What’s Behind Maker Studios’ Dilemma: Executive Exits, Missed Revenue Targets

Recent signs at the Disney-owned multichannel network are troubling, but there’s no reason yet to panic

Maker Studios

August has been the hottest month for Maker Studios. The millennial-courting, digital-facing multichannel network, which Disney acquired with much fanfare in March 2014, has shown signs of struggle.

The sale price that Disney paid for Maker, once thought to be as high as $950 million when the deal was finalized in March 2014, will turn out to be closer to $700 million as Maker has met some — but not all — of the revenue goals laid out by Disney, TheWrap has learned.

Synergies with the media giant have been slow to materialize — though Maker did on Monday launch a talent incubator with Disney XD — as its less corporate employees report frustration with studio bureaucracy, insiders tell TheWrap.

Last week, top content executive Erin McPherson and marketing chief Jeremy Welt exited the company after failing to produce any crossover hits or hit revenue targets. In addition, the company shuttered its web portal Blip.TV, which it purchased in 2013.

The shift reflects a new reality for Maker and other MCNs seeking to grow big-media revenues out of groups of digital new-media stars.

“YouTube isn’t the once thriving place for everybody — there’s just not enough money to go around,” Brian Solis, principal analyst at Altimeter Group, told TheWrap. “Maker’s having to rethink how it’s going to compete in this new world.”

Maker COO Courtney Holt assured TheWrap that the company is on solid footing and that its model is sound. For the moment, that means doubling down on YouTube to release its programming while eyeing other platforms for so-called premium content. “YouTube is still the center of our universe,” Holt said.

But if Maker is struggling to generate revenue, a dependence on YouTube could contribute to the problem. (Holt declined to speak about the company’s financials.)

YouTube was the platform on which Maker, AwesomenessTV, Fullscreen, Machinima and other MCNs were born, where they began by aggregating YouTube channels and taking a cut of advertising revenue.

“We’ve done a really good job as a business figuring out how to get predictable, scaled revenue off of the YouTube platform,” Holt said.

YouTube, however, can by a harsh place to live. The Google subsidiary takes 45 percent of most ad money. The remaining 55 percent has to be split between the MCN and the creator. Those splits used to be close to 50-50, but top-tier creators are increasingly able to demand 70-90 percent of ad revenue, lest they jump ship to another MCN or fly solo after growing their subscriber base.

Less than half of half doesn’t make for the world’s widest revenue stream.

Holt contends that “the YouTube platform really works for us.” Asked what the company’s primary revenue streams besides YouTube are, he points to direct advertising, branded content, merchandising and the company’s July acquisition of the startup Instafluence, which pairs marketers and social-media influencers.

Maker’s most valuable asset remains its impressive scale. ComScore ranked it the fifth most trafficked online video brand in June, with 40.3 million unique desktop viewers for the month — more than companies such as Vimeo, Fullscreen and Comcast.

That kind of traffic should have long-term value to Disney, whose cable businesses are being squeezed by subscriber loss. In the present, those large audiences can be used to hype Disney properties, as with a promotion last week that featured Maker creators revealing new Star Wars toys.

And the company’s talent pool remains vast. Maker currently has a stable of more than 55,000 creators worldwide. Most of those simply provide fodder for the YouTube business — it would be impossible for a company of any size to fully service enough talent to fill a football stadium.

But Maker has improved its reputation with top- and mid-tier talent. It’s lineup boasts many of the short-form video world’s biggest names, such as comic video-gamer PewDiePie, comedian Toby Turner and beauty expert Andrea Brooks.

Under CEO Ynon Kreiz, installed before the Disney deal and after the ouster of co-founder and convicted felon Danny Zappin, Maker has established itself as a professionally run operation.

“It’s obvious there that they have the most breadth and depth on the their team of any MCN,” said one creator who left another MCN for Maker last year. “When I went in there, it reminded me of when I took meetings at CAA. Everyone had their own department with clear responsibilities and clear lines of communication. I say this as a former Maker hater. You couldn’t have paid me to take a meeting there three years ago.”

Other top-tier Maker talent echoed those sentiments, describing the company as being known in the creative community right now for investing in talent and production.

Still, Maker now carries the stigma of not having lived up to the full potential of its deal. That could be enough to encourage skeptics of the MCN business model.

Disney’s Maker purchase was the peak of a buying spree that saw legacy media pour tens, sometimes hundreds of millions of dollars into MCNs — DreamWorks Animation into AwesomenessTV, Warner Bros. into Machinima, AT&T and the Chernin Group into Fullscreen.

But Disney-Maker, with its possible price tag so close to a headline-friendly billion dollars, caused the most ruckus. “One group of folks saw the $1 billion as the promise of the new Hollywood and representative of this new model that was being built out,” Solis said. “The other camp felt that 1 billion was not a number that was going to be achievable.”

The high pricetag marked Maker as the industry leader, so it’s tempting to view the company as an indicator for the entire MCN space. But with its sheer size and broad creative focus, Maker is in some ways in a different business than its competitors.  Machinima delivers young men to Warner Bros., through its original gaming content and series based on properties such as Transformers and Justice League, while AwesomenessTV delivers to teen girls to DreamWorks Animation via digital-media stars like Cameron Dallas and Nash Grier.

Solis likes Maker’s strategy of staying true to its YouTube roots while diversifying across multiple other platforms. And he views the fact that Disney is paying some of its earn-outs on the Maker deal, even if it’s not paying all of them, as a positive.

“I’m glass half full,” said Solis. “It’s not a reflection of the promise of this new Hollywood, it’s just a reflection of the performance metrics that were put in place. It represents a more realistic view of Maker’s performance.”