Packaging, promoting and monetizing someone else’s online video is becoming big business.
Companies that specialize in aggregating brand-friendly video content, dubbed multi-channel networks or MCNs, are showing up on the radar of the world’s media majors in addition to the thousands of budding creators who are signing up to MCNs in droves, watched by increasing numbers of viewers looking for an alternative to traditional TV.
In March 2014, Disney acquired one of the biggest MCNs – five-year-old Maker Studios – for US$500 million (plus a further US$450 million tied to performance targets), after a series of funding rounds for Maker that included Astro and SingTel in Asia.
The deal provides Disney with a new content engine as well as another marketing and distribution platform, helping the entertainment giant keep in touch with an audience that’s spending less time in front of the big screen.
If the model sounds familiar, it’s not that different to cable TV, reflecting how viewing is diversifying across multiple screens and content niches. Between them, MCNs offer a variety of services to creators, from ad sales to artist management, that are tailored to an on-demand, interactive world.
At the same time, technology is key, helping service thousands of channels for larger MCNs with a layer of automation for services ranging from brand integration to royalties management.
“A year in our world is like three years in television,” says Singapore-based Gautam Talwar, Maker Studios’ VP of partnerships for Asia. “The number of tools and how we set up continues to change.”
For most of their existence, MCNs inevitably focused on YouTube, but more recently, the profile of other video platforms is rising. These include Vine owned by Twitter and Instagram owned by Facebook in addition to Facebook itself, which is now encouraging its users to upload video directly rather than embed them from elsewhere.
Search and social have always influenced which online videos get watched in addition to people following their favorite YouTube channels. Now there are more video platforms to consider too. “The funnel has broadened in terms of where creators can come from, and therefore the tools and the techniques to build and monetize audiences have also evolved,” Talwar says.
Maker’s Asia-Pacific audience is on a tear, Talwar notes, with views doubling over the past six months, helping secure some sizable regional ad deals. Next Talwar wants to develop more local ad revenue, while pushing other ways for creators to make money, such as via mobile SVOD services for telcos.
Other entertainment companies are also adding MCNs to their portfolio. The first notable deal was US$33 million (plus another US$117 million in potential earnouts) for teen-oriented MCN AwesomenessTV paid by Hollywood studio DreamWorks Animation in 2013.
In September, Otter Media, an online video JV backed by US telco AT&T and entertainment producer and investor Peter Chernin, took a majority stake in Fullscreen, a broad-based MCN with around 50,000 video-makers on its books.
In November, Europe’s largest commercial broadcaster RTL took over StyleHaul, an MCN focused on fashion and lifestyle content.
So far, much of the attention has focused on large digital markets in North America and Western Europe, where MCNs have built sizable followings on the back of YouTube, a giant in online video watched by more than a billion people around the world each month.
This reach has given the largest MCNs sizable audiences in Asia-Pacific too, largely driven by English-language channels made elsewhere, but also increasingly by content made in this part of the world, in English as well as in local languages.
Domestic MCNs are building scale, notably in large YouTube markets such as Australia, India and Japan. At the same time, some Western digital entrepreneurs are opting to focus MCN development efforts in earlier-stage markets in Asia too.
A New ecosystem
YouTube has done much to promote itself as a new route to fame, opening up its auction-based advertising software, AdSense, while providing extra incentives for creators with particular promise. YouTube also provides aggregators with an extra layer of tools and analytics, in recognition of the new ecosystem it has fostered.
“I believe we will see creators demand increasingly specialized support from their MCNs, whether it’s help with rights management, analytics or production,” remarks YouTube’s APAC director of partnerships and operations, Gautam Anand.
The marketplace for online video aggregators is following its own path in Asia. Professional content played a larger role in helping YouTube gain scale here, and many Asian MCNs have built businesses around professional content and talent first.
The pool for user-generated content (UGC) is relatively shallow. YouTube has only recently offered local language versions of its monetization tools in many Southeast Asian markets for example, while broadband speeds and online ad spend are still low in many growth markets.
Additionally, a sizable slice of revenue for MCNs in growth economies comes from countries with higher digital ad spend, where CPMs tend to be higher.
“It’s just recently that creators are able to monetize here in Vietnam,” says Esther Nguyen, CEO of Pops Worldwide, a six-year-old company that started life as a music specialist.
“Prior to this, Pops had to really focus on marketing to the diaspora Vietnamese community in the US, Australia, Taiwan and South Korea to monetize," Ngueyn adds. "Now that YouTube has launched in Vietnam, it has been very exciting to see monetization opportunities in Vietnam, where most of the views come from.”
Pops has diversified beyond music, focusing on developing the women’s and kids segments where local content is in short supply, while eyeing expansion into neighboring markets.
“It would be great to see more creators and inventory, which is why we are making investments to grow, create and foster new talent,” Nguyen says. “If there are good creators, then they may or may not be brand friendly, which is challenging to sell them to brands.”
In India meanwhile, MCNs are likely to make more money by working with existing celebrities and production houses than user-generated content for the next two to three years, says Shabir Momin, MD of two-year-old home-grown MCN, OneDigital Entertainment.
“We are not close to that market as yet,” Momin says. “It will happen eventually. Right now, it’s about professionally created content. It also has to be polished content. We have about 300 celebrities from movies, food, fashion and so forth. We use these celebrities and create our own content within our own studios.”
Established production companies are finding it tough readjusting to digital economics and production, based on lower costs and faster turnaround, Momin muses. In the future, OneDigital’s studio might be spun off as a separate business. “There is a lot of legacy structure and thinking very tuned to TV,” he says.
“The problem they are getting into is high costs of production because they are used to TV and movie related content creation," Momin adds. "There is a new age of content creators and professional companies which will think digital, create digital, produce digital. They will have a better ROI because the production costs will be much lower.”
A land without YouTube
Meanwhile, different dynamics are at play in Asia’s biggest online ad market, China. YouTube is absent, and multiple sites compete for leadership. Each has its own approach and payment terms to monetize UGC, in contrast to other markets, where the dominance of YouTube has set templates for distribution and advertising.
At the same time, legal access to popular dramas and movies played a bigger role in the growth of online video in China. Making money from UGC has been a lower priority so far, but leading sites such as Youku Tudou, iQiyi and Sohu are working on better ways to promote and discover new talent.
Youku Tudou’s top UGC creators are taking more than RMB1 million (US$163,000) from shared advertising revenue each year, notes communications director Jay Chen, with more to be made from in-video product placement and brand integration.
“In the third quarter of 2014 alone, Youku Tudou shared more than RMB10 million with video creators on its platform,” Chen says.
The MCN model is nascent in China, notes Jak Severson, CEO of Thoughtful Media Group, a US-headquartered company hoping to make it big in the Middle Kingdom.
Thoughtful, present in China via an office in Shanghai since 2011, originally focused on creating online video personae in China that brands could leverage, but executives saw more promise in the MCN model, which offers marketers less control but more robust reach.
There is little market consensus in key areas such as how people get paid or what counts as a view, Severson notes, but growing interest in ways to formalize UGC monetization bodes well for the future. “If somebody who’s going to make content can also make money, they’re going to make more content,” he explains.
“That’s what I think will be recognized in China in 2015," Severson adds. "If the Chinese platforms pay the creators enough to leave their jobs, to stop what they were going to do this weekend to make videos, they’re going to make more. If they don’t do that, the creators are just going to go away.”
Thoughtful is eyeing other markets too, launching subsidiaries in Thailand and Vietnam in the second half of 2014 together with a planned sales office in Singapore, while targeting further expansion, in APAC and beyond, in the medium term.
YouTube provides a proven foundation for growth in Southeast Asia, as well as other key markets such as Australia and India, but Thoughtful is investing most in China, which is slower to monetize. “We are playing the long game in China,” Severson says. “China is just getting started.”
China also features prominently in the aspirations of another US-headquartered company, CommercializeTV, prioritizing Asia in its MCN development plans with offices in Beijing, Hong Kong, Singapore and Sydney.
The company soft-launched in China at the end of 2014, initially focusing on opening the market up to video creators from abroad while recruiting domestic talent via agents on the ground. Korea and Japan, where the MCN model is more established, are scheduled to follow in the first half of 2015.
It’s an ambitious rollout, targeting the region’s largest digital markets, but CommercializeTV is focused on building momentum in two specific categories – fashion and action and adventure – before expanding its coverage.
“We have a chief content officer that decides what content gets pushed, what quality is required,” says CEO Craig Galvin.
“That’s a key criterion for us," he adds. "We expect premium dollars and premium CPMs. It’s really hard to make a business at the commoditized end. That business is all about operating at small margins at large scale. We will hopefully attract decent margins at reasonable scale.”
An older version of this article also appears in the Q4 2014 edition of Media Business Asia magazine as 'An Accelerator For Online Video'.