Media companies looking to MCNs to reach younger audiences

Multi-channel networks (MCNs) have carved out a space in the online video ecosystem in recent years, leading traditional broadcasters to move into MCNs as a relatively low-risk way to reach younger demographics — though there is some question about the ability to monetize such investments. MCNs consist of multiple individual user-created online video “channels” that are amalgamated and managed by a single entity. Those channels were originally on Alphabet Inc.’s YouTube, but MCNs then expanded to various social media channels, including Facebook Inc.’s platform. “They represent a way of reaching audiences which might have already vacated traditional TV — particularly the hard-to-reach younger demographics,” Richard Broughton, research director at London-based Ampere Analysis, said in an email. In a July 2015 research report, Ampere found that the average YouTube user watches almost nine hours of YouTube videos a month and in 2014, nearly 125 billion hours of YouTube videos were watched globally, a 50 per cent increase from the year prior. In an email, senior research analyst Glenn Hower of U.S.-based Parks Associates said “there will be just over 20 million viewers of MCN video (or YouTube-style online video) in Canada by the end of the year, increasing to just over 25 million by 2021.” In the same report, Ampere said the entire YouTube audience accounts for over 240 billion views per month. Based on a 10 cents-per-monthly-view model, it said the theoretical total value of the site’s audience is over $20 billion US. In an update issued in August, Ampere valued MCN views at nine cents per view. According to a 2016 research report by Cormark Securities analyst David McFadgen, “the influence that YouTube celebrities hold over the millennial generation has grown even stronger over the last year.” The piece added: “With the strong and growing influence of the teenage market, the market potential for YouTube and other online video platforms and their respective stars is enormous.” Often, channels in an MCN share similar themes or target audiences so that they are scalable for advertising. The MCN gets a share of the channel’s advertising, and the channel is able to reach new and bigger audiences. Large Canadian-controlled MCNs include Broadband TV Corp. (BBTV). Last month BBTV, which describes itself as a “multi-platform network,” partnered with Univision Communications Inc. to manage its fan-uploaded content, as well as its 16 YouTube channels featuring Hispanic content. The Vancouver-based company said it has more than 85,000 content creators and draws more than 18 billion views a month. In 2013, European entertainment company RTL Group invested $36 million US in a controlling stake in the company, valuing it at more than $70 million US. Over the past couple of years, traditional media have watched as MCNs blew up and are now jumping in to get a piece of the pie. According to a March 2016 report by Ampere, MCNs are “increasingly valuable as growth tools for traditional media companies looking for new opportunities.” In McFadgen’s view, by acquiring MCNs, traditional media “want to capture their audience. So if, for whatever reason, the audience migrates on digital…they’ll follow it.” In the U.S. market, Verizon Communications Inc. earlier this year acquired a 24.5 per cent stake in MCN Awesomeness TV — which was purchased by DreamWorks Animation (now owned by Comcast Corp.’s NBC Universal) in 2013 for $33 million US — valuing the company at $650 million US. In 2014, Walt Disney Co. purchased Maker Studios Inc., one of YouTube’s largest networks, for $500 million US with the potential to be worth up to $950 million US. In the same year Otter Media, a joint venture between AT&T Inc. and the Chernin Group, bought Fullscreen Inc., another of YouTube’s large MCNs. At the time, it was valued at between $200 and $300 million US. In Canada, BCE Inc. launched its own MCN, Much Digital Studios, last year. It houses Canadian and international YouTube talent, with creations consisting of short videos in a range of categories. “To bolster our youth, we really felt like this is the space to be in,” Justin Stockman, Bell Media’s vice-president of business and channel strategy, said about channel content in a phone interview. “Some of it is silly…but a lot of it is actually really high quality content,” Stockman said. “Whether it’s comedy, fashion or how-to, music, the creators are really connecting with their audience,” adding that these are the “new celebrities for a lot of the youth of Canada.” Corus Entertainment Inc. invested in women and lifestyle MCN Kin Community and launched Kin Canada in 2014. John MacDonald, Corus’ senior vice president of women’s and lifestyle content, said in an email that the MCN “provides us with another medium by which to offer our clients a multi-platform solution.” Macdonald added that the company has been able to design and sell “fully integrated packages for advertisers across broadcast and social media, giving clients the ability to connect with a targeted demographic where they are consuming their entertainment.” At a BMO-hosted conference in September, Corus’ president and CEO Doug Murphy told investors that Corus is “delighted not to be in the sports business,” which Rogers Communications Inc. says is its bread-and-butter. “Our equivalent of sports is women and families.” MCNs have also begun creating their own content, funding videos created by the same talent the channels in the MCN. “It’s sort of a new talent pipeline; a new way of getting new talent into your studio,” Stockman said. Broughton said investing or buying an MCN is relatively cheap compared to buying a “large traditional media company — so as a way of hedging bets against future audience declines, they’re relatively low risk.” MCNs also give traditional media the ability to tap into a global audience, “allowing a firm previously constrained to a handful of saturated markets to enter new high-growth territories,” according to Ampere’s 2015 report. The value of MCNs can vary. By Ampere’s analysis, and based on the 10-cents-per-view-per-month model, an MCN achieving 1 billion views per month could be valued at close to $100 million US. And according to its 2015 report, the mean value of 15 MCN investment deals made between 2012 and 2014 internationally was nearly $160 million US. However, in this year’s update to that report, Broughton noted that “value per monthly view has declined by 25 over the past five years - from an average of 12 cents per monthly view in 2012, to 9 cents per monthly view in 2016.” He added that “this decline does not necessarily reflect concern regarding the underlying fundamentals of MCNs, but rather the fact that the businesses themselves are maturing and their anticipated growth rates slowing.” Online advertising revenue has already passed TV advertising, according to a 2014 report. Jordan Bortolotti, executive vice-president of MCN Studio71 in Toronto, said in an email “it’s no secret the BDUs are investing into this space in a big way.” “Traditionally, advertisers were planning their buys in siloed broadcast, digital and social media investments,” Bortolotti said. “Now, it’s become more of a ‘video buy’ and the big three are all looking to augment some of their diluted assets.” Last year, the California-based Studio71 (known at the time as Collective Digital Studio) established an office in Toronto, with Bortolotti, a former Blue Ant Media Inc. employee, leading its efforts. Its focus is mainly on Canadian creators and it has said in a recent press release that it brings in about five billion views a month across its channels. Broughton added that the content developed by MCNs is “very different to traditional broadcast, so from that standpoint it represents a diversification strategy,” while also allowing companies to open themselves to broader advertising sales opportunities. But it’s not just advertising that is bringing in the revenue. According to Ampere, branded content and licensing deals are becoming “increasingly important” for the space. Bortolotti said that his MCN supports their content creators’ businesses by providing “the link to domestic advertisers for brand partnerships.” The MCN StyleHaul, which was purchased by RTL Group for $113 million US, focuses on incorporating brands, according to McFadgen’s report. On-demand video isn’t the only avenue for growth for online content. The Wire Report previously reported on the growth of video game streaming content, as competition in the streaming space intensifies. Still, there are some challenges ahead for MCNs. McFadgen’s report warns of a potential lack of monetization in the space despite the growth of online video. “Apparently in the MCN space…it’s becoming a bit of a dirty word because people aren’t making money,” McFadgen said in a phone interview. “Sooner or later you run out of funding; I think that might be something happening in the industry.” Some marketers are starting to question “the value of digital advertising and started moving money back into the traditional space,” McFadgen said in the interview. “I mean they’re never going to leave digital, but I would just say that their weight may shift a little more toward the traditional space.” At that BMO conference, Corus’ Murphy reflected on advertising dollars that, at one point, were flooding the digital space. “Advertising is a complex beast. We’ve witnessed in the last three years, a lot of money shifting to digital — guess what? It’s starting to come back. So we’re seeing big companies … moving money back into linear television.” Hower said linear television, where viewers have access to large audiences, will keep bringing in the money “for the foreseeable future simply due to volume and reach.” He added that the “digital space is incredibly disaggregated, so advertisers have found difficulty in reaching more traditional broad audiences.” As for the future of MCNs, Hower foresees further consolidation in the space, predicting that “as MCNs become parts of large media company portfolios, it will become more difficult for startups to launch and sustain their own MCNs.” — With reporting by Ahmad Hathout at ahathout@thewirereport.ca and editing by Anja Karadeglija at akarad@thewirereport.ca

Media companies looking to MCNs to reach younger audiences

News | 11/11/2016 9:17 pm EST

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