Los Angeles Business Journal

Movie Studio Makes Play For YouTube Connection

INTERNET: Machinima’s video-game network scores backing from Warner Bros. By Justin Yang Monday, March 17, 2014

Major movie studios are in a race to establish YouTube beachheads as viewers increasingly move online for video entertainment.

The latest deal came last week when video game-centric network Machinima Inc. announced it had closed an $18 million financing deal with Burbank’s Warner Bros. Entertainment, MK Capital, Redpoint Ventures and Google Capital.

Machinima already distributes a live-action Web series based on Warner Bros.’ “Mortal Kombat” property.

Chief Executive Allen DeBevoise said the round and expanded relationship offers both companies more avenues to distribute content.

“There are myriad opportunities to connect Warner Bros. content to our audience across YouTube and our highly successful apps, and similarly to maximize the value of our content by utilizing Warner Bros.’ expertise in global distribution beyond YouTube,” he said in a statement.

The Machinima deal is the latest to be struck or are said to be in the works that would bring traditional content producers stakes in YouTube networks, better known as “multichannel networks.” These multichannel networks develop online video programming for a variety of YouTube channels and other social media outlets to help entertainers reach a larger audience. They also help create communities around entertainers to grow their brand.

The deal follow’s last year’s $33 million acquisition of L.A.’s AwesomenessTV by DreamWorks Animation. The value of the deal could balloon to $117 million if the teen-focused network meets certain benchmarks.

Peter Csathy, chief executive of West L.A. venture capital firm Manatt Digital Media Ventures, the investment division of law firm Manatt Phelps & Phillips, said major studios are scrambling to invest or acquire the remaining large networks and leverage the communities they serve.

“Ultimately for these studios, the MCNs are where the eyeballs are,” he said. “If you can get to a passionate community and reach them, they can be monetized.”

Csathy said movie studios can use the networks’ distribution channels to deliver content. He added that studios can pick up talent and brands from networks and distribute the content on a much larger platform.

“These deals make sense for all of the parties involved as the economics are challenging when acting alone,” he said. “With a studio behind you, you can reach the broader strategy.”

More deals are likely in the offing. A few days after the Machinima deal was announced, several online tech publications reported that Walt Disney Co. was in talks to acquire Santa Monica’s Maker Studios for about $500 million. That figure was reported to balloon to as high as $900 million if Maker meets certain benchmarks. The companies declined to comment on the reports.

Maker said it has more than 4.5 billion monthly views and 340 million subscribers to its channels. Among performers on its channels are Felix Kjellberg, known as PewDiePie. Said to be YouTube’s most popular entertainer, he has an estimated 24 million subscribers who watch him play video games while he narrates the action.