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 ....]

Media Companies v. 2015: Smartphone-Powered, Digital First

[My post here originally appeared as a guest article in Digiday a few days back; I have updated it to reflect the new $24 million investment in gamer-focused MCN Machinima led by Warner Bros.]

That smartphone in your pocket.  Small form factor.  Massive impact.  That tiny screen is fundamentally transforming (disrupting?) each of our lives, including how we engage with content (movies and television).  That means fundamental transformation of the media and entertainment business right here, right now – with tens of billions of dollars at stake – yet very few media execs “get” this.  This changes in 2015.

A whole new class of mobile-driven digital-first media companies sprouted and blossomed in 2014 – so-called multi-channel networks (MCNs).  MCNs most typically are venture-backed start-ups that aggregate individual YouTube personalities and channels -- frequently for specific niche passionate audiences (think fashion and leading MCN StyleHaul) -- in order to achieve scale, fund video production, and maximize ad dollars.  Sounds benign enough, right, especially when their impact is marginalized by the almost-dismissive and somewhat-faddish acronym “MCN.” 

But, make no mistake, MCNs are media companies with transformative impact.  They simply are a new kind of media company.  Digital-first media companies.  These are media companies by millennials, for millennials.  And, while they do not supplant “traditional” media companies, they most definitely are a necessary extension of them in this new multi-platform media world.  After all, mobile is where the youthful eyeballs that “matter” (at least to marketers) now consume the majority of their video content.

That’s why Disney – the largest traditional media company of them all – slapped down up to nearly $1 billion last year to buy one of the largest MCNs -- Maker Studios.  As vast as its resources are (and the Mouse House certainly has plenty of cheese), Disney had the commendable self-awareness to recognize that it lacked the DNA to play effectively in the smartphone-driven, short-form video, millennial world – a world that demands a very different way of thinking about content development and engagement.  Rather than build it themselves, they bought that expertise and critical mass of short-form content (and the personalities behind them).  They paid up to double down on the MCN world, which was excellent news not only for Maker’s investors, but also for other leading MCNs and the investors behind them. 

Other major studios – and perhaps even technology companies like Apple, Samsung, and Amazon, whose divergent business models increasingly are content-driven – will follow suit in 2015.  This is a classic case where demand for MCNs with scale outstrips supply.  After all, content is increasingly king, and that means big numbers.  Last year, in addition to the near-$1 billion Disney/Maker deal, Otter Media (the joint venture between AT&T and The Chernin Group) paid a rumored $200-$300 million to buy competing MCN Fullscreen, and European-based media company RTL Group recently sewed up fashion-focused MCN StyleHaul for a price that values the company up to $200 million with earn-outs.

These are numbers that make even Northern California VCs – ever-cynical about all things content-driven (especially when they are driven in LA where most leading MCNS are based) – take notice.  They have smartly started to pour tens of millions of dollars into video-driven new media companies.  Case in point, BuzzFeed.  Blue-chipper Andreessen Horowitz invested $50 million to accelerate smartphone-targeted digital-first video production.  And, the accelerating pace of foreign-driven M&A (like RTL with StyleHaul) and investment (like BSKYB and Liberty Global’s recently announced $28 million investment with others in sports-focused MCN Whistle Sports) underscores that this sea change in the media business is not just a U.S. phenomenon.  Digital-first content is borderless and globally shareable.  We live in a new world order of digital media.

Brands too are finally taking notice and fundamentally changing their behavior.  They understand that smartphones – and the millennials who hold them – demand a different and deeper form of engagement.  Pre-roll and pop-up ads simply don’t work anymore.  Millennials demand “authenticity,” a word that is a fundamental part of the new digital-first lexicon.  You hear that word – and the resulting marketing solution of “branded” or “integrated” content -- everywhere.  While that notion certainly is not completely new to marketers as we enter 2015, what is new is that for the first time, they will shift significant marketing dollars away from traditional media to more engaging and measurable digital platforms. 

Yes, there will be blood as digital begins to cannibalize traditional ad spends.  That’s why we have seen an accelerating pace of ad-tech company exits like increasingly video-focused Facebook’s reported $400-$500 million buy of LiveRail and Yahoo!’s recent $640 million acquisition of BrightRoll. 

But it doesn’t end there.  Several brands will go even further and invest big to become millennial-driven, digital-first MCN-like media companies themselves.  Red Bull is the poster child here, aggressively developing and aggregating its own video content for digital consumption whenever, wherever.  GoPro, Marriott, and Pepsi also have proudly announced such ambitions.  Make no mistake.  We are not just talking advertising and marketing here.  We are talking whole new media businesses for brands, bringing them head-on against both studios and other MCNs.  Red Bull, in fact, operates its “Media House” studio as a separate P&L and is measured by its stand-alone success.

Those who listened closely in 2014 heard (and internalized) these smartphone-driven digital-first media transformational winds of change.  So, listen closely now.  Do you hear it?  Yes, that is the “whoosh” of massive mounds of money changing hands all around the video ecosystem.  Just last week, Warner Bros. led an additional $24 million round in gamer-focused Machinima -- and a few weeks before that, BSKYB and Liberty Global formally announced their $28 million Series B round with others in Whistle Sports – a double-barreled MCN big bang to start the year.

In the immortal words of Karen Carpenter (how ‘bout that for a deep reference?), “We’ve only just begun …”.

StyleHauls It In from Euro-Based RTL Group -- Here’s Why

The MCN world rests for no one.  While the LA-based digital media world was readying itself for the weekend this past Friday (and I served as Best Man at a mega-wedding for my best friend of 45 years, Chad Hummel -- with whom I work at Manatt), Luxembourg-based RTL Group reportedly swooped in to buy leading fashion and beauty-focused MCN StyleHaul (I just recently exclusively profiled StyleHaul and its charismatic CEO Stephanie Horbaczewski here on my blog).  Terms undisclosed (although I am confident that the final price-tag is well north of $100 million).

No surprises here, apart from the unusual timing of the breaking news.  RTL already owned a minority stake in StyleHaul, previously investing $6 million.  And, Stephanie’s company has long been thought to be in M&A “play” (although US-based media companies were rumored to be the leading candidates in those reports).  In fact, just last week I moderated a panel at the Variety Summit in LA focused on the fast-breaking digital world -- and predicted on the record that StyleHaul would be the next leading MCN to be gobbled up (just in time for the Thanksgiving season -- ladies and gentlemen, how about THAT at 5 am!) (I repeated this prediction on Friday in an interview with the Los Angeles Business Journal that was just published this morning).  In the past few months alone, Disney buys Maker Studios.  Next, AwesomenessTV buys Big Frame.  Then, Otter Media buys Fullscreen.  And, now this.

Why StyleHaul specifically and MCNs in general?

(1) RTL already knows the company and its management team, since it already had been a major investor and board member;

(2) The fashion and beauty vertical market travels well -- style truly is international and speaks no language and this MCN’s 199 million network subscribers are truly global, which is perfect for an international company like RTL Group;

(3) Fashion and beauty products sell!  And, that makes StyleHaul’s business model somewhat unique amongst MCNs, enabling commerce to be a potential significant (and perhaps dominant) video-fueled revenue stream for the company (in addition to more typical ad revenues and sponsored/branded content opportunities); and remember, StyleHaul need not split any of commerce revenues with YouTube;

(4) StyleHaul is one of the largest and fastest-growing vertically-focused MCNs with over 17 billion network video views and 4,900 network channels; that’s a lot of content;

(5) MCNs in general have sprung up as a result of two primary realities: (1) our video world is increasingly (dominantly?) mobile -- and that means consumers are increasingly thirsty for the kind of short-form video content that is the MCN world’s specialty; and (2) those mobile-thirsty consumers are heavily the advertiser-coveted millennials who frequently forego traditional video programming in favor of the YouTube economy and non-traditional YouTube video “celebrities”; I have written about this reality over and over again.

Congratulations to Stephanie and her team.

And, we ain’t finished yet.  More vertically-focused MCNs will be swallowed up in the near-term.  Here are my previous predictions (which ain’t bad so far -- 2 of the 7 are now gone; so check out the 5 remaining).

ESPN, the New YouTube for Brands? Welcome to The Age of Lifestyle Media Companies

ESPN is not just for us couch potatoes anymore.  It is now a home for those selling those very potatoes from which the chips-we-eat-as-we-watch are made -- i.e., major consumer brands.  Huh?  What?

Here’s the story.  ESPN just announced -- nay, invited -- major brands to develop programming for their distribution platform, initially focusing on its TV Everywhere app.  Not commercials.  Not ads.  Not traditional sponsorships.  Actual entertainment programming.  Engaging video.  Case in point -- major media company, Dick’s Sporting Goods (well, perhaps not “major” yet, but possibly with major aspirations to become one some day -- Marriott anyone?) developed the documentary series “Hell Week” for ESPN.

Pause and chew on that for a moment.  Dick’s didn’t go to YouTube first with its videos -- historically, the standard path for brand-backed videos.  It went to ESPN first.  And, it paid ESPN for that privilege.  That is precisely ESPN’s goal -- to become the first choice for major brands to produce original, differentiated and compelling programming for its audience.  Outside the YouTube ecosystem.  And, here’s the beauty of it -- not only does ESPN get compelling (hopefully) new programming developed on someone else’s dime, they also get paid by that content creator (in this case, Dick’s) for that privilege AND ... wait for it ... ESPN also gets to run their traditional ads against that programming which pay yet again.  That is some Trifecta!  Kudos to you ESPN!

ESPN is not alone in its goal of being “the first choice” over YouTube for video creators, including brands.  This “divorce” from YouTube -- perhaps not a complete divorce, but at least a trial separation -- is a persistent theme in digital media circles these days.  Content creators of all stripes increasingly loudly express dismay (that’s a soft way of putting it for some) over YouTube’s 55/45 revenue split to creators.  The result is a burgeoning number of YouTube alternative platforms that promise better times for those video creators who enter their world first.  Think big OTT guns like Netflix and Amazon.  Think old stalwarts like Yahoo!, Comcast and Xbox.  Think major MCNs like Disney-fied Maker Studios, Otter-ized Fullscreen and hot young MCN Whistle Sports (which bills itself as a new kind of ESPN for millennials).  And, think newbies like Vessel and Zealot Networks.  Something is most definitely in the air ... on the air?  Yes, in more places than ever before.  High times indeed for the creative community.

Which brings us back to Dick’s.  Dick’s is not alone.  Marriott, as glibly noted above, just recently busted a move (reference, too dated?).  Pepsi just made major “noises” to that effect.  Starbuck’s.  And an increasing list of “others” all trying to pull a Red Bull and smartly transform themselves into lifestyle media companies that are significantly more interesting -- and engaging -- to consumers (especially to the coveted mobile-savvy millennial).

In any event, ESPN’s bold move is not to be denied.  Or overlooked.  It is yet another major data point demonstrating that brands increasingly see (or strategically want others to see) themselves as becoming media companies.  My business team and I at Manatt Digital Media see this directly.  We have already guided brands in this kind of media morphology.  We just recently finished a media transformation engagement for a respected beauty brand.  

This is real.  It is not fashion or fad.  And it is accelerating ...

Brands -- grab your lifestyles now while they last!  And, become storytellers, not just marketeers ...

LA - The Epicenter of Digital Media/Tech Innovation

Virtually every week -- everywhere you look -- investors are pouring boatloads of money into content-focused digital media and tech companies.  The latest examples?  Otter Media’s acquisition of leading multi-channel network (MCN) Fullscreen for a deal reported to value the company up to $300 million -- and Corus Entertainment’s lead position in a new $12 million investment in women’s-focused MCN Kin Community.  And it’s not just the usual suspects like studios playing this game.  Major brands like Marriott and previously pure leading NorCal tech-focused VCs like Andreessen Horowitz have entered the fray.  For content-first digital media companies, 2014 is as easy (and rightfully so!) as 1-2-3: (1) Disney’s earlier acquisition of MCN Maker Studios for up to nearly $1 billion; (2) Facebook’s $2 billion acquisition of virtual reality Oculus Rift; and (3) Apple’s $3 billion acquisition of Beats and Beats Music.  And, let’s not forget all of the other hundreds of millions of dollars of venture capital and strategic investment into the MCN space alone (here is my overall “cheat sheet” that summarizes all of these deals).

I was speaking with my wife, Luisa, about all of this as I drove from one meeting with a digital pioneer in this brave new media world (Kin Community’s founder/CEO Michael Wayne) to another (Pluto.tv’s CEO Tom Ryan).  I expressed my excitement about what I absolutely believe is a seminal and transformational moment-in-time for the media business.  I marveled at the sheer entrepreneurial energy and innovation that Los Angeles and SoCal in general is exuding right now.  For me, someone who has been immersed in the media/tech space for 25 years, these are uniquely exciting times.

You see, I like to get down in the streets -- down in the trenches with those entrepreneurs and where that innovation is happening.  I like to visit them in their company offices.  To “feel” how they feel.  To see their teams in action.  And, after scores of meetings, I am absolutely convinced that we will look back at this year -- 2014 -- as being the point where the long-anticipated promise of the “convergence” of media and tech became a mainstream reality.  Where NorCal investment finally met SoCal content-driven opportunities.  When content finally was understood to be king again -- precisely because of new technology that enables the creation of new experiences, new ways to distribute those experiences, and new ways to engage with and in those experiences.

This is a new golden age of content.  Plain and simple.  A sentiment I voiced earlier this year when interviewed by none other than tech-focused pub TechCrunch.  It is not content divorced from tech.  Not at all.  It is content fueled by it.  It is creativity on a mass scale that involves both the left brain and right brain.

And its epicenter is LA.

As I continued speaking with my wife on my 5 mile “should have been 10 minute but instead was 30 minute" drive, we ruminated about our own kids living in these times.  About how much fun they would have as young people raised in this digital world -- and able to participate in it as more than consumers.  As entrepreneurs themselves, if they so wish.  For now, they are a bit young (15 and 12, respectively).  But, for other media and tech-hungry millennials, now is a time to harness your passions and fully immerse yourselves in this fully immersive Oculus world.  Hundreds (thousands?) of entrepreneurial opportunities and jobs are being birthed amidst all of this investment.  They are there for you here and now.  Fullscreen, Maker Studios, StyleHaul, DanceOn, Mitu Networks, Kin Community, Tastemade, Collective Digital Studio, Vice Media, Jukin’ Media, Woven Digital, Pluto.tv, ZEFR, NeonGrid, Otter Media, The Chernin Group, AwesomenessTV, Everdream, Eversport, Fanbread, Ninja Metrics, VideoInk, Media Hound, Atom Factory -- and, yes, Manatt Digital Media.  These are just some of the places where innovation is happening.  In beautiful open spaced offices -- where the possibilities themselves are wide open.

Yes, Silicon Valley remains a hotbed of innovation and opportunity.  But, Silicon Beach is now where entrepreneurial energy and innovation have reached a fever-pitch.

Go West young talented and passionate digital media/tech entrepreneur!  Southwest, that is ....

Cut This! (The Cable Bundle, NOT The Cord ...)

Welcome to the great unbundling.

2014 is a transformative year for the media business.  We will look back several years from now and fully realize this.  So, internalize that now.

First, anyone who reads my blog knows that we are in the midst of MCN fever.  Not a fad.  But a fever.  A fever justified by the onset of a new world order -- the rapid ascension of millennial mobile video consumption and engagement which, in turn, accelerates the need for (and fuels the development of) compelling premium short form video optimized for that platform.  That means a growing need for media companies successful playing in that world.  And that means the growing importance of MCNs, which explains 2014’s accelerating pace of MCN M&A.  The latest and greatest example, of course, is this past Monday’s Fullscreen/Otter Media mega-deal (here are my predictions of which MCNs may be next).

But, there’s much much more in 2014, particularly in this remarkable month of September.  This month marks THE moment in time at which previously sacred traditional cable/satellite programming bundles -- and the decades old business models behind them -- came under serious fire by concrete actions (rather than talk) amidst this accelerating mobile and OTT video reality (and the consumers -- especially millennials -- behind it).  Yes, there has long been such talk.  But, this month there has been real disruptive action.

AT&T -- no longer your father’s AT&T with all of its remarkable digital moves in 2014 (including its acquisition of MCN Fullscreen noted above via its $500 million Otter Media joint venture with The Chernin Group) -- is leading the charge.  Yes, THAT AT&T.  Earlier this week, AT&T announced its new $39/month U-Verse programming bundle that includes HBO and Amazon Prime video, together with basic cable programming PLUS broadband.  That’s right.  HBO!  Via this new stripped down efficient package, AT&T smartly targets cord cutters (“come on back”) -- and, importantly, the increasing number of “cord nevers” (those, especially young adults, who never entered the fold in the first place due to traditional bundle pricing).  Sure this news got some real press.  But, am not sure it is fully appreciated.  This new bundle is a very big deal.  And, make no mistake, others will rapidly follow suit.

Other cases in point.  Earlier this month, Viacom licensed 22 of its live and VOD premium networks to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  And, in rapid succession, Verizon announced an early 2015 launch for its long-anticipated “virtual” MSO that is so virtual, it is wireless -- specifically designed for mobile.  And, critically, core to its new service, Verizon announced a down-sized “bite-sized” cable-lite programming package that features mobile-friendly MCN AwesomenessTV short form video, in addition to big 4 broadcaster content and NFL games (via its existing exclusive smartphone deal).

When announcing its new service, Verizon Chairman and CEO Lowell McAdam proudly exclaimed the almost unthinkable -- that “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”  And, Verizon’s McAdam was not alone.  CEO Jeff Bewkes of Time Warner emphasized the company’s growing interest in offering HBO Go as a stand-alone OTT service -- absolute heresy ... until now (as I indicated previously).

2014. Transformative times in the annals of the media business.  A time of massive new opportunities for those brave enough to pursue them (and strong enough to withstand the pain of the current disruption).

Otter Media Buys Fullscreen -- Was #1 On My Prediction List Back in April

BREAKING MCN News -- Otter Media (JV between The Chernin Group and AT&T) buys leading MCN Fullscreen at a deal reported to be valued between $200-$300 million.

Back in April, I predicted this.  In fact, Fullscreen was #1 on my MCN “hit” list in my post titled “MCNs -- And Then There Were None ... My Predictions.”

Who’s next?  MCN activity certainly isn’t stopping any time soon ...

Fullscreen Plays With Otter? Must Be True Because They Ditched My Panel!

Leading MCN Fullscreen, long rumored to be in M&A “play” following the Disney/Maker Studios mega-deal, now apparently really is -- this time with AT&T and Chernin Group’s joint venture Otter Media.  The Otter/Fullscreen deal, if it happens, is reported to value the company between $200-$300 million, which is significantly less than the rumored $750 million-ish price-tag a few months back when Relativity Media was reported to be close to paying Maker-like mega-bucks.  If the now-rumored $200-$300 million number holds, perhaps earlier reports were way off.  Or, perhaps, Fullscreen overplayed its hand the first time?  You see, the passage of time is not a friend in M&A for the company that hopes to be bought.  Passing time almost always benefits the buyer, not the buy-ee.  Or, another possibility -- which was voiced to me by a trusted source -- is that maybe, just maybe, Fullscreen really believes that today’s MCN valuations will be considered to be “lows” one to two years from now -- and perhaps this deal (if it happens) would give them the opportunity to let at least a significant amount of their equity ride (while taking some cash off the table).  You see, apparently, this will not be an outright sale; rather, Otter Media is reported to be taking a majority stake in Fullscreen.

In any event, the timing here is funny to me, in a very personal way.  Last week I moderated a high visibility panel at the Siemer Summit that focused on the premium digital video ecosystem.  And, originally, Fullscreen’s COO -- Ezra Cooperstein -- was scheduled to participate.  But, lo and behold -- a few days before, he mysteriously bowed out -- with no real reason given.  Hmm ... deja vu?  The very same thing happened to me a few months back when I moderated an MCN-focused panel at UCLA -- literally just a couple days prior to reports that Disney was in the midst of buying Maker Studios.  Guess who was scheduled to be on that panel -- but also mysteriously bowed out in the days before?  That’s right.  Kevin Mayer -- Head of Strategy for Disney.

Coincidence?  I think not!  I even quipped about this last week when I kicked off my Seimer Summit panel.  One of my first questions naturally focused on the long-rumored sale of Fullscreen -- and why no deal had yet been consummated after all these months.  And, in the process, I joked that some kind of sale must be imminent because Fullscreen was following Disney’s “missing panelist” M.O.  (either that, or my panel moderating skills leave much to be desired).

So, here’s a tip.  If an industry exec is scheduled to participate on a panel, give a speech, or do some other kind of public PR -- and if that person mysteriously bows out the days preceding that event as a result of some undefined last-minute conflict or other ambiguous explanation -- then that person and his/her company are about to be transformed either the good way (M&A, major new gig) or the bad way (termination).

You see, when that seat is empty, the behind-the-scenes PR shenanigans are full.

My Latest Guest Post in Venturebeat -- MCNs, Why the $500M-$1B Exits?

For those who follow my ruminations, you know that I have focused heavily on MCNs and the overall YouTube economy in the past couple months -- mirroring the excitement and activity in that space.

Yesterday, Venturebeat published my MCN-focused guest article titled, “Why Everyone Suddenly Wants a Piece of LA’s Super Hot YouTube Networks” (in which I discuss the recent $500-$950 million Disney/maker mega-deal and near-$1 billion rumblings surrounding leading MCN Fullscreen).  Here is the link.

Later today, I moderate a panel at Streaming Media East in NYC titled, “New Opportunities for Monetizing Premium Video” in which we will discuss MCNs, among other players in the overall multi-platform premium video eco-system.

MCNs Fullscreen & Maker Studios - Why Is $500M to $1Billion the Magic Number? Here’s Why

As I wrote yesterday, it is now widely reported that Relativity Media has made a bid anywhere between $500 Million to $1 Billion to buy leading MCN Fullscreen.  Not surprising, since Fullscreen is also widely reported to have recently hired I-banker Allen & Co. to sort through multiple bids.  All of this, of course, follows fast on the heels of Disney’s recent acquisition of Maker Studios for $500 million with performance payments potentially bringing the deal up to a near-$1 billion price-tags (well, $950 million actually).

Since I follow the MCN space closely, I am frequently asked how these mega-price-tags can be justified.

In a guest piece in Variety a few weeks back, I laid out the strategic rationale for the buyers.  Won’t repeat them all here -- but one that is worth repeating is that scarcity alone, of course, is a price accelerator.  And, Fullscreen, next to Maker Studios, is the largest horizontally-focused MCN with 15,000 plus YouTube channels covering the gamut of subject matter and niche audiences.  So, when you entertain multiple bids (which Fullscreen is reported to be doing here for those reasons), you have the perfect storm for the target company.  That is every entrepreneur’s goal in an M&A process (I know, I have been there).

Certainly, it is not fundamental MCN financial performance and metrics that drive these lofty numbers.  This is not your everyday M&A.  The big fish making these moves are banking on the fact that their much deeper resources and significantly broader platform can unlock value in ways that stand-alone MCNs never could (again, I write more about this in my Variety piece).

Nevertheless, in any M&A process, both the acquiring party and the target company try to use comparable relevant deals (comps) to their advantage to shift numbers up or down.  So, let’s compare some key metrics related to these two deals (assuming the Fullscreen deal closes):

(1) Maker Studios -- 380 million subscribers and 5.5 billion monthly views.

(2) Fullscreen -- 300 million subscribers and 3 billion monthly views.

As is evident, Maker Studios clearly has significantly more “mass” (assuming that all eyeballs are created equal).  So, Fullscreen’s ultimate price-tag should be lower than Maker’s, correct?

Not necessarily Young Skywalker.  Each MCN has its own personality -- or, better said, each MCN has its own roster of unique individual YouTube “celebrity” talent and personalities.  That means that not all MCNs are created equal in the eyes of any specific buyer.  One MCN may be significantly more valuable to that particular buyer than another because it is more simpatico to its underlying vision.

Ultimately, there is no single “right” answer -- or price-tag -- in any specific M&A deal.  It is not a precise science.  Never is.  Never will be.

So, are we in the midst of an MCN bubble?

Only time will tell.  I certainly can understand why many in the digital media business (okay, most) believe we are.  But, let’s not forget one lesson from the past that is perhaps -- just perhaps -- at least a bit relevant to this discussion.  A few years back, there was a little online video company -- not alone in its space -- that was acquired not because of its underlying financials (in fact, the company was hemorrhaging money), but because of its perceived strategic value to the acquiring company.  That little company was YouTube.

Was its $1.6 billion price-tag -- incredulous to many at the time -- justifiable?

You be the judge now ... in hind-sight.  YouTube is THE global video channel, of course.  Nothing comes close.  The entire MCN business is built on top of it.

In this case -- with Fullscreen and Maker Studios -- much of it is so-called premium online video content with real human personalities that is developed and produced with some meaningful resources.  We are not talking dancing cats here.  And many of these individual “channels” have achieved massive viewer numbers.  So, how many blockbuster films by the acquiring companies (Disney, Relativity) -- or syndicated TV shows -- or hit video games -- do you need starring MCN-cultivated talent to justify these numbers?  Not many.  And, let’s not forget that MCNs cater to the coveted Gens Y and Z demographic.  Disney and Relativity (if the deal closes) can, among other things, market and promote their other products (movies, television shows, theme parks, games, merchandise) directly to that audience -- driving potentially massive demand that, in turn, accelerates and expands monetization of those assets.

THAT’s what the buying studios are banking on ...

MCN Fullscreen Bid Reported for $750M - $1B (I Previously Listed As #1 On My Agatha Christie “And Then There Were None” List)

Breaking News - Relativity Media is reported to have made a $750 million to $1 billion bid to acquire leading MCN Fullscreen (after it failed to disrupt the Disney/Maker Studios deal).

No surprise there.  As I wrote just a few days back, my sources told me that Fullscreen was “in play.”  That’s why I listed them #1 in my “MCN’s - Who’s Next?” post.

MCN March Madness has moved through April and now into May.  And, as I have written several times, it shows no signs of abating.  Not many leading MCNs left -- and Fullscreen was one of the few remaining horizontally-focused MCNs with real “mass.”

Expect this deal to close.

And, expect others to follow.

MCNs -- And Then There Were None ... My Predictions

Reading like an Agatha Christie novel, MCNs continue to be picked off one-by-one.  The past month has been a whirlwind of YouTube economy MCN and OTT machinations – March Madness that continued into April and, as expected, shows no signs of abating.  

It all started with Warner Bros. $18 million investment in leading gamer-focused MCN Machinima.  Then continued with Disney’s mega-acquisition of more horizontally focused leading player Maker Studios for up to $950 million (a deal that Relativity Media later hoped to disrupt in this highly disruptive space).   Followed in quick succession by AwesomenessTV’s acquisition of smaller MCN/talent firm Big Frame.  And then with a smattering of sizable strategic MCN investments, including German TV giant ProSieben’s significant investment and stake in Collective Digital Studio and Lionsgate’s strategic partnership with RocketJump.  

And then, in a bold (and, to many, surprising) move, AT&T launches a new $500 million OTT/content-focused venture with The Chernin Group that integrates The Chernin Group’s recent controlling interest in leading anime-focused MCN Crunchyroll (check out this “must read” analysis of the deal by Gigaom’s Janko Roettgers).  Major OTT moves -- by Netflix, AmazonPrime, Yahoo!, AOL (the latter two which are hitting the accelerator to catch up in the space) -- also surface almost daily, underscoring how hot this content-focused premium online video space has become.  It is absolutely prime time.

Who’s next in this mystery in which remaining significant strategic MCNs are disappearing fast and partnering up with major studios and service providers?  Here’s my educated “take" based on conversations in and around the overall digital media ecosystem – including venture capitalists, media executives, bankers, media execs, and the MCN community itself.  At the risk of patting myself on the back (forgive me), I accurately predicted the “action” with Big Frame and Crunchyroll -- so, I’ll revisit these predictions in a few months.  I identified several of these before -- but believe this augmented/updated list is worth repeating in light of continuing developments.  And, one important over-arching theme -- virtually all of these MCNs are vertically (i.e., “niche” content/audience) focused.

FULLSCREEN -- I identify this one first, because a credible source tells me it may be in “play” right now (although, to be clear, that “play” may have been the just-announced AT&T/Chernin deal because The Chernin Group also is a significant investor in Fullscreen).  The company is a known “player” in the space -- somewhat of a cross between Maker Studios (broad-based content) and ZEFR (deep analytics and technology -- see below).  That makes it “different.”  And, different can be good in the right hands.

ZEFR -- while technically not an MCN (although there is no single “right” answer to the question, “what is an MCN?” anyhow), this LA-based company is built on top of YouTube and is hot, hot, hot.  Great technology, great mega-name brand clients.  This company won’t be independent in 12 months tops.

MACHINIMA -- despite the fact that this one just recently closed its major strategic round with Warner Bros., again, it’s only a matter of time here.  This one is obvious.  It is one of the most high profile MCNs, and it caters to the coveted young male demographic.  New CEO Chad Gutstein took the helm less than one month ago -- and most certainly will focus on strategic alternatives.  In the “right” hands, this could be magic.

MITU  -- this MCN has a sizable lead in the Latino market, a vertical that is significantly under-served in the overall YouTube/OTT economy.  No question that big players are mulling this one over in a Crunchyroll kind of way right now.  Specific non-English vertically-focused MCNs -- what Janko Roettgers calls “niche” programming -- make absolute business and consumer sense in our pluralistic society.  I am Hungarian.  If I were fluent, I’d want my full complement of Magyar programming right now!

STYLEHAUL -- this one is vertically-focused on fashion/beauty/lifestyle -- kind of the anti-Machinima demographic.  This company is hot as well, with over 4000 channels and a potentially massive international opportunity.  Lots of very positive buzz here.

DANCEON -- this vertically-focused MCN is the “MTV of dance” and fills an obvious void for that massively under-served market.  DanceOn is hot and growing fast -- very fast -- and is backed by A-list investors, including AMC Networks, Nigel Lythgoe (creator of “American Idol” and “So You Think You Can Dance”), Guy Oseary, and Madonna.  Madonna??!!!  And dance??!!  How can you go wrong?  You can’t!  DanceOn owns this very international category.  This one is also only a matter of time.

THE WHISTLE -- here’s an obvious vertically-focused MCN, which apparently wasn’t obvious to to many, since it just launched in January of this year (but already has millions of subs).  Its sports focus alone makes this one intriguing.  Think of it as the new ESPN for the current ESPN’s kids who want their own experience.  An impressive management team has closed strategic partnerships with virtually all major sports leagues -- a Herculean feat that many, including myself, would believe simply couldn’t be done.  Which makes it doubly Intriguing.

Let’s revisit these predictions on an ongoing basis.  We are still in this book’s early chapters -- and can’t skip to the last page yet.