It appears that Machinima, the rising star of L.A.’s budding online video community, is experiencing some growing pains.

The West Hollywood online video network confirmed last week that it has laid off 23 employees, or about 10 percent of its 200-person staff, in an effort to reorganize its business. The cuts affected the company’s programming and editorial departments, including Machinima’s news division, Inside Gaming.

But digital media insiders said the layoffs are not necessarily a sign of troubles for Machinima; instead, they signal the fast-growing company’s shifting priorities as it expands.

Machinima gained popularity as a niche site that distributed user-generated video game news, shows and trailers via its website. As the company grew, it created a network of YouTube channels as well as a team of editorial and production employees to create its own online content.

But Machinima’s popularity among the 18-34 male demographic has also attracted the interest of big media players willing to pay big bucks to tap into online video.

Joshua Cohen, co-founder of TubeFilter, an L.A. website that covers the online video industry, said the company looks to be giving less attention to its own editorial content in favor of the more lucrative business of distributing professional videos.

“They’re reorganizing. They don’t need as many development resources,” he said. “It makes sense. Machinima’s been doubling down on entertainment investments in recent months.”

In the last year and a half, the company has aired a nine-part series based on Warner Bros. game franchise “Mortal Kombat” and debuted Microsoft Corp.’s first live-action video series based on its popular “Halo” video games.

Machinima is also partnering with NBCUniversal to air “Battlestar Galactica: Blood & Chrome,” which is a prequel to the popular cable TV series “Battlestar Galactica,” as a series exclusively on YouTube. The Syfy channel will later air the 10 12-minute episodes as a TV movie.

“They are realizing that their efforts around aggregating content and better selling that content is their bread and butter, the core of their business,” said Ben Smith, founder of L.A. digital marketing firm Blayze Inc.

Niche website

Despite the layoffs, Machinima is continuing to hire. It currently has more than 15 job openings listed on its website in the sales, marketing and product divisions.

The company, which declined interview requests for this story, issued a statement to the Business Journal last week that the layoffs and open positions are part of an attempt to refocus on areas with the most growth potential.

“Machinima underwent a reorganization to address its global growth, and this process unfortunately resulted in layoffs,” the company said.

News of the mid-December layoffs hit Twitter before Machinima announced the cuts. Several employees tweeted that they or colleagues had been let go.

One employee posted: “Effective immediately I am no longer at Machinima. Would love to send an official email with my contact info but they took my computer.”

Machinima, which started as a niche website for gamers in 2000, has grown into one of the most watched entertainment networks on YouTube since brothers Allen and Philip DeBevoise bought it in 2005.

Last month, Machinima’s various YouTube channels garnered more than 26 million viewers, according to data from comScore. The network came in third in the monthly rankings behind New York music video company Vevo Inc. and L.A. YouTube network Maker Studios Inc.

Machinima’s success on YouTube helped draw the attention of the video streaming website’s parent, Google Inc. The Menlo Park Internet giant led a $35 million investment in Machinima in May that will help the company expand into international markets and onto mobile devices. Machinima is the only YouTube network that Google has invested in.

It’s still the Wild West for the ecosystem of online video companies that have formed around the YouTube platform. YouTube has tried to help by investing $100 million into about 100 channels, including Machinima, to develop original, high-quality content. But YouTube is only reinvesting in 60 percent of those channels.

Blayze’s Smith said even the elite networks, such as Machinima and Maker, that are generating billions of views each month are still exploring the best way to make money.

“It’s a tough market and it’s changing,” he said. “The stakes seem high because a lot of attention is placed online. Companies like Machinima and Maker are positioned to lead the way on the business models that will work for online video.”

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