vEach month, YouTube draws 1 billion unique visitors who watch a combined total of more than 6 billion hours of video. Attracted by this massive user base, which is equal to 40 percent of the worldwide online population, a new breed of company—the multichannel network (MCN)—has emerged in recent years. MCNs aggregate thousands of digital video channels and large communities of content producers, partnering with YouTube to syndicate and monetize their content as well as distributing videos on their own websites. For example, Maker Studios, the largest MCN, has 55,000 channels and more than 5.5 billion video views monthly. About 80 percent of the Maker Studios audience is in the highly desirable 13-to-34 demographic, and half of it originates outside the U.S.
These numbers have captured the attention of major media companies, which are now trying to get in on the action by buying stakes in MCNs or acquiring them outright. In 2013, DreamWorks Animation paid US$117 million to purchase the youth-focused AwesomenessTV. In April 2014, Disney purchased Maker Studios in a deal that could total nearly $1 billion if certain performance milestones are met. And in the autumn of 2014, Otter Media acquired a majority stake in Fullscreen, valuing that MCN at a reported $200 million to $300 million. For established players, these deals all follow a similar strategic logic: Secure a leading content and distribution position in the digital video ecosystem as audiences and advertisers begin to shift online.
However, if these investments are to truly drive growth, media companies will need to rethink their old playbook. The same strategies that drove success in broadcast TV, cable, and film won’t be sufficient to expand, monetize, and integrate MCNs. The following can help large media companies make multichannel networks a growing and profitable part of their portfolios.
- Platform diversification. In general, YouTube is the principal platform used by MCNs, yet thus far, MCNs that depend on YouTube alone have struggled to build a sustainable, stand-alone digital business. Currently, MCNs reportedly share about 45 percent of their revenue with YouTube and pay an additional 35 to 40 percent for creative talent. As a result, MCN margins may lie between 15 and 20 percent, but this arrangement leaves little room for profit, because they also have to invest in technology, marketing, sales, overhead, and so on. So although YouTube will remain a must-have partner for MCNs in the foreseeable future, it shouldn’t remain their only partner. Options include other major digital platforms such as Facebook, Yahoo, and AOL, as well as other digital video services such as Hulu and Netflix. Media companies should also consider building out their MCN’s digital properties under the MCN’s own brands.
- Global expansion. According to a 2013 Nielsen report, some 15 percent of mobile users in Brazil and 17 percent in China watch videos online three times a day. These users in emerging markets will play an ever more important role in driving digital video consumption. Media companies partnering with MCNs should actively pursue these new audiences, even as they continue to grow their positions in the U.S. and Europe. To do so, MCNs should broaden their content offerings to suit markets around the world, especially through mobile video, and focus increasingly on pursuing local partnerships.
- Content creation. Media companies should prioritize investment in more original content, supporting their MCN partners in moving from pure aggregator to aggregator–producer—similar to how Netflix has produced original programming such as the series Orange Is the New Black and House of Cards. The goal is to more cost-effectively create distinctive content that still appeals to younger audiences who are seeking alternatives to traditional video programming. Armed with data from their thousands of online video channels, MCNs can generate insights on what’s working, what’s being viewed, and what’s being shared. Such insights are not typically a strong suit of incumbent media and entertainment companies, which still largely use viewer metrics and programming development processes that lack a digital-first focus.
- Monetization. Advertising dollars are beginning to follow the growth of MCNs. Major buyers like Verizon Wireless and Mondelēz International, for instance, have recently shifted double-digit portions of their television ad budgets to online video. But the focus should not be solely on selling ads. Other opportunities include product placement, sponsored reviews, and B2B partnerships in content production. Finally, licensing and merchandising is emerging as a potentially attractive revenue stream, in which an MCN personality or content brand embeds products or merchandising into the programming, such as Kohl’s move to launch a new juniors fashion line—the S.o. R.a.d. Collection—via a Web video series developed with MCN AwesomenessTV titled Life’s S.o. R.a.d.
Large media companies recognize how important digital video is today and how important it will be tomorrow—and they know that they’ll need new digital capabilities that have thus far eluded them if they are to succeed in the rapidly transforming video ecosystem. Increasingly, they see MCNs as their way in. But the question is whether they, as owners, can support and eventually expand MCNs and their business models so that growth is not just sustained or even accelerated, but turned into profit. Read more here