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ECONOMICS | MEDIA LITERACY

The YouTube Effect

Businesses are pouring billions into social media. But does being a creator really pay off?

Question: What are some ways that creators make money?

You have an amazing idea for a YouTube video: Your parrot, Wally, is going to count to 100,000. Genius! All you have to do is film, edit, and upload the video. Millions of subscribers will pour in. A pet food brand will partner with you to release Wally-themed bird treats. By age 25, you’ll retire to your own private island!

If this is your dream, you’re not alone. Tens of millions of people are content creators. And countless more want to join them—making a career of posting videos online to inform or entertain audiences. Many creators are on YouTube, America’s most-used online platform. 

The creator economy is worth about $250 billion globally. That figure represents the total amount of money earned by creators. And financial firm Goldman Sachs predicts that the value could hit $480 billion by 2027. No wonder a lot of people aspire to be content creators. More than half of Americans between the ages of 13 and 26 say they would like to be a social media star, according to a 2023 survey.

But getting rich—or just getting by—as a creator takes more than a phone and a clever idea. An estimated 50 million people work as creators. And of those creators, about 48 percent earned less than $15,000 in 2023 (see graph, below). That’s not exactly private island money. (A single adult needs to make at least $45,000 annually to support themselves in most U.S. states.) 

So how do YouTubers cash in?

How Much Do Creators Earn in a Year?

Less than $15,000: 48%

$15,000 to $24,999: 9%

$25,000 to $49,999: 12%

$50,000 to $74,999: 11%

$75,000 to $99,999: 5%

$100,000 to $149,999: 6%

$150,000 to $199,999: 2%

$200,000 or more: 7%

SOURCE: NeoReach Industry Report, 2023

All About Ads

YouTube launched in 2005 with a simple idea: “Broadcast yourself.” Today the video-sharing platform—now owned by Google—has about 2.7 billion monthly users. People around the world watch more than 1 billion hours of YouTube every day. 

All those hours include a lot of ads for products or services. Companies pay YouTube to run them. The ads are shown before, during, and after videos. And they’re one way creators make money.

To profit from ads, though, creators’ channels must first meet certain requirements—including having at least 1,000 subscribers. In addition, YouTube Shorts (clips that are 60 seconds or less) need to rack up at least 10 million views within 90 days. If you make longer content, viewers need to have watched at least 4,000 hours of it within the previous year. 

Meeting these targets isn’t easy. There are more than 114 million active channels on YouTube. Only about 3 million of them are eligible to earn money through ads. 

Chasing Change?

Let’s say your channel meets all the thresholds. It’s time to cash in—sort of. YouTube pockets 45 percent of ad money generated from long-form videos and 55 percent from short clips. As a result, YouTubers earn an average of 18 cents per ad view. So a video with 100 ad views may rake in . . . $18. 

That’s why most social media stars diversify their income streams. That means they earn money from several different sources. For instance, YouTubers can post links for products in their content. Every time someone clicks one of the links and buys an item, the creator earns a small percentage of the sale. YouTubers also sell channel subscriptions and merchandise, like T-shirts and baseball caps. 

But the main way creators make money is by teaming with brands to sell stuff. Maybe you’ve noticed that your favorite gamer always guzzles a particular sports drink. Or that a popular sneaker channel often gives away a certain sock brand. Such deals make up 70 percent of creators’ income, according to Goldman Sachs. 

These partnerships take different forms. A company might fund an entire video themed around a product, for example, or supply free goods for a creator to unbox. 

Paying creators pays off for brands. Advertising research firm NCSolutions found that 66 percent of 12- to 27-year-olds in the U.S. bought a product after it was featured in a creator’s content. 

You don’t need millions of followers to get deals. So-called nano creators—those with 1,000 to 5,000 followers—charge brands between $25 and $250 per post, according to Viral Nation. That is an influencer marketing firm based in Canada. At the other end of the spectrum are mega creators, with more than 1 million followers. They can charge more than $10,000 for a single post.

The more engaged subscribers are—regularly liking, commenting on, and sharing content—the more money a creator can earn, says Joe Gagliese. He is the co-founder of Viral Nation.

“You could have millions of followers, but if they aren’t actively engaging with your content, your influence is limited,” says Gagliese. “In contrast, a smaller creator with a highly engaged audience can have a much greater impact.”

Getting Rich by Giving Away Money?

via YouTube

In 2021, Jimmy Donaldson (aka MrBeast) made his most-viewed YouTube video ever: a competition to win $456,000. The video cost $3.5 million to produce, and that’s not unusual. Donaldson often spends big to go viral. How does he afford it? Donaldson says he reinvests every dollar he makes back into his business. So if an advertiser pays him $3 million, Donaldson spends the money on his next video rather than saving it. The strategy makes sense as long as his audience keeps growing, says professor Wayne Geerling. Reinvestment lets Donaldson do more-elaborate stunts, which can attract more subscribers—and more money from advertisers. “So what he’s giving away is actually a small percentage of what he’s earning,” says Geerling. 

The Cost of Success

Making videos for a living may seem fun. But a lot of effort goes into it, says Wayne Geerling, a professor at the University of Texas at Austin. He studies the creator economy. 

“People think that money drops from the sky,” he says. “They underestimate the work that goes into it. For every 15-minute video, there’s probably 100 hours of work that you don’t see.”

Take the world’s most successful creator: Jimmy Donaldson, better known as MrBeast. The 26-year-old from North Carolina is famous for his extreme challenge videos, cash prizes, and charitable giveaways. Donaldson has about 317 million subscribers—more than anyone else—on his main YouTube channel. He has other sources of income too, including a line of chocolate bars and a toy brand. Altogether, Donaldson says he rakes in as much as $700 million a year. 

In interviews, Donaldson has described the pressure to top himself as “brutal” and “a never-ending treadmill.” Former employees have accused him of creating unsafe and unhappy working conditions.

What goes into a viral MrBeast clip? Donaldson has said sometimes 12,000 hours of footage are shot for a 15-minute clip. Even with a production team of 300 people, videos can take five months to complete, from idea to upload. 

Still, a single MrBeast video can get hundreds of millions of views. So for Donaldson, the effort put into that video might be worth the opportunity cost, Geerling says. That is what someone gives up in order to have something else (see “What Is Opportunity Cost?,” below)

What Is Opportunity Cost?

When you choose one thing, you give up something else. In economics, this is called the opportunity cost. For example, creators might have to decide whether to buy a ring light or to save up for a new phone instead. The ring light would improve their video lighting now. But saving could lead to a phone with a better camera in the future. Considering opportunity cost helps people decide whether what they are getting is more valuable to them than what they are giving up. 

But would the trade-off be worth it for less popular creators? Think of it in terms of time: Let’s say you spend 50 hours filming your parrot counting to 100,000. Maybe that’s 50 hours you could have spent earning $10 an hour by cutting lawns or babysitting. So the video has cost you $500, even if you did not spend any money making it. 

Risks and Rewards

Content creation is a new career. That makes it exciting but also unpredictable. Trends come and go quickly. New platforms and formats emerge. Technology keeps changing. How might artificial intelligence affect creators, for instance? Will virtual influencers become more popular than human ones?

Yet millions of people find the challenges worth it. The secret to success, says Gagliese, is making videos about stuff you’re truly passionate about. 

“When you’re deeply invested in your content, the creative process becomes more natural and enjoyable,” he says. 

Geerling, meanwhile, advises aspiring creators to remain open to jobs beyond being on camera. As the industry grows, top talents will need more people to do things like edit videos, track audience preferences, and design merch. 

“Have a backup plan,” he says. “And be prepared to put in lots of hours.”

YOUR TURN

Make Connections

Highlight three ways creators make money. Then consider: Why do most creators diversify their income streams rather than relying on one source?

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