The social media phenom has done more than create multiple outlets for showbiz talent seeking to build fan base and auds. It’s also allowed a growing number of celebs to tap into burgeoning revenue streams from social networks, virtual worlds and online games through branded merchandise.
There are two aspects to monetization via social media: The new social media mavens are being paid to tout products online; more speculatively, they also invest in start-up companies.
Justin Timberlake, Snoop Dogg, T-Pain, RuPaul, Tila Tequila, Paris Hilton and 50 Cent are among those taking in a piece of what’s estimated by investment bank Piper Jaffray to be a $3.75 billion global market this year in virtual goods, predicted to expand to $6 billion by 2013.
“It’s a new product category with high profit margins, no inventory problems, and complete control of items,” says Dan Jansen, founder and CEO of Virtual Greats, a company that specializes in “virtual goods,” which says it reps a $4 billion global market.
Virtual Greats’ platform brings copyrighted material into social networks and casual games, and connects fans to celebrities, artists, intellecutal propertry holders and brands. “We create branded virtual goods that we sell in micro-transactions, which average about $2.50 apiece, but can go up much higher if they have functionality, such as an NBA basketball that dribbles,” says Jansen.
The majority of the goods — for which celebrities and brands reap about 30% of the revenue after 10% sales costs and splits with social media sites and companies like Virtual Greats — are items for avatars such as Elvis Presley’s blue suede shoes or Snoop Dogg’s Dobermans, used in virtual worlds like WeeWorld and Zwinky.
Jansen says Virtual Greats has sold about $400,000 worth of Snoop-branded merchandise in the past two years. Some say such revenue is found money, requiring little time or effort, and that includes influential celebrities who are paid to tweet about products, reportedly at up to $10,000 a tweet.
Beverly Hills-based Adly is a venture-funded company that matches brands like NBC, Sony and American Airlines with influential names with large Twitter followings, like Hilton and 50 Cent, to connect them directly with consumers.
Another emerging trend: high-profile celebs investing in tech-sector start-ups. Leonardo DiCaprio recently invested in Mobli, an Israel-based visual media platform that lets users follow channels that display topic-driven photos. Justin Timberlake took an ownership stake in MySpace and started making strategic and creative decisions for the company. He also invested in early-stage augmented reality company Dekko and Stipple, which allows people to label, share and advertise on photos.
Ashton Kutcher has his own investment fund, A Grade, which has put money into about a dozen startups, including Foursquare, Fashism and Flipboard, while Lady Gaga invested in Backplane, a social networking site for celebrities.
Those who want to similarly invest in early-stage social media and tech companies can enter as angel investors — and be prepared to lose it all. “From a wealth management asset allocation perspective, unless someone wants to devote significant time to pursue opportunities, and do this as a side job, it’s really difficult,” says Andreas Stavropoulos, managing director of Draper Fisher Jurvetson, a Silicon Valley venture capital firm.
In order to spread around the risk by investing in multiple companies, investors can try to get into well-managed VC funds rather than attempting to cherry-pick the next Facebook or Groupon, but even that’s not easy. The funds are only raised every two or three years and most of the participants are financial institutions rather than high net worth individuals.
But like other situations where clout opens doors, if you know someone and can bring something to the table, you’re more apt to get in — with a caveat: “Typically these funds are oversubscribed,” says Stavropoulos. “You might want a $5 million stake, and you only get $3 million. That’s it.”
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