The relationship between old media and new took a big leap this month when movie studio DreamWorks Animation SKG Inc. purchased YouTube network AwesomenessTV.
On its surface, the deal for the West L.A. teen-oriented online outlet wasn’t eye-popping. DreamWorks paid only $33 million in cash, although it might pay up to $117 million if certain earnings targets are met. Nor was it the first transaction between an offline media company and a YouTube channel.
But DreamWorks of Glendale can lay claim to being the first studio to cowboy up and fully acquire a YouTube network. To media companies that have yet to stake their claim in the online world, this move could signal the beginnings of a digital gold rush.
“It’s really the tip of the iceberg,” said Ben Smith, founder and chief executive of YouTube analytics platform Blayze Inc. “Hollywood is going to rush into online video and multichannel networks.”
Other deals that might further juice the market for online video acquisitions are in the offing. West L.A. video streamer Hulu Inc. is once again on the block and names such as Chernin Group and DirecTV reportedly have been circling the firm. And a handful of YouTube networks, such as Culver City’s Big Frame and Santa Monica’s Tastemade, have been boasting some impressive subscription rates and metrics that could entice media companies to gobble them up.
“You’re definitely going to see more of this,” said Brian Robbins, founder of Awesomeness. “All these big companies know they need to figure the space out. I think there will be a desire on those companies to buy their way in.”
Yet despite the increased talk of convergence, the two camps have potentially clashing views on how to proceed in the relationship. Traditional media companies might covet the pre- and early teen demographics a channel such as Awesomeness is reaching, but it’s still unclear whether those view counts will translate into profits.
Tony Wible, a media and entertainment analyst at the Philadelphia office of Janney Montgomery Scott LLC, said the skepticism about revenue will keep other media companies circumspect.
“I don’t think it’s a completely necessary tool for their content yet,” Wible said. “Using Awesomeness as a portal for DreamWorks’ assets was interesting. But overall is it going to move the needle much? No.”
Awesomeness’ rise into a genre-defining YouTube channel has been fast, even by online standards. The channel was founded in 2011 by Robbins, a director and producer, who was inspired in part by his teenage son and his friends. During a family vacation, he noticed that whenever the kids wanted to see videos – wrestling, sitcoms, music videos – they completely avoided the TV.
“Any content they wanted to watch was on the computer,” Robbins remembered. “It was a very bizarre phenomenon, really watching this happen for the first time.”
Robbins built his career with projects aimed at a younger audience, such as TV’s “Smallville” and “One Tree Hill,” and movies such as “Good Burger.”
He incubated the new company within his talent agency, Century City’s United Talent Agency, and was among the first recipients of funding through YouTube’s $100 million creator program, getting $5 million.
The channel developed several series for the Nickelodeon crowd but with a distinct online bent. Its programming slate includes talk show “IMO,” billed as “The View” for teen girls, and makeover series “MissGlamorazzi.”
Awesomeness publicly launched in June 2012 and later brought in $3.5 million in venture capital funding, led by Santa Monica’s MK Capital.
In an era where youth-oriented cable channels such as Nickelodeon have been struggling to retain viewers, Awesomeness has managed to build up a considerable audience while producing its shows for a fraction of TV’s cost. At present, the channel has more than 500,000 nonpaying subscribers and its network has accumulated 800 million views.
Several media companies had been circling Awesomeness almost since its launch; Robbins said the company “was literally getting several calls a week” about investments or acquisitions. However, the deal with DreamWorks, spearheaded by studio Chief Executive Jeffery Katzenberg, came together within the span of a month. Katzenberg reached out through Robert Kyncl, YouTube’s global head of content, who left Robbins a fateful message.
“Kyncl called me and he said, ‘Hey, I want to introduce you to Katzenberg, but beware, your life is going to change,’” Robbins said.
The two had the outline of a deal planned by the end of the week.
By joining the DreamWorks brand, Awesomeness gets access to the studios’ library of properties, including franchises “Shrek” and “Kung Fu Panda.” In turn, DreamWorks is able to use the outlet to promote these and other animated films to a demographic sweet spot.
There’s also a chance Awesomeness could be incorporated into the long-gestating plan of launching a DreamWorks Animation cable channel. Though executives of both companies have publicly downplayed that connection, analyst Wible said it likely figured heavily into the decision.
A cable channel and a YouTube platform are both, at their cores, distribution platforms that deliver the studio’s properties in new ways.
“Having Awesomeness makes it easier to transition into TV,” Wible said. “It may be a good intermediate step to modernize its brands in a new platform.”
As for future deals, Wible thinks a distributor like Comcast Corp. would be a more likely acquirer among big media players.
That prediction already has already played out to some extent. Last year, Time Warner Inc. led a $36 million round in Culver City’s Maker Studios while German media conglomerate Bertelsmann SE & Co. recently doubled-down on its investment in fashion-focused YouTube network StyleHaul Inc.
Build or buy
Despite being contained within a $1.8 billion corporation, Awesomeness execs said they don’t expect to be suddenly flush with cash for productions. Rather, it’s about an exchange of ideas, audiences and intellectual property (not to mention a healthy return for investors).
“We have so much more to play with in the DreamWorks tool box,” said Margaret Laney, chief marketing officer at Awesomeness. “They have all these massive digital properties and we have so much to learn from them.”
For a studio, buying a successful YouTube channel might also have been the fastest way to establish a presence online.
Ynon Kreiz, who was recently named president of Maker, said deals like the one for Awesomeness might become more common as the online video space matures and becomes more crowded.
“I think it will be harder for other media companies to do it themselves, and they’ll have to join in the form of partnership,” said Kreiz, who came to Maker after working as an executive at reality TV production house Endemol USA. “Don’t forget, this is a different trade; you can’t just hire a couple of people with that knowledge and marketing and expect to hit it big.”
But being bought isn’t the strategy for every YouTube network – at least not as quickly. Robbins joked that even his investors thought the sale of Awesomeness to DreamWorks “was a little fast.”
Mark Suster of Century City’s GRP Partners, which invested in Maker, said his vision for the company extends beyond an exit. Though he applauded the Awesomeness transaction both for its terms and the message it sends, his ambitions have a different aim.
“At Maker we’re thinking long,” Suster said. “We and some of the other (YouTube) networks think we have the opportunity to IPO and lead the next generation of media studios.”
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