Machinima Raising Capital at $250 Million Valuation

By Erin Griffith , written on March 1, 2012

From The News Desk

YouTube gaming channel Machinima is shopping a new round of funding worth up to $50 million, according to several sources familiar with the situation. The LA-based company, which earns money through an ad revenue sharing agreement with YouTube, has a pre-money valuation of between $200 million and $250 million.

The company previously raised $15 million across three rounds from Redpoint Ventures and MK Capital.

Sources indicated Machinima's revenues were around $25 million last year, though one source familiar with the situation said the revenue run rate is higher. In other words, the company is not profitable. Machinima raised its Series A from MK Capital in 2008.

That explains the circulation of rumors that a piece of its $50 million round is secondary. MK Capital is rumored to not be participating in this round. An even wilder rumor is that Google is participating. Some from on the traditional media side, likely brought in by Allen & Co., which the company hired in December, have kicked the tires.

Still, Machinima's YouTube views are insane, more than three billion views, four million channel subscribers and 17 million uniques. Of the players in its space, Revision3 and Maker Studios included, Machinima is the biggest. The company has been called an acquisition target for Viacom or Turner.

The problem is the quality of content. Even though Machinima does create original content, the majority of its videos are created by gamers. Last time I checked, video games aren't known for their advertiser-friendly content. Digiday laid this problem out pretty clearly last year in a story, which detailed how MSN sponsored a video called "Show her love," featuring an animated man beating his girlfriend, as well as a Sprint-sponsored video of one robot teabagging another robot. Quality entertainment, that.

Even though the site took down those examples, there are others in its network. The company is somewhat reminiscent of the early days of the Internet, when advertisers would buy ads at a network's front door without realizing what's going on behind the scenes.

The capital raised could go toward putting quality controls in place to fix those issues.  Machinima is also investing more in original content and a dedicated sales force. It's scripted drama "Mortal Kombat" has had 50 million views and inspired a movie, and another one, called "RCVR" saw 2.4 million views in its first week.

Machinima declined to comment for the story.