Machinima's new CEO digs in, lays out a plan to return the MCN to its former glory

By Michael Carney , written on April 1, 2014

From The News Desk

With only one full day under his belt as Machinima’s new CEO, Chad Gutstein has a plan. The former COO of the Ovation cable network spent yesterday in meetings with his new team, mostly listening, he says, but also laying out a four-part playbook meant to allow the online video network to rebound from recent troubles and fulfill its enormous promise.

Speaking to PandoDaily in an end-of-day interview yesterday, Gutstein said:

What attracted me to this opportunity is that it’s a company in one of the most interesting spaces in the video world – digital video, which is where entertainment is evolving toward. Not only that, but it’s already a business at scale, with large viewership and traffic. We reach one of the hardest to reach demographics on TV, the 16 to 34 year old males, who make up 70 percent of our viewers, and we have some of the highest levels of engagement. We have an established network brand, which is the same thing that I fell in love with in the cable business 15 years ago, when network brands really started to resonate beyond just programming.

But for all his excitement, Gutstein acknowledges that Machinima has plenty left to prove. Despite surpassing 2 billion monthly video views and 11 million subscribers, the network has been plagued by the same business model uncertainties that confront all those in the multi-channel network (MCN) category.

Closer to home, Machinima has faced serious questions about its internal culture, its leadership (or lack thereof), and the company’s plan for creating a sustainable business out of the massive audience it’s accumulated. All of this came to a head as the company shed 42, 22, and 23 employees in three successive rounds of layoffs over a 15 month period and saw the departure of CEO Allen DeBevoise (who will remain Chairman), COO Nanea Reeves, President Philip DeBevoise (Allen’s brother), and EVP Network Programming Aaron DeBevoise (Allen’s nephew).

Gutstein’s appointment is the company’s second dose of much-needed good news in as many months, following the February close of an $18 million round of debt financing led by strategic partner Warner Brothers. Both are only the beginning of what promises to be a long road back to health for the company, but positive steps nonetheless.

What happens next will depend on Gutstein’s ability to rally the troops and develop buy-in throughout the organization on a clear and focused plan of attack. He breaks his strategy down into four components:

I. People – “We need to retain and attract an A-team throughout organization and focus on building a culture of excellence and execution,” Gutstein says. While the company is at its smallest size in over a year at just 116 employees, the plan is for near-term growth. “The days of rifts at Machinima are over,” he adds. “We’re not going to cut our way to growth. We have plenty of money in the bank to fulfill the mission we have.”

II. Profitable Growth – “We’re going to be really laser-focused on getting the company to a place where we have our hands on the levers of how to operate a business – where we know that should we ever want to pull back and be profitable on an overall business level, we have the ability to do that,” Gutstein says. “The thing that does is give us the confidence to make big bets going forward.”

III. Product – “This is an all-encompassing commitment to creating excellent content – both original and with our partners – to developing the kind of technology tools that we need internally to run our business, and to building out additional platforms such as our owned, branded platform strategy,” Gutstein says. He adds that it’s easy to get distracted and invested in too many things at once when confronted by massive opportunity, something that Machinima will have to balance with the above ambitious product roadmap.

IV. Diversification – “Finally we will diversify our traffic and revenue sources,” Gutstein says. “Today, the overwhelming majority of our traffic still comes from YouTube and our revenue from advertising. But I think you’ll see that change in both areas going forward.” The new Machinima CEO also promises to diversify beyond its focus on gaming to address the massive fanboy audience, noting that the company's new relationship with Warner Brothers will be massively valuable in this regard.

Machinima hasn’t struggled solely as a result of internal operating issues. It’s also a victim of ecosystem-level obstacles like irrationally-low ad pricing and an often-contentious relationship between YouTube – the definitive platform in online video – and the content creator community. This has led many entrepreneurs and investors to question the long-term viability of the MCN model and the wisdom of relying so heavily on YouTube as a platform partner.

The consensus view of the MCN model got a major boost in March when Disney acquired Maker Studios, Machinima’s cross-town rival, in a deal that could ultimately be worth up to $950 million. The belief is, that if Maker could attract this sort of valuation, than Machinima, Fullscreen, and the other category leaders have a real possibility of making good on their early promise and hefty valuations.

Gutstein says:

When you’re dealing with relatively new areas, they go through cycles where it’s the hottest thing in the entire world and everyone’s running toward them, then fatigue and hiccups set in and it’s the coldest thing in the world.

If you asked me this six weeks ago, the answer [to questions of the state of MCNs] may have been different. But the deals that have been announced in the ecosystem, all of a sudden it seems that capital is starting to rush back into this space.

That said, as a leader of a team of people who are trying to do our jobs every day – that’s noise. We have a strong balance sheet, unbelievable investor partners, and a passionate team – we’re just heads down.

There was a time 24 months ago when Machinima and Maker Studios were two of the brightest stars in the LA startup ecosystem, a rapidly growing community with YouTube and content as one of its key centers of gravity. That the gamer-focused company would today be fighting simply to find its footing, let alone to prove that it can turn that early excitement into realized value, remains a shock. With fresh blood and a rejuvenated sense of fight in the CEO suite, the company has reason for optimism.

“I don’t think that anything I’m saying is revolutionary,” Gutstein says. “But rather it’s just the the focus on putting this vision into a plan of execution. That’s what’s required to allow people to turn great ideas into excellence.”

It’s been a long time since Machinima has been associated with excellence. It’s unreasonable to expect Gutstein to right the ship overnight. It’s only been a day and there’s a laundry list of issues to address. If nothing else, he seems genuinely excited about the opportunity and focused on the steps needed to return Machinima to its former glory. We’ll know by this time next year whether he’s been able to deliver the goods.

[Image via Google+]