Walking wounded: Machinima's string of bad news continues with fresh layoffs

By Michael Carney , written on March 6, 2014

From The News Desk

Machinima, the gamer-focused YouTube multi-channel network company, released a statement today announcing an internal restructuring that includes firing, or as they prefer to call it “releasing” 42 employees (just under a quarter of its remaining staff).

The latest changes, which will be concentrated in the company’s sales department, follow two smaller layoffs of 22 and 23 employees respectively last year. The company is also preparing for founding CEO Allen DeBevoise to step back from day-to-day operations in favor of a yet-to-be-named successor. Other recent executive departures include COO Nanea Reeves, President Philip DeBevoise (Allen’s brother), and EVP Network Programming Aaron DeBevoise (Allen’s nephew).

Put simply: Things continue to look worse for a company that was once seen as a star in both the LA and YouTube ecosystems.

The news of today’s layoffs comes amid rumors that Machinima is poised to close a $10 to $15 million funding round from Warner Brothers, with Warner retaining the option to acquire Machinima at a future date. I have since heard from multiple industry sources that the deal is likely to close and will be within that range. But while comparatively a cash infusion seems like good news for Machinima, it’s not really. As I pointed out last week, the rumored investment is for a fraction of the $50 to $70 million the company as seeking for its planned transition to premium content creator.

Given this, it’s not surprising that Machinima would undergo some belt tightening. And this may not be the last of some hard changes if Machinima is going to survive. The company previously raised $50 million from backers including Google, Redpoint Ventures, and MK Capital.

As we’ve chronicled closely here at PandoDaily, Machinima is a company in great flux. After racing out to enormous scale in terms of audience, employee headcount, and even valuation, the company, like nearly all of its competitors, ran into the harsh realities of building an ad-supported online video business. The reality is that advertising rates have not yet leveled-up to the TV-like levels that the industry was predicting when these companies were founded late last decade. That, coupled with less than favorable terms offered by YouTube, the 800 pound platform giant in the room, means that profitability has been elusive.

Today’s layoff are likely a much about managing costs as they are about structuring an ideal sales organization based on the challenge at hand. Then again, companies frequently undergo cost and personnel restructuring in an effort to clean house ahead of investment or acquisition. The company appears to be exploring both, based on the terms of the rumored Warner deal.

While all online video businesses compete for audience attention and advertiser dollars, the ecosystem is strongly pulling for Machinima to find its footing and return to its winning ways, judging by multiple conversations I’ve had in recent weeks. In the investment community and the creative community alike, perception and reality are often indistinguishable. The YouTube ecosystem needs to see its early corporate titans thriving and proving to observers that YouTube is fertile ground. Others, like Jason Calacanis, have argued that YouTube itself should care more about proving this as well. YouTube is the biggest reason companies like Machinima become interesting...and the biggest reason they struggle soon after that.

Machinima has had a rough last 12 months. The hope internally – if there is still hope – is that Machinima is simply shedding some dead weight and getting back into fighting shape for the battle that looms ahead. That’s certainly the positioning. It’s also certainly not the full story.

Read the full statement from Machinima below:

Machinima, Inc., the number one global video entertainment network for young males, today announced a restructuring in and around its sales organization in an effort to create greater focus internally on selling creative ad solutions and branded entertainment, while better leveraging its longstanding partnership with YouTube to drive media sales. In connection with this, the company is releasing 42 employees.