Yesterday, Dreamworks announced the acquisition of AwesomenessTV for $33 million, the first such major purchase of a YouTube-funded premium video channel. Following the news, I caught up with Awesomeness’ lead investor to inquire about the deal and what it might mean for the ecosystem as a whole.
(Hint: This looks like the beginning of big things to come.)
Mark Terbeek led the channel’s $3.5 million Series A round last summer, which added to a $5 million original content grant from YouTube already filling the company’s coffers. Terbeek was a partner at MK Capital at the time, but he very recently moved to Greycroft Partners. Due to the timing of this acquisition, and the fact that Greycroft is also a minority investor in the company, he never completed the transition off of the company’s board and had a front row seat for the negotiations.
At the time of last year’s financing, I described Awesomeness as a “Nickelodeon Killer.” Terbeek recalls being equally bullish, saying to me yesterday, “In my career, that was one of the few deals that was absolutely obvious. [Awesomeness CEO] Brian [Robbins] came in and pitched and I was like ‘I’m 100 percent doing this deal.’”
Since YouTube began doling out its $250 million in content grants, many have pointed to AwesomenessTV as the shining star among the 100 initial recipients. As of yesterday’s sale, the channel had amassed nearly 500,000 subscribers and was generating more than 80 million monthly video views. More importantly, it was addressing the highly coveted teen and tween demographic.
The key to this success, according to Terbeek, was Robbins’ experience creating traditional television content aimed at young viewers – he produced “Smallville” and “One Tree Hill” – as well as his ability to learn how to drive audience, tell short, stackable stories, and operate capital efficiently within the YouTube ecosystem.
With Robbins at its helm, AwesomenessTV apparently caught the attention of Dreamworks CEO Jeffrey Katzenberg personally. According to Terbeek, the two men began meeting one-on-one only a month ago, and both teams worked feverishly over the last two weeks to hammer out a deal prior to last night’s YouTube upfronts, in which the company pitched advertisers on its upcoming content lineup.
As one of the online video ecosystem’s most well informed investors, Terbeek’s insight on the future of the space is telling. “I think this is the beginning of a massive M&A wave in the YouTube ecosystem,” he says. “There are a few really attractive targets currently out there, but I think that the learnings from this first batch of channels are already leading to a much better second wave.”
He offered former Demand Media exec Larry Fitzgibbon, Steven Kydd, and Joe Perez’s Tastemade as just one of several attractive targets, predicting that the remainder of this year was going to get “wild” in terms of transactions.
“The big studios are realizing that this new distribution system is here to stay, and they are trying to co-op these models and incorporate them into their business,” Terbeek says. “I think Brian fits perfectly into those plans.”
Awesomeness may have left some money on the table with the Dreamworks deal, Terbeek concedes, saying that the company felt like one that could have “really taken off running.” But he says that everyone involved could not be more pleased with the outcome. “This really validates MK’s strategy and Brian’s vision,” he says. “He’s going to do big things with Dreamworks’ IP and all those resources.”
Of course, there’s always the risk that the big, slow-moving organization with its entrenched ways could dim the magic that Robbins found as a scrappy underdog content house looking to prove a point. It’s unlikely that he’ll forget all the lessons he learned over the last two years – and the two decades of his career before that – it’s simply a matter of whether he can get Dreamworks to play ball.
Beyond the $33 million Awesomeness received up front, Dreamworks set future performance targets that could increase the deal value to $117 million by 2015. Robbins will stay aboard and take an executive role at the studio developing “a DreamWorks Animation branded digital family channel.”
Just two years ago, YouTube was largely user generated content (UGC) and it would have been difficult to find anyone willing to bet that it would one day challenge traditional television. And while it has not yet caught up in terms of advertising dollars, YouTube has already stolen the attention of several generations of viewers yet to reach their peak spending years.
“What’s really important, is that power players like Katzenberg and Dreamworks are now legitimizing YouTube as a viable platform in the eyes of advertisers,” Terbeek says. “Google has to be licking their chops. I think the whole battle for this next wave is taking place in this younger demo. While brands loved Awesomeness’ content on YouTube, they’re really going to love Dreamworks’.”