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Not long ago, like many YouTube entertainers, the comedians Rhett McLaughlin and Link Neal juggled lots of duties. They wrote songs, performed sketches, shot videos, edited clips, marketed comedy albums, met with sponsors, negotiated ad deals, troubleshot equipment, and rapped about bacon—all with minimal support staff. Rhett & Link, as they’re known professionally, thrived for years with this do-it-yourself approach, becoming one of the most popular acts on YouTube. They were part of the elite group of performers who could generate six-figure annual incomes via YouTube’s revenue-sharing program, and by selling merchandise and creating sponsored video ads for consumer brands.
Eventually, however, the comedic musicians felt overwhelmed by the serious business proposals that were rolling in from the likes of General Motors (GM) and McDonald’s (MCD), which were drawn to the performers’ personalized and direct pitches to audiences that tune out more traditional advertising. “Not only were we negotiating directly with brands, but we were writing the legal contracts,” says McLaughlin. “It was just too much for us to handle.”
Now Rhett & Link have joined a growing crew of indie YouTube stars who have signed on to be represented by the Collective, a newfangled media company based in Los Angeles. Michael Green, a veteran of L.A.’s entertainment industry (his previous business, the Firm, represented Kelly Clarkson, Snoop Dogg, and the Backstreet Boys), founded the Collective in 2005. The company aims to capitalize on the shifting entertainment landscape, in part, says Green, by teaming with artists like Rhett & Link, who he believes are well positioned to capitalize on the decentralization of media consumption. “What we fancy ourselves very good at is looking at these properties and thinking about how they relate to the world, who their fans are. … and then building out the best strategy to exploit that,” says Green.
In addition to its digital operations, the Collective has marketing, music, and TV groups. Green wouldn’t share specifics on the company’s finances but says fees from representing digital talent are a significant part of the Collective’s revenue and are only growing. Besides Rhett & Link, the company represents Dane Boedigheimer, creator of Annoying Orange (2.5 million YouTube subscribers), Freddie Wong and Brandon Laatsch of freddiew (3.5 million subscribers), Justine Ezarik of iJustine (1.2 million), Harley Morenstein of Epic Meal Time (2.7 million), and twin singer-songwriters Megan and Liz Mace (750,000 subscribers).
Why do brands want to be associated with this new breed of Web stars? For a fraction of the money it would cost to produce a TV spot and buy network airtime, brands get their names and products in front of a young demographic of loyal viewers. And unlike just using services like Google’s (GOOG) AdSense to place their ads alongside the latest viral video, brands working with established YouTube talent can reasonably expect to reach customers on a recurring basis.
Better yet, it’s an intimate medium—and one with a strong tradition of product endorsements. Top performers stare directly into their fans’ laptops or smartphones and deliver a personal endorsement on behalf of a brand, and consumers are already accustomed to receiving such messages. “There’s a belief that a certain segment of consumers is hard to find and even harder to persuade and that they tend to have an ironic point of view about everything,” says Claudia Caplan, the chief marketing officer of RP3 Agency. “These performers definitely represent that point of view. By allying yourself with them, you get to borrow some of their hipness. … And it costs almost nothing. For McDonald’s, it’s a rounding error.”
Green says once the Collective frees up artists to focus on creative challenges, the company gets busy making licensing deals with third parties. That can mean extending an artist’s reach into traditional media (Annoying Orange now has a TV series on Cartoon Network (TWX)), striking merchandise deals with retailers (J.C. Penney (JCP) and Toys “R” Us have sold Annoying Orange products and apparel), or spinning off entertainment apps (Apple’s (AAPL) iTunes Store sells an Annoying Orange Kitchen Carnage app for $1.99). An in-house ad-sales team pitches the company’s artists to brands, ad agencies, and media buyers. “Ad sales is a big value that we provide to these stars,” says Green.
Brand spending in digital video has ballooned, growing from $324 million in 2007 to $1.8 billion in 2011, according to the Interactive Advertising Bureau. The Collective’s artists have benefited. Electronic Arts (EA) has sponsored several freddiew videos, including promotions for the video game franchises Need for Speed, Battlefield, and Medal of Honor. Rhett & Link have done pitches for McDonald’s and Kraft Foods’ (KFT) Trident chewing gum, while Paramount Pictures enlisted Annoying Orange to do a promotion for Madagascar 3.
Historically, YouTube artists churned out inexpensive videos with minimal polish. In recent years, though, YouTube has recruited established entertainment brands—ranging from the Onion to Pitchfork Media to Vice—to set up channels on the free video-sharing site. The increasing professionalization of the medium has ratcheted up the pressure on homegrown talent. “We’re facing increased competition,” says Link Neal. “That means doing bigger, better things. We can’t be limited anymore by what the two of us can conjure up.”
Last year, for example, the game gurus at freddiew created a nine-part sci-fi comedy series called Video Game High School, employing more than a dozen actors. To date the series has racked up more than 40 million views on YouTube and other Web video sites.
Since signing with the Collective, Rhett & Link have relocated from North Carolina to Los Angeles, where the Collective introduced them to members of the film industry and handed them the keys to the Collective’s soundstage. Recently, Rhett & Link shot a music video, titled Epic Rap Battle of Manliness, that is filled with props like chainsaws, jackhammers, box-cutters, and screwdrivers—all provided by a sponsor, Build.com, thanked on-camera.
The bottom line: Brand spending in digital video has ballooned to $1.8 billion in 2011. The Collective media group helps YouTube acts get their share.