YouTube? Get In Line: It's Hard To Profit From The Giant Video Site

Six years ago, Joe Penna was studying to become a cardiothoracic surgeon when he decided to leave medical school for a softer medium – YouTube. He had already been uploading videos that he produced as a hobby for a while, but now he was getting serious about it: He packed his bags, headed to Los Angeles, and started his new career as Mystery Guitar Man.

Since then, Penna, 26, has attracted more than 2.6 million subscribers to regularly view his music videos on YouTube, the platform owned by Google (NASDAQ:GOOG) that boasts more than 1 billion unique user visits each month.

“He had 10,000 to 12,000 subscribers when we met. Now that’s nothing,” Joe’s wife, Sarah, told the International Business Times.

The couple married in 2011, and Sarah Penna, 29, now has a YouTube career of her own. She co-founded Big Frame, a YouTube media company that finds digital talent, manages channels and tries to build audiences for its clients. She learns of potential Internet sensations by word of mouth, watching YouTube videos and tracking content creators with engaged followers.

“The next big singer and actress are going to come from YouTube,” Penna said about the plethora of people who post their artistic talents online.

That may be true. But between now and then there will be thousands of aspiring content creators who will find that making it big on the stupendously popular video channel is only the first hurdle, and does not necessarily translate into making money. Some YouTube stars are handsomely paid, not only through advertising revenues but through merchandising, such as iTunes sales for musicians. But according to industry experts, most “YouTubers” who produce weekly videos on their channels make less than a hundred dollars per month from advertising revenue.

Most content creators refuse to disclose the exact amounts they make, and estimates are sometimes overstated. Take Rebecca Black, the then 13-year-old girl whose “Friday” music video has been viewed more than 55 million times. While Forbes called her a millionaire based on the number of video views and iTunes downloads, Slate’s Annie Lowrey estimates the teen singer is most likely a “thousandaire.” Black would be a millionaire only if clicks were a form of currency.

Unlike Black, whose revenue is based off a single video, YouTube queen Jenna Marbles, 26, produces weekly videos that have racked up more than 1.1 billion views. TubeMogul, a California-based video ad-buying platform, estimates Marbles earned as much as $346,827.12 in 2012. While that sum is comfortable, it pales in comparison with a television actor such as Ashton Kutcher who earned $24 million between May 2011 and May 2012, despite the fact that Marbles' popular episodes get as many as 30 million views each, while Kutcher's sitcom, "Two and a Half Men," had a mere 14.6 million viewers for the entire 2011-2012 season.

The question is, when will revenue catch up with popularity?

One of the ways online video makers -- also known as content creators -- make money is through advertising revenue from the YouTube Partner Program, which pays creators a certain dollar amount per 1,000 clicks. The dollar amount fluctuates depending on a number of factors that YouTube does not disclose, but for most creators the income isn’t enough to support them full time.

“There are no average YouTubers,” said Hank Green, 33, creator and co-founder of VidCon, the largest industry conference and fan gathering for online videos. Few make a real living, though there are notable exceptions, he said. “Google sends checks to hundreds of thousands of creators. The vast majority of those make less than a hundred dollars a month, but literally thousands make hundreds of thousands of dollars a year.”

Brand deals and sponsored content are another source of revenue, where creators team up with advertisers to promote a product that is aligned with their brand.

Taryn Southern, a YouTuber whose channel has more than 200,000 subscribers, said the revenue drawn from her videos wouldn’t be enough to support her. “Let’s be honest, if I was living off of my AdSense, I wouldn’t be able to live. But that’s where I’m at now,” Southern said. In the future, she hopes her weekly videos will build an audience that will produce more revenue. But the future for ad revenues is uncertain.

Sarah Penna said that despite those variables, and the uncertainty of future monetization, the majority of her clients work full time on YouTube. “There are definitely some people that make a good living off of YouTube,” she said. But either way, “It’s a full-time job to do it right.”

YouTubers work for demanding audiences that want to continually see new content, Penna said. “There are no seasons. They don’t get a break,” she said. Successful YouTubers have to constantly create new content to keep their revenue up and audience engaged. “It’s not kids in their basements. You have to know how to shoot and edit yourself,” Penna said. She added it's a misconception that YouTube “stars” are amateur filmmakers. “It’s not just turning on a camera and making millions,” she said.

Kristina Horner, 25, a “YouTuber” who has more than 122,000 subscribers on her channel, said much the same thing. “We don't just get to play around all day,” Horner said. “Being a full production crew for a channel is a lot of work, and it can be lonely work. For instance, I spent 10 hours on a video yesterday, alone in my bedroom working. I am quite proud of the video, but that's a lot of solo time.”

Original Channels

In 2011, in an effort to jump-start the financial potential for YouTube videos, YouTube announced that it would give $350 million to dozens of creators from its Partner Program to create original channels that have professional content to attract advertisers. Rafi Fine, 29, and Benny Fine, 31, founders of Fine Brothers Productions, a production company that has produced web series and shows totaling more than 730 million views, runs one of these funded channels. The channel, MyMusic, has broadcast a scripted web series of the same name -- a mockumentary that follows a group of co-workers working at a music production company. The show garnered more than 26 million views and 350,000 subscribers by the end of its first season.

Rafi Fine said YouTube’s funding is critical to keeping his growing channel alive. “I would not be able to make something like MyMusic without YouTube basically being the television network for me, to some extent,” he said.

Still, Fine believes YouTube has yet to create a safe haven where advertisers feel comfortable putting money into the platform.

“Every year for the past five years or six years I’ve heard, ‘Oh, my God, this is going to be the year where all the ad dollars are going to be seen and it’s going to be huge.’ Every year I’m like, ‘Yeah, I don’t think they’ve figured it out yet,’” he said.

Jocelyn Johnson, 27, founder of the online communications firm JJPR and TheVideoInk.com, a website dedicated to online video news, went a step further. “I think YouTube is having a bit of an identity crisis right now,” she said. “They are respectful of their UGC [user-generated content] roots, but at the same time they’re not getting big dollars from advertisers.”

Fine pointed to Internet streaming service Hulu as a prime example of successful online advertising. Hulu’s accomplishment lies in its ability to host and sell premium content, where videos are available on a subscription basis. That model has proven effective. In 2012 the company generated about $695 million in revenue and finished the year with more than 3 million paying subscribers.

“Hulu’s advertising is amazing,” Fine said. “If YouTube is able to figure out how to do that on its premium content I’d be making 20 times the amount of money that I do now on these shows.”

Hulu, which is owned by Walt Disney Co. (NYSE:DIS), News Corp. (NASDAQ:NWSA) and Comcast NBC Universal (NASDAQ:CMCSA), hosts a library of videos from these media companies as well as original shows. YouTube, on the other hand, began and has remained for the most part a platform that relies on videos created by its audience members. Scripted shows are somewhat foreign to the platform but could be the key to YouTube’s advertising success.

Penna believes the viewing habits of YouTube users have to change in order for this to happen. “Scripted shows on YouTube are a challenge,” she said, pointing to the fact that users enjoy “short, likeable content” hosted by characters they can relate to, and which don’t seem overproduced.

YouTube maintains that advertisers will eventually embrace the rapidly evolving medium in the same way that advertisers made the transition from radio to TV, and then from network to cable television. Despite its quirks, the platform currently reaches more U.S. adults ages 18-34 than any cable network.

Life of a YouTuber: "It's not just some video I make in my apartment! Well, actually it is."

After Adam Saewtiz, 24, moved into a Brooklyn apartment with two college friends who just so happened to be brothers, he remembered waking up to the smell of their cooking. The siblings, Josh Greenfield, 27, and Mike Greenfield, 24, had graduated in architecture and marketing, respectively, but shared a similar love for food. Saewtiz, a film graduate, began to document their cooking and the trio looked to YouTube to share the stories behind their concoctions.

“YouTube is the perfect medium for us. None of our friends watched television. I wanted to make a show they would tune in and see,” Saewitz said. “Here we can [expletives] and be more immature.”

What began as a hobby became a YouTube show funded by a production company that has three seasons and garnered more than 8,000 subscribers.

“We take late-night dishes we love and show people how to make them in a healthy and sustainable way,” Saewitz said. He films the brothers making their homemade versions of recipes like “Taco Bell’s Baja Sauce,” “Pumpkin Cinnabon” and “Wendy’s Value Meal” in their Brooklyn apartment. “People our age are intimidated by the process of going to the grocery store,” he said.

The ability to connect with an Internet audience is what makes certain YouTube shows successful, said Sarah Penna of Big Frame.

“It’s a cult of personality platform,” she said.

YouTubers have a way of catering to a specific demographic by speaking their language in a way that feels natural -- something Southern has successfully embraced. “I look at television as entertainment and YouTube as a dialogue,” Southern said. “The stuff that’s working now is personality. People that have a point of view, an opinion, and they’re finding an audience with others that either share their views or the opposite.”

Southern saw this firsthand with the first video she posted that went viral, in 2007, called “Hot for Hill” -- a satirical music video where she professes her love for Hillary Clinton, who was running for the Democratic presidential nomination at the time. The video was based on a similar one made for another Democratic Party candidate, Barack Obama.

“Social commentary really hits home in that space,” Southern said of the video, which was viewed more than 2 million times. But a similar venture might not achieve the same level of success today, she said. “It’s not 2008 anymore, when it was easier to stand out from the crowd,” she said, pointing to the mounds of content being churned out by individual creators like her -- businesses looking to promote their brands and premium channels. “You’re competing with all of that,” she said.

Despite the challenges the platform presents, a seasoned YouTube producer like Rafi Fine has faith the site will be able to maximize its money-making potential.

“You have to be patient, and we are,” Fine said. “We never take a day and wonder if we should be doing this. There’s a bug in us. No matter what we have to keep moving forward.”