Why MCNs Are The Worst Deal In Town For Hollywood [EDITORIAL]

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Maker Studios was apparently created by KassemG, Lisa Nova, Shay Carl, Ben Donovan and a very confused caveman.

Want to see Hollywood logic in action? Check out the list (below) of multi-channel networks that have been bought or heavily invested in with Hollywood money. It’s an impressive group and comprehensive too — as only a few of the MCNs that exist remain independent (such as The Young Turks Network). Hollywood clearly wants in the YouTube business, and with good reason: YouTube is fast becoming a cash/cultural behemoth. It’s quickly replacing television as the entertainment medium of choice for young people; it’s taking television’s ad revenue away; and it’s launched several superstars for the key youth demographic (Justin Bieber, Austin Mahone, The Annoying Orange). But while Hollywood isn’t wrong to want to be in YouTube, it’s arguably chosen the worst way to get involved: MCNs.

Right now, several media companies are vying for Fullscreen — the biggest MCN of what’s left on the playing field. Key players vying for ownership of the company include Relativity Media, Yahoo and Time Warner. Sure, Fullscreen is a pretty-looking acquisition — they just signed Grace Helbig, and their roster of clients includes DevinSuperTramp and The Fine Bros. Investor Peter Chernin has been involved with Fullscreen since its inception in 2011, and he sits on the Board for American Express and tried to buy Hulu last year for $500 million. Clearly there are some sharp minds with lots of money involved on both sides of the negotiating tables — so why can’t any of them see that MCNs are a terrible investment?

Granted, from the stance of the MCN CEOs, multi-channel networks have been a brilliant business plan: 1. bundle creators together, 2. take a slice of the pie 3. sell to Hollywood for millions of dollars. And yet, what are they selling? Air. They are selling a collection of temporary contracts in a medium with no proven long term track record of value. The old content owned by the MCNs hasn’t been shown to have any value, YouTube and its success is so transitory no one can predict who is going to be relevant in two years’ time, and as news site Videoter points out: “Although the company (Fullscreen) reported between $50 million and $70 million in revenue last year, like most MCNs the company is not profitable.”

It’s an industry that is losing money year in and year out. And yet, Hollywood wants in — bad.

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So what’s the deal? Surely they can see something the rest of us can’t, right? Some idiot on NewMediaRockstars can’t possibly have the inside line on what a bad deal MCNs are, right? Tell that to Fox when they bought MySpace in 2005. NMR predicted back then that the company would go belly up — okay, full disclosure: NMR wasn’t around to make this prediction, but I was — and I did … ask my little brother. If you want me to go out on another limb: Twitter will never be profitable. But that’s a different article.

Yes, the counterpoint to all this is that it’s shadowy territory to speculate in new media holdings — after all, Google now looks pretty smart for nabbing YouTube when they did. But YouTube collectively is very different than its various parts — YouTube sustains itself because it has an incredibly vast array of content that provides a penny here, a penny there. And it all adds up. Yes, some big channels do much better than those odd pennies — and many of them are owned by MCNs, but the problem is that the populations of steady creators are too diverse and too fleeting to be controlled by such a diverse array of MCNs. YouTube gets a piece of everything; MCNs only get a piece of what is theirs. It’s the same issue that makes talent agencies such bad investments (not that Hollywood companies can own those anymore, but they used to). MCNs are nothing but a collection of contracts, and sooner or later, all contracts run out.

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Not to beat a horse that is mostly dead already, but look at the former powerhouse Machinima. They used to be the number one MCN in town — three years ago they would have been the MCN courted by Disney and Relativity Media. But Hollywood came unfashionably late to this party (as it often does), and even with Warner Bros.’ $18 million patch job, it’s clearly nothing more than lipstick on that proverbial pig. I expect that someone will be putting a toe tag on Machinima in the next two years. Sad but true.

As YouTubers increasingly realize that they hold all the power and the MCNs actually have very little power — what can MCNs offer major YouTubers that they can’t do themselves? Frankly, I was surprised that Grace signed with another MCN after leaving Omnivision (formerly My Damn Channel), but I am guessing her metrics took a hit once she had to leave the “Daily Grace” name behind and she panicked a little bit.

But once you hit a certain level of acclaim, you don’t need MCNs to promote you, you promote yourself just fine. If anything, their presence and public image holds YouTubers back from being as creative as they might want to be. You can see how that’s a troubling business model — enabling your your biggest clients to leave you once they become profit machines.

Don’t take this as some naive bashing of MCNs — it’s not. Honestly they were great in their time. Once, we had YouTubers who didn’t know anything but making videos. Multi-channel networks provided support, collaboration opportunities, branding, ad deals — a ton of valuable stuff. But modern YouTubers are savvier than those old YouTubers. The ones who get up to MCN-awareness levels of success now typically know about branding and channel metrics and managing their public personality. And the ones who don’t, typically don’t last long.

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I don’t have answers for why Hollywood wants MCNs — it really might be as simple as they see buying them as their easiest path into YouTube access. Why go to the lengths of creating new celebrities when you can just handpick the one ones that make themselves? Of course, do you remember a few paragraphs back when I said Hollywood use to own its talent agencies? That was true, all their talent used to be held in house — but then four star performers — Charlie Chaplin, Mary Pickford, Douglas Fairbanks jr. and D.W. Griffiths — jumped out and started making their own contracts, which initiated the end of the studios’ ability to “own” talent. Now it’s against the law for them to do so what with anti-trust laws first established in 1948 ruling them unconstitutional. We already saw a variation of the “United Artists gambit” lead to the major MCNs in the first place with Maker Studios being started by Shay Carl, KassemG, Danny Zappin, Lisa Nova and Ben Donovan. Now with the studios coming back in charge of the talent, it should probably be about time for someone to start grumbling about anti-trust laws again.

Share to keep aware: Friends don’t let friends make bad investments

Here are some other MCN-centric tales: 

Does Fullscreen Have The Biggest Subscriber Base of All MCNs?

YouTube and Major MCNs About To Smash Heads Over Branding, Ad Revenues?

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