Buying Youtube Channels for Passive Income: Part 1 - Information Asymmetry

I've purchased Youtube channels myself with mixed success, but I think there are some in the community who would be interested in those experiences as I know I am not the only one interested in building passive income. I've broken this up into a few parts, as I don't think many people read long-form content, and I want to make sure there is some interest before spending more time on the piece. Unfortunately with the Steem voting system, it usually isn't economical as a minnow to post content.

I have learned a few lessons in my process of buying Youtube channels. The most important was learning that the vast majority of people selling Youtube channels are trying to scam you. The mantra you should pay close attention to when buying Youtube channels - if it seems too good to be true, it is.

Many Youtube channel sellers have far too low a price tag to be realistic, in reality the channels were extremely low quality, with unnatural traffic profiles, were stolen channels, were channels they only pretended to have access to, channels blacklisted by youtube (via copyright strikes), etc… The amount of work these unscrupulous sellers would take to try and scam an unwary buyer out of a few dollars was remarkable; including carefully photoshopped screenshots of analytics pages. The lesson to be learned is be careful, and be sure to follow all my steps when buying a youtube channel that are discussed later on.

The channels that weren’t ridiculously cheap and weren’t obvious scams tended to command very high prices, and the sellers were relatively stubborn on bringing the price down. The issue as a buyer looking for quality channels was that the risk of being scammed is fairly high, which means I have to bake that into what the price I am willing to pay, given I cannot be sure the channel is legitimate.

The whole process makes me think of a seminal paper by George Akerlofs, who highlighted the problem of quality uncertainty elegantly. Akerlofs used a car sales analogy in his 1970 paper “The Market for Lemons”.

"Imagine a used car market in which there are only two types of cars for sale, lemons (bad cars) and peaches (good cars). In this simplified hypothetical market, buyers value lemons at $500 and peaches at $1000. Of course the seller knows if the car being sold is a lemon or a peach, but the buyer does not. After all, cars can be patched up, dents undented, etc… The risk is on the buyer, and since the peach they want could in fact be a lemon, they simply won’t be willing to pay the full price, perhaps instead splitting the difference and offering $750. But there is a problem, the seller knows what the car is worth and if it’s a lemon they will happily take the $750, but if it’s a peach they will be unwilling to sell the car worth $1000 for just $750. The result is that the peaches go unsold and every peach that ends up selling is actually an overpriced lemon. The real tragedy is that buyers in the market for peaches would happily pay the full price if only they could guarantee it truly was a peach. "

If you want to read more on this topic we recommend a great article from the Economist or Wikipedia links are below.

Gresham's Law: the bad drives out the good.

The term used to describe this predicament is “information asymmetry” and the same predicament exists when trying to purchase a Youtube channel. Most of the channels that end up selling are overpriced lemons, and it forces the quality buyers out, subsequently quality sellers can’t get a fair value for their property, so they either drop out of the market, or can't find a buyer for the full price that it is worth, so the quality channels tend to go unsold.

I'll get into the details in the next post if there is interest in this type of content. I will share what to look for when buying a Youtube channel, where you can find them, how to avoid being scammed, etc...

Cheers @moneybags
*I've also tagged this post as #moneybags which I will be using to post future money making ideas, feel free to post your own in there as well

Sources used to produce this content: