Spotter reveals strategy to spend $1 billion on YouTube back catalogs

  • The startup Spotter, which has already spent $330 million, plans to spend a total of $1 billion to buy back YouTube catalogs.
  • He’s partnered with over 190 creators, including MrBeast and Dude Perfect.
  • Spotter CEO explains what a valuable YouTube channel is all about.

Like many forms of content before it – songs, movies, TV shows – YouTube videos are starting to become an asset class of their own, worth investing in due to their sustainable ad revenue.

Spotter, which was founded in 2019, is one of the first companies whose sole mission is to profit from it. On Wednesday, the company announced that it had raised a $200 million Series D round led by SoftBank at a valuation of $1.7 billion.

He plans to use this money to invest more in YouTube catalogs. It has already spent $330 million and over the next 18 months it will spend another $670 million, for a total of $1 billion invested.

The company buys the rights to YouTube back catalogs in exchange for 100% of the ad revenue from those videos. Deals typically last around five years and can be worth between $15,000 and $30 million.

Beyond just getting money, Spotter is looking for creators who want to use the capital to grow their business, whether it’s opening a restaurant or launching a new product line. This makes the catalog more valuable in the long run. So far, Spotter has worked with creators such as MrBeast, Dude Perfect, Like Nastya, Aphmau and Smokin’ & Grillin’ wit AB.

The startup isn’t the only one investing in YouTube and creator content catalogs.

Last month, creator-economy startup JellySmack announced it would spend $500 million to buy the rights to YouTube’s back catalogs. Meanwhile, venture capital firm Slow Ventures and payout startup Creative Juice are investing in creators’ revenue streams by paying out money for a percentage of their future earnings.

The market is still new and relatively untested, which Spotter CEO and Founder Aaron DeBevoise acknowledged in an interview. YouTube may change its algorithm and monetization models, and new platforms may appear that gain popularity.

“There’s a lot of risk,” he said, but added that Spotter tries to mitigate that risk through diversification: investing in many creators across many categories. The company has partnered with over 190 creators to date.

Spotter chooses its partners based on a series of internal algorithms and using data such as CPM (how much advertisers pay for 1,000 ad views) and number of views. But beyond the algorithms, there are principles that Spotter follows when evaluating videos.

Here’s what Spotter says makes a valuable backcatalog:

1. Growth potential

DeBevoise said that if Spotter was only looking for predictable cash flow, he would invest in unique, persistent videos, like “How to Tie a Bow Tie.”

Instead, he wants to find creators with significant growth potential. These creators can use the capital provided by Spotter to grow their brand on and off YouTube, which will hopefully create a new audience for older videos.

“We want to work with creators who have the opportunity to invest in themselves and grow,” DeBevoise said. “We’re good at finding moments where creators can grow.”

In this way, the timing of transactions is very different from the multi-million dollar deals that musicians make when they sell their catalogs. Although these are releases for established artists – from Bruce Springsteen to Stevie Nicks – Spotter wants to invest in the equivalent of an artist who still has the number one in him.

2. Safe Verticals

The Spotter team analyzed YouTube verticals that have long tails, are brand-safe, and bring in regular viewers.

Political and news videos, for example, tend to have a shorter shelf life and are less brand safe than food content.

Even in verticals, some videos perform better than others over a long period of time.

DeBevoise said “Call of Duty” videos tend to see most of their viewership within a month of being uploaded, for example, while “Minecraft” videos continue to pick up viewers over time.

3. Proven Monetization

Certain metrics can also help predict channel performance. The Spotter team selects channels monetized for at least 12 months and accumulating more than 1 million monthly views.

The team also considers CPMs. He would rather do business with a channel that has a CPM of $8 and gets 600,000 monthly views, for example, than a channel with a CPM of $1 that gets 1 million monthly views.

4. Go beyond trends

“We’re definitely not looking for fad-based stuff,” DeBevoise said, citing videos featuring fidget spinners — the popular toy of 2017 — as an example.

Audiences should be guided by algorithmic recommendations, not a viral surge or moment, he said.

“It’s a strong indication that the experience within the channel is compelling and that it’s compelling beyond a moment,” DeBevoise said.