IBC
Just as multichannel networks (MCNs) threatened to pull the millennial audience away from TV for good, operators have spent big to get them on board. It's a synergy that benefits both parties and a topic covered in depth at the IBC2016 Conference.
MCNs started out linking millennial content creators with video aggregation platforms, principally YouTube. Sandwiched between the content creators and the audience for YouTube channels, “uncharitably you could call them middlemen,” says Ampere Analysis research director Richard Broughton, and “that model had to evolve.”
YouTube revenue was $5bn in 2015 of which the Google-platform took 45% with MCNs taking the remaining $2.9bn, most of which flowed back to the original content creators leaving MCNs with little margin.
In response MCNs began to verticalize to get closer to content creators. Broughton explains, “If you can produce content you no longer have to give away the majority of revenue that comes from advertising.” For example, Tastemade, for example, concentrates on food, Stylehaul on fashion.
A parallel strategy was 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.
“Influencer marketing matters where the big agencies, that have historically bought lots of TV and lots of preroll ads, recognise this as a way to market and reach customers," says Fullscreen CEO George Strompolos.
MCNs gained greater leverage to negotiate distribution deals when Facebook entered the video game. Snapchat, Instagram, Twitter offer other options, in particular to reach millennials on mobile devices.
In a flat to declining market broadcast and payTV stakeholders have identified MCNs as a source of growth. Those who bet early have seen some serious returns on their investment. DreamWorks acquired Awesomeness TV for $95m in 2013 then sold a quarter stake to Hearst valuing the MCN at $350m. Verizon took a subsequent 24.5% stake to value the network at $650m.
“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 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.”
MTG took control of Swedish MCN Splay; Fullscreen is owned by AT&T and The Chernin Group; The RTL Group has invested in MCN Divimove and Canadian MCN BroadbandTV which itself recently acquired Indian MCN YoBoHo.
Aside from large dividends for their founders - what do MCN's get out of the deal? “Many MCNs have very low margins, almost negative numbers, so allying with a major broadcaster or content creator makes sense,” summarises 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 still where the bulk of money is. Plus it means investment. There are only so many times an MCN can go back to the market to raise capital.”
With fewer MCNs left to snap up, media organisations have a choice: build their own, buy one at great expense, or attempt to curate them.
Going the latter route, Sky, has launched Sky on Demand via Sky Q which curates content from digital creators including Barcroft Media and GoPro. Vice is launching European linear channel Viceland, with Sky in September.
While Google thinks millennials will pay for ad-free content on YouTube Red, MCNs are also launching their own SVOD initiatives as Fullscreen did in March – cutting out the middleman.
“MCNs exist less as aggregated networks of channels for advertising and more as sophisticated organisations that encompass the entire spectrum of content creation and delivery,” says Mano Kulasingam, Co-CEO, Digiflare. “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.
Explore ‘The New Broadcasters: The rise of internet TV networks’ as part of the Platform Futures conference stream at IBC2016 and network with executives running MCNs including Damon Berger, VP, Business Development, Fullscreen; Matt Campion, Founder and Creative Director, Spirit Media; Scott Ehrlich, CEO, The QYOU; Sam Barcroft, Founder and CEO, Barcroft and Bengu Atamer, Co-founder and Director, BuzzMyVideos.
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