Making Money on YouTube

Are you one of the thousands of entrepreneurs who upload videos to YouTube each week hoping to make a little extra income monetizing your favorite hobby? Do you have dreams of turning that activity into a thriving business that could bring in enough money to live on? You’ve seen articles and ads about how much money is made by some Video Stars. Wouldn’t you like to earn a part of that too? Sure you would. But you might be surprised how little of the money earned from internet videos and ads on YouTube the creators actually get to keep. 

After my husband read my last blog entry about You/Tube and business taxes, he found an article on Yahoo which he shared with me. It focused on how little of the money these YouTube channels bring in that their creators actually get to keep. Joe found it interesting and thought those of you who read this and those of you who entertain us with slot videos might find it helpful too. You can compare your reality with what might possibly be internet fiction by the bloggers yourself. Read the August 3 article at http://finance.yahoo and draw your own conclusions.

If you are posting videos on line to make a little money from YouTube, you already know they are keeping a pretty big share of the income you generate. According to what we’re told, YouTube takes a 45% cut of any ad revenue earned by each of your videos you post. And that’s before taxes and your own operating and editing costs.  I have seen companies on line offering a 65-35 split if you sign with them, so a 45% rake doesn’t really surprise me too much. 

The income figures do surprise me, however. They seem inflated to me. I can’t believe videos generate  anything near the money the articles say these stars make. Not for practically all of you. YouTube’s top filmer called PewDiePie - I’ll call him PDP - supposedly earned $7.4 million last year according to Yahoo. But  Statsheep, a site that generates statistical estimates about YouTube channels, estimates that PDP actually earns even more. They say his earnings are closer to $10.5 million each year based on his recent traffic. Just for making jokes about video games!

How much does he get to keep?  Here’s their math.

Total Revenue: $10.5 million

After YouTube’s 45% rake:  $5.775 million

After taxes at 30% on his part: $4.0425 million

Net Income: Roughly $4 million.

Unbelievable! But before you buy a videocamera and quit your day job, consider what it costs to become a YouTube star. Turns out you can be one of the most famous people on the web and still barely get by. 

The Yahoo writer also ran the numbers on Olga Kay, another well know video star. You can also read more about her in a New York Times article “Chasing Their Star on YouTube.” Olga films self-deprecating monologues on female American life.  She has earned $100,000 to $300,000 in each of the last three years and has a million subscribers. She makes 20 videos a week, all of which are filled with ads through Google’s automated YouTube partners program. They say she gets about $7.60 per 1,000 ad views, down from $9.35 in 2012 according to Tube Mogul, which buys and sells video ads. Ads are not run on all YouTube videos. Articles claim a video creator will earn roughly $2,000 for every million views. (And then YouTube takes its 45% cut. And then IRS takes its cut of the remainder.)

Olga Kay has business expenses which she deducts. She claims to  spend $500 - $700  a week on editing costs. That figures out to be $25 - $35 per video. She must have to pay someone to do her editing for her. If she earns $100,000 a year, she might be looking at as little as $13,500 annually after YouTube’s cut, editing expenses, and taxes according to her numbers below. If she’s paying that much to have her vids edited, you guys who film slot games might want to consider branching out and making a business of editing other people’s films for a living as well. 

Here are Olga Kay’s numbers.

Total Revenus: $100,000

After You/Tube 45%: $55,000

Minus editing costs ($500 per week x 50 weeks): $25,000

After 30% taxes: $38,500

Net income: $13,500.

Jason Calacanis, a well-known Silicon Valley entrepreneur who was part of YouTube’s professional partners program said in the write-up that to make 10 videos he would spend $25,000 to $75,000 in costs before a dime was earned in advertising.  I can’t imagine it taking that much money, but what do I know! I guess music videos might cost a lot if they were well done and creative.

Is any of this anywhere close to what your YouTube channels earn you? Do any of these figures for income or expenses seem reasonable? I find it all very hard to believe.  And yet, I’ve met a personable young girl, the former lead singer of my son’s band in LA , who makes a lot of money on YouTube talking while she plays video games and such. She’s cute as a button and goes by the user name Misses Mae, and I’m sure she would be happy to have you visit her site and subscribe. According to  my son, she has been doing this for about 3 years. She said the first 100,000 subscribers threshold took her a long time to reach, but after she crossed that threshold, the numbers very quickly doubled and are still growing.

He also tells me YouTube has studios, one in Playa del Rey in Los Angeles, which are more or less a cross between cable access and studio production that some of their filmers use. The Young Turks even recorded their news program at Playa del Rey while their own studio was being built. Misses Mae YT doesn’t record in the YouTube studios, but for most filmers, as your numbers grow, so does your access to recording time in the YT studios.

How do you get your money when you post on line? I’ve been told that some filmers work directly with YouTube and are paid through AdSense which does not take a cut of your earnings or charge PayPal fees. Others work with Multi-Channel Networks. The MCN are middlemen who promote your channel (among other things.) YouTube/Google pays the Network which takes a cut anywhere between 20-40%, and deposits the remaining amount in the videographer’s PayPal account (minus fees.)  Which is the better way to go? I don’t know. Ask someone who does this to make a little money. Start a SlotFanatics thread to discuss it if you like. Their members should be people who know.

Well, OK, I have to confess, after reading these articles, I now realize that I need to modify my tax advice in the last blog. I had NO idea it cost so much to make these films. If you are paying $25-$35 a film like Olga Kay, you definitely DO need to deduct expenses on your Schedule C or C-EZ. Heck, you could even end up with a business loss if you have to pay that much in expenses, and you don’t have much in the way of subscribers or income. Maybe your loss could reduce your AGI and countract the inflated AGI problems caused by your gambling wins.

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So, lets hit the business tax highlights in review once more. Your income will be reported to you and to IRS on a 1099-Misc form. The 1099-Misc you receive should have the fees you paid YouTube and/or your MCN subtracted already. If they haven’t been subtracted and the pre-fee amount is shown on the 1099, you should subtract what your business records show you paid in fees yourself as an expense on Schedule C or C-EZ. If you’ve been charged PayPal fees that haven’t been subtracted already, you should deduct them too. Remember to keep organized complete business records and receipts for everything you spend to earn this money. to back up your deductions. (But not the records of the cash you run through the machines gambling. You keep those records too, but you keep them in your gambling diary for Schedule A, not for Schedule C.)

I hope, you are all doing your own editing, but if not, deduct as a business expense what you pay to have your vids edited. And if you are really making big money - bigger than I suspected before - you might actually want to consider  taking  your other  business deductions as well even though it is a lot of work. Depreciate your camera and computer, and write off the editing software costs. Keep a mileage log for the business travel between casinos where you film and from your tax home (your usual place of business) to out of town locations where you have occasional business activity. For most of you it will be worth hiring a tax preparer if you are spending  that much money and generating that kind of income.

If you have a different experience with your YouTube business than my two articles describe, or if you have suggestions that would be helpful to other readers, feel free to comment here - or send me an email with your thoughts and ideas. I’m always eager to learn more from people who have first-hand knowledge of how it all works. And if you need help with the tax forms, I’m happy to help you there too if I can.

To close, let me give a very special “thank you” to a very special YouTuber who explained to me how MCNs and AdSense work!  I appreciate you very much.  :)