Multi-Channel Network Mania: The Questions That Come Next

Disney’s $500 million acquisition of Maker Studios is the latest (and biggest) deal bringing together the new-school world of multi-channel networks (MCNs) and the old-school traditional media world.

Earlier in the same month, Warner Brothers led an $18 million financing round in Machinima, and both come on the heels of DreamWorks buying AwesomenessTV last year for a reported $117 million. (And now AwesomenessTV has itself bought MCN Big Frame for $15 million.)

And now come the barrage of what’s-it-all-mean questions. Here are a few of the most common, and what we think are the right answers:

What Are These Companies Going to Do With These MCNs?

Most likely the short-term answer to that question is…nothing. I’d expect Disney and the others to stay at arm’s length for the time being and get to know the ins and outs of the MCN world from their newly found insider status. All the due diligence in the world can’t prepare a company for the day-to-day reality of running a business in a post-acquisition world. But eventually something is going to happen. I see two parallel tracks that will likely happen next.

First, the traditional outlets doing the acquiring will use their newly bought assets to move their content into new platforms. Traditional TV content companies have little experience in distributing content to new consumption platforms like mobile, tablet, connected TVs, and even the Web. MCNs, meanwhile, live and breathe on these new platforms, and as such can give their new corporate overlords newfound reach and legitimacy in the space.

Second, in addition to pushing content into the MCN stream, the new owners will start pulling content out of it as well. MCNs might bring in some ad dollars and eyeballs, but TV is still where the bucks are made. Mining MCNs for content ripe for elevating to more traditional TV formats is another opportunity

Who’s Next?

Now the speculation starts over who’s next on the block. Well, not all MCNs are created equal. To help narrow down the guesswork, there are some specific traits an MCN must have to be considered legitimate acquisition fodder.

First is a healthy balance between the cost of content creation versus the return on advertising. MCNs are good at creating viral and interesting content, but to date have proven less good at monetizing it. The traditional TV ownership may have some better ideas on the money side, so long as the cost of the content isn’t too onerous. Look for MCNs consistently generating 100,000 to 1 million views.

Second is an off-YouTube strategy. Maker was certainly built on the back of YouTube, but in the run-up to its acquisition was pursuing other channels for its content. This includes an aggressive mobile app strategy that turned its most popular shows into dedicated apps, as well as its acquisition of Blip.tv. Show me a popular MCN drawing a decent audience with cheap-to-produce content and distribution beyond YouTube, and I’ll bet there’s a media company searching for its wallet.

What’s This Mean for YouTube?

As much as these acquisitions are framed as a validation of the YouTube ecosystem, they’re equally an indictment as well. Every story points to the traffic and audience each company was able to draw, but shortly after also noted their respective financial struggles. Simply put, none of the MCNs involved in deals to date have had much luck monetizing their content via YouTube’s ad network. But monetizing ad inventory is what the TV guys do, so expect to see some old-school-meets-new-school integrations here. Exactly where this monetization takes place (on or off YouTube) is the big question.

Who Wins?

There are several winners coming out of this. First are the MCNs, who with valuations like $500 million now being tossed around, now have some validation of their market, even if most of it is only potential. These deals legitimize the existence of MCNs and give investors more hope in funding the next one with knowledge that an exit is possible if done right.

Second is the new advertising landscape. While MCNs have not yet been able to fully realize their ad-revenue potential, the types of advertising we can expect to see out of these deals are decidedly new generation models: mobile, programmatic buying, ad mediation, native advertising, etc. These are new tools given to proven ad veterans with the content and audience to back them up. I’m expecting some exciting new things ahead as a result.

Finally, the viewer wins. At least I hope. So long as the acquiring firms don’t screw around with the formula that made the content coming out of these MCNs a success with their monetizing plans, more money could mean even better, slicker, and more sophisticated content to enjoy by all on a range of devices. As a viewer, that’s an exciting possibility.