YouTube multichannel networks (MCN) – and their influencers and fan bases – keep whetting investors’ appetites.
Media research firm Ampere Analysis values the entire MCN business at approximately $20 billion in a study of three years’ worth of MCN investments released this week.
German media giant ProSiebenSat.1 is the latest to jump in, acquiring on Wednesday a controlling stake in YouTube multichannel network Collective Digital Studio. ProSieben will merge Collective with its own MCN, Studio71, and put an additional $83 million into the combined entity. The investment values the global video network at about $240 million.
Other major MCN acquisitions – Disney/Maker Studios, valued close to $1 billion, Otter Media/Fullscreen and DreamWorks/Hearst and AwesomenessTV – point to rapid consolidation of YouTube’s channel business.
DreamWorks and Disney’s investments have produced handsome returns, with the value of those networks increasing 240% in 18 months.
Ampere’s research also showed that a typical MCN with 1 billion views per month would be valued at approximately $97 million with $21 million in gross revenue each year.
While all YouTube channels might not reach the same scale as a Maker or Awesomeness, companies are still willing to cough up cash to buy niche networks for several reasons.
Firstly, telcos, media conglomerates and private banks see audience development opportunities both domestically and abroad for more video content.
“Furthermore, as competition improves with Facebook’s move into the market, MCNs are increasingly well positioned,” said Richard Broughton, research director for Ampere Analysis.
He noted synergies for ad sales teams within the traditional broadcast footprint.
“Broadcasters can use existing relationships and plan cross-media campaigns, improving the top line,” he added. Conversely, new investments shift talent and production costs in-house. “This helps shift the burden of costs and risk for an MCN, improving profitability.”
The deep pockets of parent companies also allow MCNs to fund their own acquisitions. For instance, Disney’s Maker Studios on Thursday acquired social marketing platform Instafluence, which expanded its sales capacity from YouTube pre-roll to Vine and Instagram videos.
Although Broughton doesn’t predict MCNs will make some mass exodus from YouTube, which promises audience scale and solid infrastructure, there are more options for content makers.
YouTube star Michelle Phan and TV production company Endemol forged the premium lifestyle video network ICON, for instance, but she’s an anomaly.
YouTube is still a de facto video partner to content producers and advertisers reaching millennial audiences through pre-roll or branded content.
Right now, Broughton believes alternative platforms don’t offer enough scale for MCNs to reduce their reliance on YouTube entirely. Facebook is only emerging as a second alternative, having introduced a revenue share model where it keeps 45% of the revenue from ads sold against creator content, similar to YouTube.
“It’s notable that Vevo – a flagship MCN – has indicated in the past that it might be willing to drop off YouTube,” he noted. “It’s big enough and has strong enough brands to consider doing so, or at least use the threat as a negotiation tactic.”
As companies plow more cash into their digital properties, and as audiences shift from broadcast to over-the-top TV, MCNs will have more quality content to distribute, which will reinforce the shift, Broughton predicted.
“As key MCNs become even more important,” he added, “they will start to be able to push back in negotiations around ad-revenue splits, taking more for themselves.”
