Media companies continue to pour money into YouTube, but the targets are different
The next wave of YouTube deals is upon us, but they are getting smaller.
After a flurry of mergers, investments and rumors to begin the year — none bigger than Disney's $500 million acquisition of Maker Studios — media companies and venture capitalists are investing millions in another group of companies. Except they're forking over eight digits rather than nine.
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MiTu, a leading network among Latino viewers, raised $10 million last week from a group led by one of the primary investors in Maker. Tastemade, a leading network of food channels, raised $25 million this week from a group led by Scripps Networks Interactive, owner of the Food Network and HSN. Networks such as StyleHaul or DanceOn might be next.
The Mitu and Tastemade deals came shortly before the fifth annual VidCon conference, where YouTube CEO Susan Wojcicki and DreamWorks Animation CEO Jeffrey Katzenberg spoke opening day Thursday, in another sign how important these online video has become.
Like Maker Studios, Fullscreen and AwesomenessTV, these companies built their businesses on the back of YouTube, the world's largest video site. Maker Studios and AwesomenessTV earned large paydays thanks to their scale: Maker's channels generated some 2 billion views a month at the time of its acquisition.
By comparison, Tastemade's network books 100 million views a month. These networks also specialize in a particular segment of the audience, whether it is the food-crazed fans of Tastemade's “Thirsty For” or the Latinos tuning in to MiTu's “El Show with Chuey Martinez.”
The Maker deal, which could reach $950 million if certain targets are met, and the Fullscreen's rumored price tag of several hundred million, forced some media companies to look smaller.
“The big players are gone,” Scott Schlichter, co-founder of GT Channel, an automotive network, told TheWrap, “The massive scale play is off the table.”
Yet those deals also paved the way for companies to invest again in a space enshrouded by clouds of doubt. YouTube's biggest partners had spent months complaining about their cut of revenue, and most of them still spend a lot more than they make.
Disney's willingness to spend nearly a billion dollars on Maker helped validate other companies.
“When your competitors are making bold moves, that puts a bigger target on the back of the overall MCN space,” Peter Csathy, CEO of Manatt Digital Media told TheWrap.
All media companies recognize the need to build their presence online. Though TV remains the most lucrative business in the entertainment industry, the appetite for short-form, online video is growing.
YouTube has operated without a peer for several years despite persistent rumors of a new competitor. A few established players are trying to turn rumor to reality. Jason Kilar, the former CEO of Hulu, is working on another venture for online video called Vessel, while Yahoo is attempting to build competitors to both YouTube and Netflix.
“There's been a shift in how audiences are consuming video and where they are consuming video,” Reza Izad, CEO of Collective Digital Studio, told TheWrap. “Big media companies see that in how they are engaging with these companies as a way to hedge against that trend; the way audiences are consuming content has radically changed.”
Media companies face a choice: they can try to build their own network online, or they can buy one. Scripps Networks, which owns several popular cable channels, opted to partner with one, investing in Tastemade.
While The Food Network is far more profitable than Tastemade, its presence online pales when in comparison. Tastemade also offers a bevy of young talent from across the world.
“They are buying audience, buying subscribers and buying communication ties with that audience they don't have with their cable channel,” Csathy said. “That's a really interesting way to do it; to build it would take a significant amount of time.”
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For the networks, partnering with a company such as Scripps can help solve persistent financial dilemmas. While multi-channel networks reach an engaged audience, they do not make enough money off them. TV networks can help them solve that problem through their relationships with advertisers.
MCNs also lack the scale and infrastructure of cable networks, which is something many are spending a lot of money to build.
Their strengths are complementary.
“Larger companies already have the infrastructure they lack and the bigger companies don't have a digital strategy,” Schlichter said. “We just have to take advantage of technology-enabled media companies we are.”