Multichannel 2.0

Cable Satellite International

Multi-channel networks blend social media with entertainment in a way that appeals to the values of millennial audiences, so why are so many of them jumping into traditional TV.

http://www.csimagazine.com/Digital_edition/June2016/CSIDigitaledition-June2016-final.pdf p12

“The TV set and viewing of our childhood is gone … a better TV is rising from the ashes,” declared Google president of global partnerships Daniel Alegre in the closing keynote to NAB last month.

Alegre referenced PewDiePie the 26-year old Swede who has 40 million subscribers. “This is an opportunity rather than a death knell for broadcasters,” he said. “Democracy in distribution means there is no limit to the content you can deliver to your audience.”

PewDiePie is signed to Maker Studios, one of dozens of multichannel networks with business models that started out linking millennial content creators or influencers with video aggregation platforms Yahoo, AOL, Dailymotion, Vimeo but principally YouTube.

“Put simply, the MCN model 1.0 is finished,” says Matt Heiman, co-founder, Diagonal View an MCN which began in 2008 repackaging content from ITN Source. “If you're not adding value to the client you work for and to the platform you're working with, your days are numbered.”

He adds, “The aggregator model had no value. It was required for a moment in time and funded by VC's for a moment but that day is done. It's the emperor's new clothes and everybody knows it.”

Citing last month's launch by Fullscreen of a SVOD service and YouTube's launch of subscription channel Red, he says the old MCN ecosystem has imploded in the last 12 months.

“The classic MCNs were sandwiched between the content creators and the audience for YouTube channels,” agrees Ampere Analysis research director Richard Broughton. “Uncharitably you could call them middlemen. But that's not necessarily true any more.”

The dynamics of MCNs are changing and in doing so altering the strategies of pay TV operators.

MCNs had to evolve. YouTube revenue was $5bn in 2015 of which the Google-platform takes 45% and the MCNs and content creators share the remaining $2.9bn, most of which flows back to the original content creators leaving MCNs with little margin.

“MCNs began to verticalise to get closer to content creators,” explains Broughton. Awesomeness TV's move to more in-house production of teen content saw it create Richey Rich which it then sold to Netflix. Tastemade concentrates on food, Stylehaul on fashion. “If you can produce content then you no longer have to give away the majority of revenue that comes from advertising.”

A parallel strategy is to work more closely with brands and ease the reliance on pre-roll ads. Examples include Fullscreen's partnership with GroupM to form influencer marketing group Playa, which will exclusively service GroupM and WPP clients. Stylehaul, owned by RTL, targets a niche fashion and lifestyle audience hooking up content creators with cosmetic and fashion brands for product placement and paid reviews.

Influencer marketing “matters where the big agencies that have historically bought lots of TV and lots of preroll ads, recognize this as a way to market and reach customers," says Fullscreen CEO George Strompolos.

“Millenial audiences are far more accepting of a brand's involvement,” notes James Kirkham Head of Copa90 at Bigballs Media. “We have Hyundai and Nissan funding documentaries around the world. Brands want authenticity and to connect to consumers in a different way.”

Both strategies trend beyond UGC toward a more professional content creation. Nonetheless, the bulk of MCNs are still reliant on ad revenue and largely on the billion daily views generated by YouTube.

Or they were until Facebook entered the video game, giving MCNs distribution options and more bargaining power.

“In the early days of MCNs you needed to be on YouTube,” says Rightster CEO Ashley Mackenzie. “But since Facebook decided to take video seriously you truly do have options. It's a genuine multiplatform era.”

“Facebook is actively working on ways to compensate creators and has the wherewithal to unseat the market leader,” reckons Glenn Ginsburg, SVP global partnerships, The QYOU.

Nor are Facebook and YouTube the only horses in town. Instagram, Twitter, Twitch and emerging platforms like Musical.ly offer different distribution paths, although Mackenzie dismisses the 8 billion daily views on Snapchat as a “vanity project” until it offers monetization products.

“Social and mobile becoming one is key. Having separate strategies was lunacy,” says Kirkham. “The emergence of Instagram and Snapchat shows how people are only accessing the internet through their mobile device.”

For Dan’l Hewitt, UK MD of Maker Studios, mobile first networks “demonstrate the insatiable appetite audiences have to connect.”

Those MCNs that successfully verticalised, and/or added brand affiliations have been able to use multiple outlets to disseminate content and grow their audiences.

The MCN demographic

It's worth underlining the MCN demographic. A recent survey in the U.S., commissioned by Defy Media, found that younger audiences watch more hours of video on digital outlets than on TV because, the survey suggested, they find it more enjoyable and relevant to their lives.

AOL's OTT Reality Check report last November found that 42% of people prefer to watch TV shows online.

“The genuine heavy user is the 10-18 year old kid,” confirms MacKenzie. Hewitt paints a broader picture. “MCNs respond to the habits of media consumers. The new iPhone has a 4K video camera which anyone can use to create great looking content.”

Julia Barry, editorial director, Sky On Demand, agrees that audiences are young but thinks there's an untapped older market. “There’s a real opportunity to grow the reach of this content and bring more eyeballs to it by putting it into our Sky ecosystem and opening up access.”

Rising Value

Traditional media has had its eye on MCNs for some time. Those who bet early have seen some serious returns on their investment. The poster child is Awesomeness TV which DreamWorks acquired for $95m in 2013. When DreamWorks sold a quarter stake last year to Hearst it valued Awesomeness at $350m. Verizon's recent deal for 24.5% values the network at $650m.

There's no starker illustration of the value that traditional media is placing on MCNs than Verizon's acquisition of AOL for $4.4 billion a year ago. Since then it launched mobile video network Go90, fuelling it with content from Awesomeness TV.

“MCNs are typically being sold at 25 to 35 times revenue, a figure which reflects their massive growth rate and longer term strategic importance,” says Ampere's Broughton. “They are seeing 100-200% growth every year so you can imagine, over the course of five years, that the initial 35 X ratio might come down to something of a more typical 5 X ratio.”

Recognising that their audiences are flat or in decline, traditional broadcasters are seizing on MCNs as a short cut to recapturing millennials lost to digital. “One of the attractive things about MCNs is the international nature of their audience,” says Broughton. “Investing in one is a relatively cheap way to address audiences in other territories without the expence of launching new properties.”

MTG has taken control of Swedish MCN Splay, Fullscreen is owned by AT&T and The Chernin Group; Germany's ProSiebenSat.1 spent $83m on Collective Digital Studio merged it with its in house MCN Studio71.

The RTL Group, makers of X Factor via its content arm FremantleMedia, has been particularly aggressive. Via FreemantleMedia it invested in European multichannel network Divimove and took control of Canadian MCN BroadbandTV which itself recently acquired Indian MCN YoBoHo.

“The investments are bets that digital platforms, reaching global audiences at scale, will continue to grow,” says Ginsburg of The QYOU which curates short form video and sells the package to payTV providers. “MCNs represent a key access point to the new talent, IP and formats and have operations built to manage and monetize audiences, making them obvious targets for traditional players.”

In a flat to declining market broadcast and payTV stakeholders identify MCNs as a source of growth. Explains Broughton, “There is often a short termist view that if you launch an MCN then that might cannibalise your core business, but actually operators should looking to 2020 as the point when online media makes more money than pay TV.”

However, there aren't too many MCNs left to snap up, putting even more of a premium on those that remain (e.g The QYOU, Digiflare) and leaving media organisations with a choice: build your own (Endemol's organic MCN brand Endemol Beyond], buy one at great expense, or attempt to curate them. Services from Sling and Comcast fold MCN-produced content into their linear channels.

Sky made a series of insight investments, including in U.S MCN Pluto TV and sports network Whistle ahead of launching Sky on Demand on Sky Q which curates content from digital creators including Barcroft Media, Red Bull Media House and GoPro. Vice is launching its first European linear channel, Viceland, with Sky in September.

“Traditional players are recognizing opportunities to capture ARPU from these audiences away from online-only platforms by investing in content that has, in many cases, huge built-in audiences,” says Mano Kulasingam, co-CEO, Digiflare.

The MCN deal

What do MCNs get out of the move? “The opportunity to tap into the enormous ad inventory, marketing budgets, and distribution that the pay TV platforms can offer,” says Kulasingam.

“Many MCNs have very low margins, almost negative numbers, so allying with a major broadcaster or content creator makes sense,” summises Broughton. “They can access ad sales teams for cross media campaigns and tap into big brands and production expertise. Alliances also offer a way of getting content onto broadcast platforms which is where the bulk of money still is. Plus it means investment. There are only so many times an MCN can go back to the market to raise capital.”

Last year, Disney-owned Maker Studios began pitching original show ideas using its 5000 strong talent roster to broadcasters. The Disney-owned MCN generates 700 million monthly views in the UK alone. Among its first commissions was a GamesMaster-style video game show from indie Somethin’ Else.

“Talent must buy into the idea, says Hewitt, because they will be expected to activate their online fan base, across YouTube and other channels to drive them to tune in to linear TV.

Maker also launched Revelmode, a network built around PewDiePie which includes an animated series featuring the gaming vlogger.

“MCNs play a crucial role in helping channels and content creators monetize their assets and have a vital role to play in the future of TV,” suggests Kai-Christian Borchers, co-founder, Three Screen Solutions. “There is still value in the term MCN, although some with a network of channels across different platforms might be better called multi platform networks.”

One of Borchers' clients is Red Bull, the archetypal brand-turned-content creator. “Red Bull is not making money with their immense portfoilo of VOD content or leveraging it anywhere near as much as they could because it has used it to date as a pure branding vehicle,” he suggests. But this is changing with the imminent launch of Red Bull's linear TV channel.

Content creators and the MCNs who manage them are reaching a level of maturity, allowing them to depend less on large-scale content aggregator platforms and toward attracting revenue through direct-to-viewer platforms.

“This development has been helped by the greater availability of technologies (like Digiflare's own app publishing platform Videa that make it possible to create and deploy a purpose-fit suite of apps from the ground up – even without specialised software development expertise,” notes Kulasingam.

He says that experimenting with direct-to-viewer models opens up the potential for MCNs to drive customer satisfaction with the user experience and simultaneously address problems with device and platform fragmentation.

“Direct-to-viewer enhances an MCN’s ability to control exactly how content is showcased while growing ARPU,” he argues. “Meanwhile, the risk of brand dilution or outright damage from inappropriate, directly-opposed, or offensive advertising (for instance) is either reduced or eliminated. “

The next step for MCNs who manage recognizable brands and personalities is to explore partnerships across the full breadth and depth of the media landscape.

“MCNs now exist less as aggregated networks of channels for advertising and more as sophisticated organizations that encompass the entire spectrum of content creation and delivery,” describes Kulasingam. “They handle everything from talent discovery and acquisition to video content production, audience engagement, and advertising.

“Whether through direct-to-viewer models or by integration with pay TV platforms, MCNs will be able to enhance production values, acquire new talent, and obtain a higher degree of personalisation in the design and functionality of the platform. In the next few years, the ability to exercise control over the way their content is discovered and delivered is going be a fundamental part of any MCN’s strategy for reaching and engaging new audiences.”