Why I'm Still Bullish On MCNs - My Guest Article in Variety

[My article below was first published in Variety yesterday -- this is an excerpt from that article -- click here to read it in its entirety.]

MCNs (or, more accurately MPNs these days) have been getting a bad rap this past week as a result of reports surfacing that Maker Studios' "earn-out" from its M&A mega-deal with Disney will be less than the maximum $450 million (and apparently closer to 1/2 that) -- which still gives Maker execs and investors a nice little $700+ million "win."  Not bad.

The "haters," however, are using this news as Exhibit A in their case slamming the value of MCNs/MPNs -- and slamming what they say are inappropriately lofty valuations to date for relevant acquisitions (which include Otter Media/Ellation's acquisition of Fullscreen for up to $300 million, RTL Entertainment's acquisition of StyleHaul which valued the company at up to $200 million, and ProSieben's recent acquisition of Collective Digital Studio which valued the overall package at about $240 million).

But, as a person closely immersed in the overall video ecosystem who has access to numerous "insiders," I strongly disagree.  Believe they are completely missing the fundamental point (and justification for those deals).  And remain bullish.  Very.

[Click here to read my entire article/analysis in Variety ....]

MCN M&A -- Another (Predicted) One Bites The Dust -- ZoominTV

The appetite for MCN-related M&A remains un-sated.  In the immortal words of Queen -- appropriate in this case of British MCN-ish company Zoomin.TV-- "another one bites the dust."  And, I mean that in the most positive way for Zoomin, since a controlling interest of 51% was just sold to Modern Times Group in a deal that values the company at nearly $100 million.  Variety identifies under-the-radar Zoomin (a company few in the U.S. video world know) as being, surprisingly, "the world's 5th largest multi-channel network."

This is another MCN-related M&A deal I just recently predicted -- calling Zoomin an MCN "ripe for M&A."  And, this most recent deal -- which follows fast on the heels of ProSieben's recent acquisition of a controlling interest in Collective Digital Studio -- is yet another sign that we likely have entered Wave 2 of MCN M&A.

I have come to know CEO Jan Riemens -- whom I just recently visited in Amsterdam -- and congratulate him and his team for a nice "win," which also better resources him grow the company at an accelerated pace (and share in further value creation down the road, since 49% was retained).

MCN Wars - Who's Next In M&A? (Got It Right With CDS)

Last week's acquisition (of a controlling interest) by German media company ProSieben of leading MCN Collective Digital Studio -- one of 5 MCNs I predicted as being "ripe" for acquisition 6 months back -- woke up the MCN M&A game that had been somewhat quiet for the first six months (after a frenetic pace last year).  So, is this deal a "wake up call" for media companies to move on the remaining independent MCNs with scale?

Signs point to "yes."  As I recently wrote in a lengthy analysis of 2015's top digital media deals and trends to date this year, those leading MCNs "are ripe for M&A down the road -- a road that likely just got shorter [last week] because one of their independent brethren (Collective Digital Studio) has just been taken off the table ...."  Other industry insiders agree, including execs from major media companies with whom I have spoken.  And, several followers/influencers within the industry underscore this point even more emphatically.  Sahil Patel of Digiday -- who covers the space very closely -- writes, "If you're a major media company and you're interested in buying a YouTube network, you better hurry up."

And, even more emphatically, research firm Ampere Analysis concludes: "For those players without a stake in the MCN game, sand is rapidly running through the hourglass ... Many media companies are playing a waiting game: the million dollar question now is when to stop waiting and start acting."  Ampere pegs the top 100 MCNs as having a collective value of an eye-popping near-$10 billion (yes, BILLION!) -- and further concludes that 22 MCNs each justify an acquisition price of "at least $100 million" based on previous M&A comps in the space.

I don't know about that (since Ampere's "treat-all-MCNs-the-same" analysis is rather one-dimensional and apparently doesn't consider other relevant valuation factors, including strategic "fit," specific consumer vertical focus, each MCN's focus on and -- amount of -- licensable original programming, and quality of distribution partners, among others).  But, I certainly do believe that MCN M&A will actively continue in the next several months (NOTE: remember, most majors call themselves MPNs now, as in "multi-platform network").  I call this Phase 2 of expected MCN M&A activity -- which ProSieben/Collective Digital Studio (CDS) sparked last week.

HERE ARE MY PREDICTIONS OF WHO COULD BE NEXT (and for those keeping score, in addition to correctly identifying CDS, I had earlier correctly anticipated M&A for Crunchyroll, Fullscreen and StyleHaul):

(1) TASTEMADE -- the leading food and travel MCN (which counts Scripps, Liberty Media, and Comcast as strategic investors, is known and respected for its original programming and brand, and has secured big wins on the distribution side with Apple and Facebook, among others); here is my exclusive interview of CEO Larry Fitzgibbon from last August;

(2) MACHINIMA -- one of the major MCNs that started it all several years back, is gamer/young male-focus, and still has massive scale (and counts Warner Bros. as a strategic investor);

(3) WHISTLE SPORTS -- the leading sports-focused MCN (which counts BSKYB and Liberty Global as strategic investors, has compelling deals with several major sports leagues -- including the NFL -- and features content that "travels well" internationally); here is my exclusive Q&A with CEO John West (note: Whistle is a client of Manatt Digital Media);

(4) MITU NETWORK -- the leading Latino-focused MCN (which counts AMC Networks as a strategic investor);

(5) DANCEON -- the leading dance/music-focused MCN (which features significant original programming that is ripe for upstream licensing to traditional platforms, and which also counts AMC Networks as a strategic investor); here is my exclusive profile about this MCN (note: Manatt Venture Fund is an investor and DanceOn is a client of Manatt Digital Media);

(6) FREDERATOR -- an animation-focused MCN that is somewhat "under the radar" (similar to Collective Digital Studio prior to its acquisition), and which is lead by media industry pioneer Fred Seibert who helped launch MTV and VH-1 and also served as President of animation legend Hanna-Barbera; in other words, his relationships and partnerships with the creative world are legend; and

(7) OMNIA MEDIA -- another digital-first media company that also is very much "under the radar" and is rumored to be in active discussions on the M&A front right now.

And, these are just some of the leading U.S.-based MCNs.  Remember, it's a big world out there -- with several other major MCNs, including German-based Mediakraft.  Many hungry major international media companies exist (cases in point: ProSieben/CDS and RTL Group/StyleHaul).

BONUS PICKS -- JUKIN' MEDIA -- not really an MCN, but also generally in the short-form digital-first space (and with a unique value proposition and multi-faceted business mode -- and also with a strategic media investor -- Bertelsmann Digital Media Investments).  Here is my profile of this very "hot" company about which many are talking.  It wouldn't surprise me if Jukin' were swallowed up first.  I also like WOVEN, which is a bit like a "less angry" Vice -- and is another company that I previously profiled.

What's the common denominator here?  Virtually all of them count major media companies as strategic investors.  And, as we just saw with ProSieben (which previously already held a 20% stake in CDS), strategic investment frequently leads to outright M&A.  Strategics frequently like to "try" before they "buy."  And, in the prescient words of Yoda (a character now owned by Disney and which, in turn, transformed the MCN M&A world and playbook with its near $1 billion purchase of Maker Studios early last year), "buy, they will!"

Let's start counting them down ....

22 MCNs Justify $100+M Price-Tag - So Says Analyst Firm

Last week's acquisition by ProSieben of leading "under the radar" MCN Collective Digital Studio (CDS) -- one of 5 MCNs I identified 6 months back as being "ripe" for acquisition -- may have jump-started Wave 2 of major MCN M&A .  (NOTE: I will publish a deeper analysis -- with my predictions of "who's next" -- Monday morning).  ProSieben pegged the value of that deal at $240 million (for the combined CDS and Studio71 MCNs, together with $83 million in new cash).

In the wake of that deal, research firm Ampere Analysis concludes:

(1) 22 MCNs each justify an acquisition price of "at least $100 million" based on previous M&A comps (the firm relies primarily upon the metric of 1 billion views/month to define these 22 MCNs and then applies a 25-35 multiple on annual revenues); and

(2) the top 100 MCNs as have a collective value of an eye-popping near-$10 billion.  Yes, that's BILLION with a capital "B."

I don't know about that.  Ampere's "treat-all-MCNs-the-same" analysis is rather simplistic and apparently doesn't consider other relevant valuation factors (including strategic "fit," specific consumer vertical focus, each MCN's focus on -- and amount of -- licensable original programming and quality of distribution partners, among others).  But, I certainly believe the MCN M&A race will heat up over the next several months (after being rather cool for the first half of the year).

Here are Ampere's final thoughts on the topic --

 "For those players without a stake in the MCN game, sand is rapidly running through the hourglass ... Many media companies are playing a waiting game: the million dollar question now is when to stop waiting and start acting."

MCN CEO Summit at DEW

Earlier today I moderated an MCN-focused panel at the 2nd Digital Entertainment World conference in LA.  Pretty remarkable "Who's Who" of panelists in the MCN world.  From left to right (counter-clockwise -- yours truly (moderator), Amanda Taylor (CEO DanceOn), Reza Izad (CEO Collective Digital Studio), Marvin Scott Jarrett (CEO Popular), Sanjay Sharma (President of All Def Digital), Scott Maddux (VP Gracenote), Roy Burstin (CEO Mitu), and Allen DeBevoise (Chairman Machinima).  Full house.  Impressive group.  Great insights.  Here's Deadline's recap, including the unanimous consensus that a few years from now Disney's near $1 billion acquisition of Maker Studos will be viewed as a bargain (just like Google's $1.6 billion buy of YouTube several years back). 

As I ended the panel, I predicted that several of these key players will be acquired in 2015.  Check back with me in a few months.  Taking bets now ....  DEW 2015.  It's a wrap.

All About MCNs - My Panel Tomorrow at the DEW Conference

Digital Entertainment World (DEW) starts today in LA -- and tomorrow I moderate a panel from 12:40-1:20 pm titled "MCNs: Monetizing the YouTube Economy" that features a "who's who" list of MCN CEOs as panelists.  Joining me are:

Roy Burstin -- Co-Founder & CEO of MiTu -- the leading Latino creator-focused MCN that just recently announced a $15 million round of financing;

Amanda Taylor -- Founder & CEO of DanceOn -- the leading multi-platform dance-focused company that counts Nigel Lythgoe (founder of American Idol & Dancing with the Stars) and Madonna, as well as major media company AMC Entertainment;

Allen DeBevoise -- Co-Founder & Chairman of Machinima -- the leading young male focused MCN; Allen serves on the boards of several A-list MCNs, including StyleHaul, DanceOn, MiTu, and IndMusic;

Sanjay Sharma -- President & COO of All Def Digital -- which is urban-focused, backed by Russell Simmons and closed a $5 million Series A round last year;

Reza Izad -- Co-Founder & CEO of Collective Digital Studio -- a major MCN that received a major strategic investment from European mega-media company ProSieben last year and counts billions of views per month.

Marvin Scott Jarrett -- Co-Founder & CEO of Popular -- a new young female-focused MCN that launches March 15; he previously created iconic mega-creative and visual media brands Nylon and Raygun;

Of course, I will ask the panel how both they and video creators make money.  But, I will also ask each of them started, why they chose their particular focus, how they amassed their initial critical mass of content, and what was their particular tipping point.  I will also ask them to justify the mega-price-tags fetched by other leading MCNs last year (e.g., Disney buying Maker Studios for a deal that could value the company up to nearly $1 billion) and how they see MCNs evolving in 2015 and beyond.

Should be a good one.  Tomorrow, Wednesday, 12:40 - 1:20 pm.  See you there.

MCN Whistle Sports Scores $7 Million from BSKYB -- Here’s Why

Truly, the MCN world doesn’t sleep -- we are seeing a constant barrage of major strategic developments in the world of short-form video and mobile/digital-first strategies.

The latest data point?  Leading sports-focused MCN Whistle Sports -- still early in its first quarter (it only launched this past January) -- just received another $7 million investment from UK-based broadcasting giant BSKYB.  And, expect more significant sums coming soon to Whistle Sports -- which I just recently profiled the company and interviewed CEO John West here on my blog -- as part of its still-open Series B round.  This news follows Variety’s report just in the past couple days that Luxembourg-based RTL Group has acquired fashion-focused MCN StyleHaul.

Ahh yes, the growing internationalism of MCNs.  It ain’t just for U.S.-based media companies anymore (let’s not forget German-based media giant ProSieben's major investment in Collective Digital Studio and own Euro-based Studio71 which now aims to expand across the pond to the U.S.).  And, the rationale in this case is clear (just as it is in the case of StyleHaul).  Language is rarely a barrier in sports content, meaning that sports (just like fashion) travels well.  And, BSKYB -- already heavily and long-invested in sports -- can help to accelerate Whistle Sports’ international expansion (while it itself begins to play more aggressively in the mobile and digital-first content world, just as all other major “traditional” media companies need to be).  The Whistle -- which essentially is a digital and mobile-first ESPN for millennials, by millennials -- had just recently opened a London office.

Whistle Sports now scores 8+ million subscribers and 1.25+ billion video views, despite the fact that it is still early in its game.  That means that its growth is impressive.  And, BSKYB’s investment brings the company’s overall investment to $25 million from long-time media giant Bob Pittman and others.

I know Whistle Sports well -- and am proud to count it as a client and congratulate them on yet another major strategic victory.  I was first drawn to this MCN due to its impressive list of partnerships with virtually all major U.S. sports leagues, including the NFL and the MLB.  Being a deal guy, I know that finalizing deals with major players like those notoriously challenging and complex organizations are no small feat.  That reflects a highly talented and experienced executive team, led by CEO John West whom I have come to know.  And, impressive they are.

Whistle Sports -- always high on my MCN “hit list” for major strategic moves (others include StyleHaul (gone), Mitu Networks and DanceOn).  Not M&A yet.  No need to go deep when you have a team like BSKYB helping you to rush your international play-book ahead to an eventual major liquidity victory.

For Silicon Valley VCs -- LA Finally Matters! Oculus Rift & Maker

LA-based content-driven digital media investment is the new super-hero of the VC world!

LA’s venture and startup/Silicon Beach community needed a big digital media “win.”  And, it got it with Disney’s $500-$950 million mega-deal with leading MCN (multi-channel network) Maker Studios.  This was followed up in rapid succession by Facebooks’s acquisition of SoCal-based pioneering "tech meets content" company Oculus Rift for $2 billion.

Not surprisingly (in fact, as expected), now even the tech-centric (and nearly universally skeptical) VC world of Silicon Valley has taken notice in meaningful numbers.  I have confirmed this with several leading national tech and VC-savvy journalists.  You see, big numbers mean big eyeballs searching for the next big opp (and these are massive numbers).  Now many non-believers of LA-based investment/startups have converted.

As they should ....

As just one example, significant VC returns on the LA-based content-driven investment world of MCNs show no signs of abating.  First, last year, DreamWorks picks up AwesomenessTV.  Then, Disney lays down big big cash for Maker.  Then, in rapid succession, AwesomenessTV becomes the sensei and picks up Big Frame.  And, we ain’t done yet.  As I recently said in Variety before the Big Frame deal, “MCNs are now top-of-mind for all the major studios.  There certainly will be a flurry of M&A activity in the next 12-18 months.”  In a later blog post, I even identified and discussed in detail several MCNs that are “ripe” for the picking (adding Latino-focused MiTu Networks later to my list -- and now also add Collective Digital Studio to that list).  I wrote a guest article in Variety that lays out the reasons that MCNs matter to major media and entertainment companies -- outlining the rationale for Disney’s massive cash commitment.  Won’t repeat those here.

Why am I bullish in LA-based content-driven digital media investment opportunities, and why do I believe that Northern California investors will now begin to focus real significant resources on such SoCal/Silicon Beach investments?   Check out my recent interview in TechCrunch in which I lay out my overall belief set that we are in a new golden age of content -- SoCal’s and Hollywood’s creative community empowered and enabled by Northern California technology.

Silicon Valley finally meeting Silicon Beach.  In other words, the long-awaited world of real meaningful convergence.  Oculus Rift is a perfect example of this.

The LA digital media/tech scene is vibrant, and that energy and innovation feeds on itself to attract (and keep) more entrepreneurs which, in turn, generates more energy and innovation.  Oculus Rift’s and Maker Studios’ mega-wins also finally underscore that “it” can, in fact, happen here -- which, again, attracts (and keeps) more entrepreneurs.

And attracting more venture capitalists ... who, in turn, tell two friends ... and so on ... and so on ....  Good to Great’s beloved “Flywheel Effect.”

LA’s/SoCal's long awaited tipping point?