Japanese animation production company Kadokawa Group Holdings revealed that, by the end of 2008, it was earning $110,000 a month from its videos on YouTube, reports the Anime News Network. The twist to this animated tale? Kadokawa made most of that money by advertising on user-generated videos that incorporate Kadokawa’s popular intellectual property from such anime hits as The Melancholy of Haruhi Suzumiya and Strike Witches. Kadokawa launched its own YouTube channel, uploading full episodes of its shows, at the beginning of 2008. According to BusinessWeek, Kadokawa uses YouTube’s video ID tool to scan the site for infringers who upload remixes or mashups of its content. Kadokawa keeps a database of all the infringers and, while it does send out takedown notices, it also contacts uploaders it thinks are keeping in the spirit of its shows and asks to advertise alongside those clips and encourages them to join the official Kadokawa Anime YouTube channel.

The result is that between September and November of 2008, Kadokawa videos were seen 50 million times. In October, the company started placing in-video ads that reportedly boosted revenues it earned from the site dramatically, to the $110,000 mark. If the company can keep up this pace, it’ll recoup the $1 million it spent on the project within the year.

There is a lesson in all this: Unlike suing them, embracing fans who want to actively participate in your brand is a way to maintain loyalty, generate play counts and make some money in the process.