Turning fashion video into a money-maker

November 2, 2012: 12:56 PM ET

YouTube network StyleHaul hosts over one thousand channels -- and it's found a formula traditional fashion publications can't seem to master.

By Colleen Leahey, reporter

FORTUNE -- Stephanie Horbaczewski, a fur shawl draped over her shoulders and a Celine tote propped at her feet, radiates chic. But the former Saks marketing executive is much more than an impeccable fashionista: in less than two years, Horbaczewski's startup StyleHaul has fused lifestyle content and video into a potentially lucrative network.

StyleHaul's videos are crisp, cleanly packaged, well-produced and, most notably, created by outsiders. Horbaczewski, 34, and her team manage a community of 1,100 channels, run by 800 video bloggers -- or vloggers. The fashion startup closed its Series A in January, raising $4.4 million with RezVen Partners taking the lead. The company has doubled in size over the past nine months and now serves an audience of 41 million unique viewers a month. It could bring in between $10 million and $15 million in revenue by the end of this year, according to a person with knowledge of the business.

As savvy as fashion and beauty firms have been with their marketing, many have struggled to adapt emerging technologies to turn significant profits. Hearst Publishers' launched its Hello Style channel, which features content from brands like Cosmopolitan, Harper's Bazaar, and Marie Claire, in April. (YouTube (GOOG) reportedly paid the company $10 million to launch the channel.) Glam Media launched a Brightcove (BCOV) page four years ago. But both ventures trail StyleHaul drastically in the minutes of video viewed per month among 12-to-34 year olds in the U.S., according to a recent Comscore (SCOR) report. In July, Hearst and Glam viewers watched about 100,000 and 600,000 minutes of video, respectively; StyleHaul kept users watching for a staggering 109 million minutes.

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How? The model for StyleHaul's success seems, well, unlikely: Machinima.com. That site, on which one can watch a trailer of the latest Halo game or the satirical show "Mega Man Dies At The End," is beloved by hardcore video gamers. Machinima has more than 150 million subscribers and over a billion monthly views. Not surprisingly, Machinima co-founders Allen Debevoise and Aaron Debevoise also co-founded StyleHaul with Horbaczewski.

Both sites focus on community engagement over merely attracting viewers. They also serve as networks for outside producers. StyleHaul hosts fashion-savvy "influencers," or producers, who create style and beauty series for its network. When the company first launched in 2010, Horbaczwski and her team reached out to popular YouTube users in hopes of convincing them to be StyleHaul members. By 2011, the company was overwhelmed with the number of talented applicants hoping to create content for their network. "We're a very passionate community. We're looking for people who share the same, for lack of a better word, ethical standards," says Horbaczewski. Of its 34 employees, eight are dedicated to reviewing StyleHaul influencer applications.

StyleHaul then tries to amplify the success of its contributors. Take one of the network's channels, EleventhGorgeous, for instance. It has almost 20 million video views in total. But it wasn't always so viral. Hailing from Tuscaloosa, sisters Tracy and Stefanie had a significant following, getting about 700,000 views per month. They wanted to work on their channel fulltime, but needed a few thousand dollars to quit their day jobs. They submitted a proposal to StyleHaul's head of community that outlined a three-month plan. StyleHaul loaned them the money with the promise that, should Tracy and Stefanie reach their goals, StyleHaul would wipe the debt clean and cite it as a seed investment in EleventhGorgeous.

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"In four months, not only did they get there, they completely blew all expectations out of the water," Horbaczewski claims. Last month, EleventhGorgeous' views hit almost two million, using social platforms like Instagram (FB) and Pinterest to market the channel. "If we're going to invest in you, treat it like a business. And they brought me a terrific plan, and they executed on everything." StyleHaul's investments aren't always financial. There are some users who simply want marketing advice; others need production or search engine optimization training. They also provide the channels with monthly reports on each of the monetization of their videos, providing influencers with helpful viewer data.

Much like Avon (AVP) helps salespeople become entrepreneurs, StyleHaul pays its influencers based on their success. YouTube pays certain users a CPM per thousand views and StyleHaul takes that model but pays a slightly higher CPM. "We consider that an investment. What you're viewed determines how you get paid. It makes perfect sense, it causes you to drive your business and we believe in that method," says Horbaczewski.

Ad sales are fueling the company's growth and Horbaczewski is determined to think creatively when working with advertisers. Interested parties can, of course, by traditional ad units served by YouTube. Another approach is partnering with StyleHaul influencers to create content based on the brand. Gap's (GPS) Old Navy division worked with StyleHaul's Brooke Peterson on a "Rock What You Got" campaign, which features various Old Navy products. Peterson advises how to style them. StyleHaul brokers the relationship between the advertiser and influencer, reaping the financial benefits and the sales team then manages all of the production, talent, and marketing costs.

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"We're trying to differentiate ourselves [from Machinima] in a lot of ways, because obviously the 14-34 year old male demo is very different than the 14-34 year old female demo," explains Horbaczewski. StyleHaul is currently working with an unnamed company to create technology that enables viewers to seamlessly purchase products featured in StyleHaul videos without ruining the viewing experience. This experience would not be based on the YouTube platform, but on an expanded StyleHaul website slated to launch in 2013.

As StyleHaul heads toward its second birthday in January, the company has some big decisions to make: Does it raise a Series B or look to sell? The network is growing 15% in month over month views, and traditional print publications to media moguls to venture capitalists are dying to get a bite of online video. For now, the CEO says StyleHaul will stay independent.

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