When Maker Studios Inc., which develops and distributes online video content, was acquired by Walt Disney Co. in March 2014 for $500 million, it was widely considered to be a smart move by a legacy organization looking to innovate in a bid to reach new audiences on emerging platforms.
Times change. Fast.
“What Maker Studios was to Disney two and a half years ago compared to what it is today is very different,” said Eunice Shin, managing director at West L.A. digital strategy firm Manatt Media. But, she added, Maker isn’t alone. “It’s the overall industry that has changed. The business model from two years ago doesn’t monetize anymore.”
Maker’s old model, as a manager of multiple YouTube video channels, was reliant on advertising revenue, which has dwindled. Now it is working to come to terms with a new identity as an original content producer, branded content engine, and marketing vessel for Disney. The new model is based on brand integrations designed to reach a particular target audience.
The changes are evident in the sharp pivot Culver City-based Maker has made in its content offerings.
The company last year offered a slate full of shows from A-list, traditional media talent such as Morgan Spurlock, Key & Peele, and James Franco. But at its recent NewFront presentation to advertisers in New York, Maker made clear its new lineup would focus largely on brand relationships and influential content creators. Maker partners with 60,000 independent content creators in more than 100 countries.
It’s a strategy that could work with the right approach, said Josh Entman, co-founder and chief development officer at Jukin Media.
Other multichannel networks that have focused on creators who are generating original content and selling brand partnerships to fund it have found success, he said, adding, “This is an opportunity for Disney to pivot and restructure as a distribution channel and incubator for young talent.”
Maker laid off about 30 people last month (the company declined to say how many it employs, though it is between 500 and 1,000 people), yet while the landscape has shifted for it and Disney, their relationship has still been beneficial.
“Disney leveraged it for content marketing and marketing purposes, especially around ‘Star Wars: The Force Awakens,’” said Manatt’s Shin. “They made their return on investment with that alone.”
The deal for Maker included performance-linked earn-outs that could have reached $450 million. By the end of last year, when the earn-out window closed, Maker had earned an additional $175 million – short of expectations, but still a 35 percent bump to the base purchase price.
Disney Chief Executive Officer Bob Iger expressed pleasure in the results, telling investors in February, “Maker’s results in terms of consumption, number of videos streamed since the time that we bought them, (have) been up substantially. Just huge growth.”
Indeed, struggles to meet financial goals are a sign of the times for the multichannel network industry, which continues to evolve.
Some MCNs have been successful in cornering particular niche audiences, such as DreamWorks Animation’s AwesomenessTV, and Machinima, in which Warner Bros. holds a substantial stake. Others, such as Funny or Die, have suffered from trying to do too much.
“The MCN market is difficult to grow past the scale Maker had reached,” said Shin. “There’s a limit to how much you can grow. Engagement levels were always high.”
The programming shift to influencers whose work can be monetized independently from Disney’s brand stable comes as Courtney Holt, who took over as chief executive after replacing Ynon Kreiz in January, makes his presence felt.
Maker falls within Disney’s consumer products and interactive media division, which struggled in the last quarter. Its operating income fell 8 percent from the prior year after it took a loss on its Infinity video-game and toy line, introduced in 2013.
Analysts are taking a longer view of the Maker acquisition, understanding that the digital content delivery space is one of flux.
“The deal is significant because it helped to fuel investments after that for MCNs, and improved valuations,” said Manatt’s Shin. “It also helped lift Disney’s valuation on Wall Street by showing the company is progressive and innovative.”
