There’s No Such Thing as an MCN. It’s a Figment of Your Imagination

Spoiler alert: MCNs don’t exist. They are a figure of your imagination.

20 months ago we sold Maker Studios to Disney for $500 million in cash plus a large earn out. From the day after we sold the company until today I felt it was important that I not comment too much publicly about online video even though I continued to work actively in the sector and made five more investments. I figured I owed it to both Disney and to Maker not to state views that could be construed as their views during a period where I was still involved.

The initial period of the agreement has ended so I wanted to get back to talking about online video.

There is a terminology that I really fucking hate because it’s both pervasive and meaningless. MCN. Multi-Channel-Network. What does that even mean? Who came up with this term and why? And why does every investor who talks about online video say things like “We don’t want to invest in MCNs” as though anybody even knows what one is?

Nobody invests in MCNs because they don’t exist and anybody doing what investors *think* an MCN actually is would never be able to raise money or build an interesting business. The reason is that most people equate MCN with “YouTube aggregators” meaning people who sign up video creators, roll them up into a single content management system and then collect advertising revenue from YouTube.

This is dumb because you really are nothing more than a temporary ad network if you do this and usually one who delivers almost no value. YouTube aggregation isn’t a business. It can’t be funded. It has low margins and no sustainability. I wrote about the economics of online video and pointed out that only 17.5% margin is accrued to YouTube aggregation so if you want to build a real online video business you need to do much more.

And the problem is that 95% of the people I meet who comment about the industry actually have no idea what actually happened inside of companies like Maker Studios. When we were acquired by Disney we had a product & engineering team of 55 people. We built great assets for tracking analytics and royalty management. We built creators tools and website builders. We helped talent with O&O (owned & operated websites) and with ad sales. We sold brand integration. We had a studio and invested in content creation. We did a hell of a lot.

As I’ve stated before, YouTube has always just been “the top end of the funnel” for video creators. If you’re not creating video on YouTube and you want to build online video audiences you’re leaving followers on the table. YouTube is still the 800-pound gorilla. It’s true that FB is now a serious player in video but video views do not equal video views do not equal video views. For starters people watch YouTube with the sound on. Many “views” on FB are autoplay and sound off. Video is much more valuable with sight, sound & motion. Your job on YouTube is to build fans and convert audiences that want to also consume your content elsewhere. It’s both / and. YouTube AND other platforms.

But if you’re not on FB in 2016 you’re crazy. It’s where mass audience goes every day and for hours on end. The video you deliver on FB is different, the way you engage fans is different and even the conversation is different. But they’re both very relevant. And your goal on FB is, you guessed it, to build fans that want to watch you on FB AND fans that want to consume your content elsewhere.

I’ve given this analogy before. You sell candy bars. You want to sell them in Walmart, Target and Ralphs/Vons/Safeway/Kroger …whatever your local supermarket example is. You would never only sell in Walmart. Each distribution channel you sell products in has its own unique customer base but your goal is to build a relationship with those end customers. Consumer product companies often create unique versions of their product that aligns with the specific channel in the way that people build high-volume SKUs for CostCo.

That’s your job. You create and aggregate videos. And they’re only valuable if people watch them. And if they love your brand and want to watch more.

And of course SnapChat is relevant for younger video consumers. I’ll talk about this another day. But ignoring SnapChat for video is a mistake.

The future of online video is bright. The platforms are expanding and fragmenting. The audiences are getting longer. The distribution sources are increasing. Now there’s Vessel, and Verizon’s Go90 and Comcast’s Watchable. And Hulu. And Amazon’s short-form channels. And Netflix, Roku and Apple TV. And Vidme.

I will talk more in the coming months about how we see the online video world. But I’ll say one thing. The future won’t be dominated by Silicon Valley. It requires too many creative skills including writers, actors, special effects, set designers, sound engineers, editors, make-up artists, costume designers, graphic artists and on and on, which is why LA has become such a hub for online video. But the future won’t be dominated by Hollywood. It requires too many skills in SEO, audience measurement, platform integrations, CRM, retargeting, a/b testing of titles/thumbnails and development of one’s own platform for CMS and mobile distribution.

I talked a bit about that battle a while ago.

The best online video companies will be technical in nature and content at their core. They will be hybrids. And these days are much more likely to be on flights between LA & NYC than other route.

Nobody who is a mere “aggregator” of content will win. Nobody who only on YouTube will win. And there is no such thing as a fucking MCN.

p.s.

if you have to ask “why that graphic” I can’t tell you. It’s the first rule. But ask a friend about Tyler Durden.