Spoiler alert: MCNs don’t exist. They are a figure of your imagination.
20 months ago we sold Maker Studios to Disney for $500 million in cash plus a large earn out. From the day after we sold the company until today I felt it was important that I not comment too much publicly about online video even though I continued to work actively in the sector and made five more investments. I figured I owed it to both Disney and to Maker not to state views that could be construed as their views during a period where I was still involved.
The initial period of the agreement has ended so I wanted to get back to talking about online video.
There is a terminology that I really fucking hate because it’s both pervasive and meaningless. MCN. Multi-Channel-Network. What does that even mean? Who came up with this term and why? And why does every investor who talks about online video say things like “We don’t want to invest in MCNs” as though anybody even knows what one is?
Nobody invests in MCNs because they don’t exist and anybody doing what investors *think* an MCN actually is would never be able to raise money or build an interesting business. The reason is that most people equate MCN with “YouTube aggregators” meaning people who sign up video creators, roll them up into a single content management system and then collect advertising revenue from YouTube.
This is dumb because you really are nothing more than a temporary ad network if you do this and usually one who delivers almost no value. YouTube aggregation isn’t a business. It can’t be funded. It has low margins and no sustainability. I wrote about the economics of online video and pointed out that only 17.
I live in LA and fund startups. So you can imagine that I see a lot of video startups. Most will fail.
I repeat the same mantra to every one I see.
“You can’t build a large online video company. You have to build a large online tech company that distributes video.”
I try to explain this to every team I see and I’m not being flippant. What most people never understood about Maker Studios is that much of their growth came through technology innovation and advantages on our back-end the most people didn’t even know about. There’s a reason that Maker pulled away while most online video companies did not. And it’s not about aggregating traffic better.
Online technology company that distributes video.
I have seen every form of former Discovery or Nat Geo producer who has access to a few famous people with whom they will partner and create online videos. They will partner with every producer of online video software. In my mind they are building the same business as their offline counterparts just with lower CPMs and margins.
I’ve written before about
Update: Bothsides TV is now available on iTunes, Soundcloud, Stitcher, or any RSS podcast player you use, and don’t forget to subscribe on YouTube. I also added a little Soundcloud widget on the sidebar (if you’re viewing on web – not on mobile or RSS reader) that you can listen to each episode with.
In the most recent episode, I interviewed Joe Perez, Founder of Tastemade. If you don’t know Joe, you should. He has a long career in developing products and companies (such as Pogo, Excite@Home, Demand Media, The Daily Plate and now TasteMade) discussed much about his career choices and lessons.
Yesterday MiTú Networks announced that Upfront Ventures led a $10 million financing in what is now the largest producer of Latino online videos – primarily driven through YouTube.
As you may know we co-lead the first round of financing of Maker Studios, the largest overall producer for online video content, along with Greycroft Partners. I was an early and tireless advocate for the growth of the Internet video ecosystem and as virtually every article I wrote made clear I believe the 800-pound-gorilla is YouTube and will remain so for the foreseeable future. If you want to build a strong online video business it almost certainly must make YouTube an important part of the strategy.
Last year at this time
In my last post I pointed out that many of the media commentators who have criticized the YouTube video network companies as not having strong businesses were mistaken.
The main thrust of the post is that with YouTube taking a 45% of revenue and talent taking 70% of the remaining revenue, YouTube Networks didn’t have sustainable businesses unless they invested heavily in technology as a tool to increase margin and provide defensibility.
This post looks at how the best in industry are moving well beyond the 16.5% margin range to more sustainable 50-60% margin businesses.
The best “MCNs” are in fact building strong technology businesses with rapid growth and strong, defensible assets.
[To be clear before I start (since people now starting to misquote me) … I DO believe in building most of your business on YouTube. I hope that was clear in my previous post and this one.
For much of 2013 I watched the press write articles about how the YouTube “MCNs” (multi-channel networks) were doomed and tried to square that with the data I was watching at the one I invested in, Maker Studios, who has had one hell of a year.
Maker announced it has raised $62 million this year, acquired an amazing off-YouTube distribution network and grown its business in monetary terms by almost 300% year-over-year off of an already large base.
Along with Greycroft Partners we were the first investors in Maker Studios 3 years ago when the company had no revenue and limited infrastructure. With so much misinformation about YouTube networks in the press over the past 6 months I thought I’d use this opportunity to tell you about what my belief was about that market 3 years ago, how that has evolved and why I believe online video is set to continue to revolutionize the video industry at a more rapid pace than even the past three years.
So can you successfully build a YouTube network?