It’s been a tough year for the MCNs, or multi-channel networks. Despite many of these online video giants growing to astronomical scale in terms of content throughput and audience aggregation – in many cases surpassing tens of thousands of channels, hundreds of millions of subscribers, and billions of monthly video views – no one’s making any real money. Point to excuses like meager YouTube CPMs (ad rates) or high content creation and distribution costs all you like, but the math ends up the same. With tens of millions of VC dollars raised and valuations climbing into the clouds, this is hard to swallow.
For the last few years, the narrative coming from MCN-bulls has been wait for it (aka monetization), it will come. But now the prevailing conversation is switching to, the MCN model is flawed and YouTube is going to kill the category leaders before they make any real money. Perhaps the loudest proponent of this theory has been Jason Calacanis, a content publisher who very publicly quit YouTube in favor of greener pastures while advising other creators to do the same.
Recently, however Calacanis has taken this conversation a step further by predicting the demise of all MCNs. In his blog post, “Advice for Building a Startup Inside Someone Else’s Ecosystem: Don’t,” he wrote:
Right now YouTube might need Maker and Machinima [two leading MCNs], but as you can see from YouTube’s Geek Week – and YouTube’s personal channel breaking into the top 10 – they have no problem aggregating a bunch of YouTube stars and selling ads around them…
The only difference is that Machinima and Maker can’t put their promotion in the *logo* of every single YouTube page.
If you work for, or have invested in, Maker, Machinima or another MCN (multichannel network) you should understand that YouTube is taking your business out from under you RIGHT NOW!
YouTube doesn’t need MCNs, they’re using MCN innovations — like collaborations and group sales — and putting them to work against their own editorial calendar!!!
MCNs are toast.
YouTube is killing them.
I generally agree with most of Calacanis’ conclusions about the risks of building on someone else’s platform. And I think that MCNs face a difficult road ahead. But he went too far in his doomsday prediction. I think a better prediction would be, “MCNs as we know them are toast.” In other words, “the YouTube-only MCN is going extinct.”
Like in any rapidly evolving industry, MCNs that can’t adapt won’t be long for this world. But there remains very attractive and potentially profitable opportunity ahead. To borrow a phrase from Plus Capital founder Adam Lilling, the future of the MCN will be “Multi-Platform (Multi-Channel) Networks.”
For any MCN that wants to be relevant 12 months from now, YouTube needs to become the top of the customer acquisition funnel. The Google-owned video platform is unofficially the second largest search engine in the world (behind Google itself), and is the undisputed king of video discovery – despite efforts by countless startups to reimagine that experience. But it remains a difficult place to build a big business.
Successful MCNs will be the ones that use YouTube to acquire new viewers which can then be directed off YouTube to view premium content elsewhere where monetization options are more attractive. This secondary destination could be an owned and operated Website, a la Machinima.com, MakerStudios.com, or Fullscreen.net, or it could be a third-party platform like Hulu, Netflix, or whatever Yahoo, Microsoft, Facebook, and Twitter eventually come out with (pending the economics that they offer).
Imagine a 10-part episodic series in which the first episode is available free on YouTube but the remaining nine are elsewhere behind a paywall as one example of how to move an audience off of Google’s platform. If the content is compelling enough, users will pay for it. One slightly off-color example is the porn industry. For years, porn companies have offered free (often-blurred) thumbnails and teaser clips to entice users to pony up credit cards for full access. The same strategy could work for a gamer desperate to find out how a zombie-thriller ends, or a tween to see how the star-crossed lovers settle their quarrel.
This is a strategy that the smart MCNs are already pursuing. Machinima has been fairly public about its intentions to raise a big round of financing to create more original content for a “Hulu Plus”-like subscription service. Fullscreen discussed similar plans around its recent Series A financing, as has Maker Studios.
It’s no sure bet that any of these companies will succeed. Content is an expensive and uncertain business that can be heavily hits driven. Despite Calacanis’ predictions, though, it’s too early to call any of the companies toast. MCNs will migrate from the YouTube-centric entities that we know today. What they will become, and how that will translate into profitability and sustainability, remains to be seen.
[Image courtesy Pere Ginard]