For businesses looking to advertise their product with user-generated content, GoPro (NASDAQ:GPRO) is a company to emulate. The video-editing software it includes with every camera it sells turns every video uploaded to YouTube or Facebook into a GoPro advertisement. GoPro Entertainment, the company's curated and professionally produced content channel, attracts tons of views across the Web.
Now GoPro is opening up its user-generated content to other businesses interested in using it to advertise. The company will license content on a user's behalf for use in television commercials or Internet ads. This is GoPro's first move to monetize its content beyond using it to sell more cameras.
Introducing GoPro Licensing
GoPro Licensing is a new portal for advertisers to peruse user-generated content made with GoPro cameras. But not just any user can upload video for GoPro to license, and not just any business owner can access the content. GoPro is limiting it to high-end videos and big businesses -- the ones that can afford hefty licensing expenses. Videos start at $1,000 for a six-month license.
This move will allow GoPro to reduce overhead by working with fewer but higher-quality businesses and creators. Unlike YouTube, GoPro Licensing isn't a video-consumption platform; it's more of a video discovery platform. Videos are tagged with lots of metadata, so potential buyers can easily find a video that suits their needs.
The new licensing portal holds the added bonus of putting GoPro's brand in front of major advertising agencies.
Overall, GoPro Licensing is the first step in transitioning GoPro from a pure-play hardware company into a media brand. GoPro's videos are already immensely popular, and their popularity continues to grow rapidly. It's the top brand channel on YouTube, with 3.1 million subscribers -- up 40% in the past year. On Instagram, GoPro has 5.8 million followers, making it the fourth-most-engaging brand on the network. And the switch to native video on Facebook has enabled GoPro to increase its video views on the platform to more than 40 million in the last quarter.
People love GoPro's content, so finding a way to unlock some of the value of that content is key to the future of the business. Many investors are expecting as much from the company, which is how they justify paying such hefty premiums for the stock. Shares are currently trading around 36 times 2015 earnings estimates.
How content licensing could affect the business
GoPro is already seeing strong results from its core hardware business. Revenue grew 72% last quarter to $420 million. Gross margin continues to climb as well, up 420 basis points year over year to 46.4%. It produced three of the top five highest-grossing cameras in the U.S. last quarter, and it anticipates continued success in the third quarter.
So the small media-licensing venture won't have a major immediate impact on the business. As CEO Nick Woodman said on the company's second-quarter earnings call, "The strength of our core business is such that it's going to take some time for the media revenue to become a substantial revenue strength for us."
But these media licenses ought to be high-margin revenue. As I mentioned, GoPro will be able to maintain low overhead for its operations, and the gross margin on those licenses is whatever terms GoPro wants to extend to creators. As the media segment grows, it will enable GoPro to continue increasing its margins or introduce a lower gross-margin model to attract more buyers and users and boost revenue.
GoPro Licensing is an encouraging start to the company's plans to monetize its content.
Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Facebook and GoPro. The Motley Fool owns shares of Facebook and GoPro. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.