How To Make $10 Million On YouTube

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In January, the same month that Ian Hecox and Anthony Padilla's YouTube channel Smosh passed Ray William Johnson's to become the most popular channel on YouTube,Forbes estimated the brand brought in $10 million in revenue the previous year.

They did it by thinking of YouTube itself as channel, carrying fans to their website, Smosh.com, where the real money comes in through display ads and merchandise sales.

"YouTube is the second largest search engine in the world by itself, and that is the way that we look at it," said Barry Blumberg, president of Smosh (and EVP of Smosh's parent company, Alloy Digital). "It does generate significant revenues for our business, but it is one aspect of our business, and we use it to drive to other aspects of our business and to expose our content to the largest possible audience."

Today, the Smosh channel counts 8.2 million subscribers (Johnson trails with 7.7 million subscribers) and an average of 73 million views per month.

Those numbers were enough to make investors notice. Last week, ABS Capital poured $30 million into Alloy Digital. The massive investment isn't in Smosh videos per se — which, even after almost eight years are pretty much the same as they have always been: just a couple of guys goofing off in their hometown of Sacramento — it's more of an investment in the business that has been built around the videos.

In addition to its flagship channel, Smosh has a Spanish-language one, El Smosh, an animated spin-off, Shut Up! Cartoons, a game channel, Smosh Games (which itself spawned an app, Super Head Esploder-X), and two others. Together, the five channels average 117 million views a month.

It might be easy for Smosh to think beyond YouTube because Smosh existed on its own before it existed on YouTube. Hecox and Padilla began making videos in 2005, the summer after high school and before community college. Back then, the pair would upload videos of themselves lip-synching thePower Rangers orPokémon theme songs to their MySpace page.

Video available at: http://youtube.com/watch?v=agEjzQLiuGA.

Hecox and Padilla's first video, uploaded in November 2005.

They stumbled onto YouTube when they discovered someone had uploaded a video of theirs to the site.

"One day when we were bored, we searched for our videos on Google, and we found that ourMortal Kombat lip sync video was hosted on a site called YouTube. We were really excited because it had, like, a thousand views," Padilla recalled in a phone conversation.

A week later, in November 2005, the pair uploaded a video of themselves lip-synching thePokémon theme song. That video landed on the front page of YouTube, where it was noticed by Blumberg.

Blumberg had just left Disney, where he had been president of company's television animation division. He was looking for "unique voices" — and he heard them in aPokémon video on a site called YouTube.

"I wasn't specifically looking at YouTube. YouTube was nothing at the time; it was just another website. It didn't have the same heft that it has today," Blumberg said in a phone interview. "I saw Smosh, I saw these two guys, I saw a very distinct voice in the comedy space that wasn't really available to people in other mediums."

Today, YouTube likes to publicize the fact that "thousands" of partners are making six figures, but at that time, there was no partner program, the arrangement under which videomakers currently earn revenue by allowing YouTube to put advertisements on their videos.

Back then, Padilla and Hecox were making money on their videos anyway. "That money was coming in through Smosh.com, merchandise sales, and another video company," Blumberg said.

They had a $3,000 a month as a guarantee from that site, which Blumberg will not identify but says is no longer around (likely DECA, whose deal with Smosh was widely reported), and they were bringing in another couple thousand dollars from their other ventures. "Five thousand dollars a month split between two 18-year-old guys living in their parents' house? That's a lot of money," Blumberg said.

That attitude — that AdSense isn't the only way to make money off web videos — has been key to Smosh's sustained success.

"From the time I met the guys," Blumberg continued, "we always had a belief that a business built on the back of a single partner was a dangerous place to be, so we always wanted to have multiple revenue streams."

In addition to the games, apps, and merchandising deals, Smosh has also gotten into the business of creating viral videos for promotional purposes — like the rap video Hecox and Padilla cut to promote the video gameAssassin's Creed.

Video available at: http://youtube.com/watch?v=12PWq22E9CQ.

But for all the diversifying Smosh is doing, there is one thing that Hecox and Padilla aren't interested in: leaving the internet. Unlike other YouTube stars who have parlayed their celebrity into TV deals (e.g., Lisanova, who did a brief stint onMadTV before starting Maker Studios), Smosh's creators say they are fully committed to the web.

"Our audience is already here. I don't know why we would want to try moving them somewhere else," Padilla said, when asked if Smosh had ever considered television or movies. (Blumberg, for his part, was more cautious: "We are always aware of and interested in opportunities in traditional media, whether that's television or movies or whatever else," he said, "but the central focus of our business is in the digital space.")

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