Why Machinima Needs a Media Company in Next Money Round

/ Jun 21, 2013

Machinima

Yes, Machinima is looking to raise a massive round of new financing, which could be as high as $70 million, according to All Things D. If we assume the max is $70 million, that would bring Machinima’s funding total to roughly $120 million to date. And with that money, the video network aspires to create a subscription/over-the-top business that could bring it closer to Netflix and Hulu as one of the premiere digital video networks. That much we know from the report and when following up with people who have knowledge of the company’s plans.

Machinima believes it can create a lucrative business model by not only offering high-quality content, but also making that content available via a premium OTT service that’s available across a variety of platforms.

That said, if Machinima does plan to raise a huge sum to offer more high-quality content and scale its business, the investment needs to include a major media company like a Comcast (which earlier this week pumped some money into Fullscreen) or a Time Warner (which is a major investor in Maker Studios). And here’s why:

What Machinima wants to be is a “multi-platform global programming brand for the fanboy culture,” said Machinima CEO Allen DeBevoise from Cannes this week. And according to him, the best way to do that is to “connect the two revolutions happening in video,” one of which is the open playground of YouTube and the other being the bingeing of “high-end, episodic” content on services like Netflix, Hulu, and HBO Go. “Connecting those worlds is a real opportunity for us,” he said in the interview with Beet.TV.

Machinima is already adept at programming to its audience, which is quite large as the company just reminded us yesterday. In the same Beet.TV interview, Allen DeBevoise said the company is generating 2.5 billlion video views every month, of which nearly 1 billion are coming from mobile devices, with a worldwide audience of over 200 million people.

The company has notably launched a couple of original online series that stand above most of what you see on the web: “Halo 4: Forward Unto Dawn” and “Battlestar Galactica: Blood & Chrome.” Both shows were instances of Machinima taking an existing IP and providing a platform on which the network’s audience, as well as other fans of the Halo and Battlestar Galactica franchises, could watch something new, but tied to content that they already loved.

If Machinima wants to build a subscription/OTT business, it’s going to need to be able to have access to more IP, which media companies have in abundance.

The issue isn’t the ability to develop and launch branded OTT apps. Yes, there are concerns about whether a YouTube-based company can pull its audience to an off-YouTube destination. But in late April, Machinima launched an Xbox app, which had about a million installs in its first 20 days. So it has some experience on this front.

But a standalone video platform, one that requires users to pay in order to stream content, needs to give a reason for users to come, pay, and watch. Remember, the two premium, subscription online video properties that DeBevoise cites in his interview, Netflix and Hulu, were built off the back of licensed IP. Netflix didn’t jump out of the gate with expensive, original programming, it first offered users access to a huge library of licensed content. And we all know who Hulu’s owners are and what drives the company’s business.

What’s more, beyond just offering great original content, any new subscription video business is going to need a sizeable amount of marketing support in order to find and build an audience.

Machinima already has a big audience. But how many of its 200 million global viewers actually watch any of the network’s original fare? How many would be willing to pay to watch that programming? (I’d like to know the same about other MCNs that offer a mix of original programming — and I mean actual programming — and videos created by stars or uploaded by random users.) Machinima can’t assume that its audience is willing to take that extra step and pay for programming.

Coincidentally, large media companies have a lot of practice in marketing new platforms and shows.

Thankfully, large media companies aren’t exactly averse to investing in YouTube MCNs — Awesomeness TV, Maker, Fullscreen, WIGS, and whoever NBCUniversal ends up purchasing (if they do), can all attest to that.

Otherwise, Machinima can raise a massive financing round, and still be subject to the million-dollar question that looms large over the YouTube ecosystem: Is it possible to build a lucrative business on, or springing from, YouTube? Not that a strategic partnership with a large media company would completely eliminate these concerns, but it would certainly make it easier for Machinima to reach the stature it aspires to.

We don’t know exactly what Machinima plans to build with the amount of money it’s hoping to raise. We know it’s a subscription/OTT business in the vein of Netflix and Hulu, but we don’t know if it will be ad-supported, and we don’t know how it will change the company’s relationship with YouTube.

When reached for comment, a Machinima spokesperson indicated that the company has no desire to move off of YouTube, calling the video site “a key component of Machinima’s strategy” and “the best platform to build a global media brand upon.” (It also helps if YouTube parent Google is an investor in your company.)

We don’t even know if the company will actually be able to raise that kind of sum.

What we do know is this: Machinima’s future is brighter if it has a large media company riding shotgun.

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