June 13th Update:
We're happy to report the custom image upload issue with Thumbnail Generator is resolved. Please ensure the extension is updated to version: v2.1.1636:
We also fixed the broken emoji images in Thumbnail Generator with this update.
Thanks again for your patience! We appreciate your support.
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We sincerely apologize for the delay in resolving the Thumbnail Generator tool issue, where custom images become distorted after uploading. This is currently a high-priority issue for our Dev Team but unfortunately, it’s taken longer than expected to fix.
We understand the importance of this tool and how beneficial it is to your creator workflow. In the meantime, please try this workaround to get custom images to work:
1) Upload the image using YouTube’s thumbnail upload option. If you already have a thumbnail, click on Options (3 dots) then change:
Video without an uploaded thumbnail:
Video with an uploaded thumbnail:
2) After the thumbnail is uploaded and saved on YouTube, open Thumbnail Generator and the image will automatically be uploaded as a Background Image in Step 1. If you do not see the image, check if you've saved the thumbnail upload in the previous step.
We sincerely apologize for any inconvenience caused. We will post an update in this article once the issue is resolved.