Why Start a Social Media Brand when you can Buy One?

Why and how to buy a social media brand plus some things to consider.

July 5, 2024 | Royce Hood, Esq – Alright, first off, this is not meant to be legal advice but more of a generalized overview.  Recently I was presented with an inquiry on what would be needed contractually to buy an established YouTube Channel? That is a great question. Let’s take a look (focusing on monetized brands):

First, let’s start with the question why would you want to buy an established channel?  The answer is simple: established.  YouTube or other social media channels might take years to build in terms of follows, fans, likes, content and ultimately monetization.  Mr. Beast, the most popular YouTuber on earth, reportedly spends over $1M on each of his videos!  Think about that.  But he has nearly 300M followers and rakes in an estimated $10M per month from ad revenue alone.  But he is the exception not the rule because with millions of video uploads per-day most YouTubers never make any money.  But start building a fanbase and YouTubers might eventually generate revenue from ad sharing, sponsorships and more.  But as stated above, becoming established might takes years and requires talent, originality and probably some luck. Let’s get to the main point of this post: What is needed contractually to buy an established social media brand?  Here we go:

What is required contractually to buy an established social media brand?

Bullet points to consider.  At some point I might elaborate on these items further (when and if I find the time).  For now:

  • Due Diligence.
    •  Look at SWOT analysis.
    •  Look at risks, rewards, opportunities, competition.
    • Focus on intellectual property (who owns the IP for the content)?  
    • Verify title in and to the IP.  Just because John Doe posts a video doesn’t mean John Doe owns the video.  Did he create it using original images, licensed images or stolen images?  Did John Doe pay someone to create the video?  If he did was there a license for use or a work-made-for-hire agreement?    
    •  Where is the content creator located (Country and State/Provence – this can impact things like image and likeness or if in Europe moral rights).
    • Verify analytics.  Are views and likes bots or real people? 
    • Verify revenue and receipts. 
    • Does the brand have multiple channels across different platforms?  
    • Look at as much as you can to make an informed decision.
  • The Offer: Negotiate a deal.  This can be done via email inquiry or a more formalized letter of intent (“LOI”).  The LOI might include NDA language or other terms that can be binding so think about this carefully.
    • Are you licensing the channel via endorsement, sponsorship or distribution rights?
    • Are you outright buying the brand or equity in the brand?  
    • If you are forming a partnership does there need to be an entity or holding company that will be assigned rights to the brand?
    • The nature of the deal will determine the appropriate offer, forms and documents.  
  • Document Index.  This is boring. But for any deal I recommend creating a document index to track all of the above and below.  The document index is in many ways a living and breathing document as it tends to evolve as necessary documents are identified.  Before the deal closes the document index is signed off on to make sure all appropriate documents have been executed or provided.  
  • The Contract.   This can be part of the offer/loi but for more sophisticated deals will be a separate document to effectuate transfer of title in and to the intellectual property.
    • The Contract should include terms and possibly additional forms (addenda for example).
    • IP: Make sure all intellectual property rights are valid and secure.  To the extent there is a question as to who owns prior content consider indemnification, warranty language, an assignment or other documents needed to secure the rights. 
    • IP: If the brand will continue making content who will own the future rights?  It might be prudent to form a holding company for the IP.  
    • IP: Use work-made-for-hire agreements and IP assignments to mitigate risk of third-party claims against the IP
    • Trademarks and Copyrights.  I am spending time on IP because IP is the crux of the digital brand. Make sure your investment is safe by securing all IP.   If for example, federal registrations exist do those registrations need to be assigned to a new entity?  If registrations do not exist consider registering specific IP such as the Brand Name for trademark or specific videos or images for copyright (under federal statute). 
    • Is there other property beyond digital or IP?   This might include real property such as a building or tangible personal property such as computers or camera gear.  Who will own this property?
  • Who gets paid?  This will be part of the contract.  But when an established channel exists it is set up to receive money from Google (or other platforms as may be the case).  How will you secure the revenue per the terms of the deal?
    • NOTE: Terms of Use for social media companies can change without notice.  So conduct your due diligence accordingly and make sure whatever deal you make doesn’t get you booted from using the platform. If you do get booted from a platform how can you mitigate damage to the brand? 
    • Other ways to secure funds: One possible method to secure funds would be to set up a legal entity (such as for example an LLC) and assign rights for the channel and associated IP to that entity.  The assignment of rights could be absolute or merely in the form of management or distribution rights (sort of like a record deal for musicians).   This entity would cage the funds and distribute the funds according to the terms of the deal.  Consider also a royalty agreement for dividing up revenue based on particular contributions to the content. 
  • Sponsorships and Endorsements.  Ad revenue is one form of cash-flow for an established brand.  But sponsorships either for the brand or for the person behind the brand can also be lucrative.  
  • Will the investment into the brand impact sponsorships, endorsements, speaking fees, media appearances or other forms of engagement beyond the brand itself?  Think about these terms.

“There is a balance between keeping it simple and covering your bases” 

  • Jurisdiction.  Part of due diligence was looking at location for the brand and creators.  Europe has moral rights which can cause all sorts of headaches down the road unless properly waived (if waivable depending on the country).  States like California have rights to publicity that extend beyond the life of a public figure (for example).  Knowledge is power.   This is where an attorney can be invaluable to determine what can and cannot be waived in terms of rights and obligations under state or country law.  Also in the event of a conflict between the parties to a deal which jurisdiction controls?   If you are forming an entity where will you form the entity?
  • Buying the brand.  How will you buy the brand? Lump sum?  Over time?  This will naturally be part of the Offer and Contract but is important to think about.
  • Collateral.  How will the deal be secured?  If this brand owned property apart from IP (such as real estate or merchandise) will those properties be secured?  How?
  • And more.  Lots to consider: rights and obligations for performance, term and terms, accounting, payouts, taxes and more.  Ultimately there is a balance between keeping it simple and being safe.  Be sure to seek legal advice before entering into any legal contract.

I could probably write a book on this subject.  Buying a social media brand is not all that dissimilar from buying a brick and mortar business. I’ve closed over $75M in secured transactions in the form of non-municipal bond deals.  The idea there is secure the bonds with collateral generally in the form of real estate and other property including accounts, personal property and so on.   Ultimately every deal requires some level of due diligence. Make an offer. Verify title and rights in and to the brand and associate properties.  Close the deal.  

One caveat: On a small deal with little risk less due diligence may be needed.  Perfect is the enemy of production. So as stated above “there is a balance between keeping it simple and being safe.”  Proceed accordingly.  

Pax!

Follow Royce via X.com/@RoyceHood