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Rhett McLaughlin and Link Neal, the 32-year-old comedians known professionally as Rhett & Link, wanted to be television stars. They were on the verge three years ago when The CW network canceled their variety show after four episodes. That's when they started building a business centered on YouTube videos. Two years ago they persuaded a toy company called AJJ Cornhole to sponsor a music video—an ad, really—about a bean-bag-tossing game. Although the video generated more buzz than money, it led to more work. Since then, Alka Seltzer, McDonald's (MCD), the Food Network, Cadillac, and other brands have sponsored Rhett & Link videos.
McLaughlin and Neal have become part of an elite group that's making good money off their YouTube videos. Earlier this summer the Web analytics company TubeMogul released a study estimating that the top indie video producers on YouTube earn north of $100,000 in annual advertising revenue alone. Although the video-sharing site may not be minting millionaire entertainers yet, six-figure incomes are within reach for the most industrious creators.
So far in 2010, Rhett & Link videos have averaged 119,457 views per day, according to TubeMogul. "What really sets them apart—lots of YouTube celebrities have more daily views—is their leadership in doing branded integration," says David Burch of TubeMogul. "No YouTube celebrity other than [cosmetics guru] Michelle Phan has more branded views in 2010, according to our estimates." By branded integration, Burch means sponsorships. In some Rhett & Link videos, products appear on-screen. In others, the name of the company is flashed at the end. Their latest opus is a music video produced for Carpenter, a cushioning manufacturer. (Sample lyrics: "Do you remember back in middle school/When my trunks fell down at the pool/Everyone laughed, except for you/You just let me hold you in my bedroom/My favorite pillow...My favorite pillow...") At the end, the name of a Carpenter-owned sleep-advice website appears.
During its first week online, the pillow song was viewed more than 2 million times and generated more than 16,000 comments. "As we've come along, we've educated our audience, getting them to understand that brands do not compromise entertainment," says McLaughlin. "For us, they enhance it. They enable it." They also enable McLaughlin and Neal, who are both married with children, to support their families.
Rhett & Link get two streams of income from YouTube. Aside from the sponsorship money, which is all theirs, they receive advertising income because Rhett & Link have been designated an official YouTube partner. Creators must apply to become partners, and so far about 10,000 have been accepted. Members get a cut of the ad sales on their channel. The ads are sold by Google (GOOG), which owns YouTube. The only thing McLaughlin will say about Rhett & Link's income—YouTube partners are contractually forbidden to discuss their ad earnings—is that he and Neal are no longer scrambling for survival. "We're in a place now where we don't have to constantly be pursuing a project every couple of weeks to make a living," he says. "We can be choosier."
For most, the YouTube partner program doesn't provide enough to survive on. So video makers hustle on multiple fronts: They sell T-shirts and mugs to fans on their YouTube pages. Musicians use videos to sell songs on iTunes and tickets for live gigs. Artists list P.O. boxes on their pages, and fans and companies send them free electronics, Snuggies, and other stuff. "That's another form of income," jokes DeStorm Power, a Brooklyn (N.Y.) YouTube star who creates R&B music videos.
McLaughlin and Neal sell Rhett & Link-branded shoes on their YouTube site. "In our experience, the merchandise sales can add up to a significant amount of money. But I don't see how you could do it without the direct sponsorship," says McLaughlin. "We were doing sponsored videos before we became YouTube partners. We just see [the additional revenue] as gravy."
Top YouTube entertainers usually command flat fees in the five-figure range for their sponsorships. Rhett & Link negotiate their own deals. "The rules of this game are being created as we go along," says McLaughlin. "Sometimes you ask a price and people laugh in your face, and sometimes they say, 'Yes,' and you're like, 'Hmmm, maybe we should have asked for more money?' "
Earlier this year, DeStorm Power won a video-making contest run by Wonderful Pistachios. In Power's 30-second spot, he sings and plays percussion with pistachios. The video won him a lifetime supply of pistachios, a camcorder, and $25,000. That helped set his sponsored-video fee for clients such as PepsiCo (PEP) and General Electric (GE). "Once you do something, you don't want to go backwards," he says. "You have to keep the scale around where it is."
Not all YouTube stars want to handle their own business negotiations. "I wanted to focus on the creative side," says Michael Gregory, a Brooklyn musician whose band, the Gregory Brothers, leapt to YouTube stardom with its Auto-Tune the News series. He teamed up with a company called Next New Networks, a web-video development company in New York. The company manages performers' sponsorships, negotiates ad deals with Google, and handles audience development and public relations. Next New Networks represents about 50 artists who collectively generate more than 150 million monthly views. "These guys are no different than creators working in television and film," says CEO Lance Podell. "They're looking for fame and fortune."
Rhett & Link plan to follow the opportunities wherever they arise. "We want to do it all," McLaughlin says. "But we don't ever want to neglect the Web."
The bottom line: Thanks to ad revenue-sharing deals and corporate-sponsored videos, top YouTubers can earn well north of $100,000.