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Disney bets big on Maker Studios in US$500M deal

In the latest and possibly greatest statement of Hollywood's increasing faith in the potential of digital entertainment networks, the Walt Disney Company is buying YouTube multi-channel network Maker Studios. The deal marks one of the highest values placed yet on a company that was built on YouTube, and it raises a host of larger questions surrounding creativity and authenticity.
March 25, 2014

In the latest and possibly greatest statement of Hollywood’s increasing faith in the potential of digital entertainment networks, Disney is buying YouTube multi-channel network Maker Studios.

Shareholders of the online network will receive US$500 million from Disney, with an additional performance-based earn-out of up to US$450 million if targets are met, according to a statement. It’s one of the highest values yet placed on a company that was built on YouTube. Content creators within the Maker network can for the time being expect business as usual, with the studio supporting the talent in the same way it has before. Maker Studios will remain headquartered in Culver City, California, with additional offices in New York and London, and the team will report to Disney CFO Jay Rasulo.

Two weeks ago, Warner Bros. Entertainment led an US$18-million investment in gaming-centric MCN Machinima, with existing investors MK Capital, Redpoint Ventures and Google Capital also participating.

By acquiring Maker Studios, Disney is looking to gain insight on how to reach youth through short-form online video entertainment, and how to retain those consumers through ongoing interaction with them.

Maker has a proven track record in that arena, with more than 55,000 channels, 380 million subscribers and 5.5 billion views per month on YouTube, making it one of the top online video networks for millennials. It is home to online stars such as PewDiePieKassemG and series such as Epic Rap Battles of History. In recent months, Maker has inked deals with, Steve-O of Jackass fame and the Just for Laughs Comedy Festival.

“Disney stepping up to buy Maker is a very positive step for the online video industry,” says Paul Kontonis, executive director of the Global Online Video Association (GOVA). “It demonstrates that when you have a business model, which goes beyond an ad network play, your long-term value is clear and attractive. The MCNs are each evolving and like butterflies are breaking free into massive realms of opportunity.”

It’s undeniable that kids and millennials are changing their viewing behaviors, and Disney is smart to keep itself well-plugged into this demo, says Will Richmond, a leading online video analyst and founder of

“It certainly helps legitimize YouTube as a distribution platform and also the digital native talent that has flourished,” he says.

While the Disney deal bodes well for the online TV industry as a whole, it brings up a host of larger questions surrounding creativity. After all, the bootstrapping nature of web-show creators and vloggers is part of what makes them so appealing. Does being owned by a major studio jeopardize that “authenticity?”

“Success on YouTube is tied to being authentic; getting to know the audience and interacting with them,” says VideoNuze’s Richmond. “Any acquirer that tinkers too much with that formula will see that audience — which is already very fickle — turn away quickly,” he says. “It’s a new management challenge for big media companies to learn how to succeed in this environment, and we’ll find out how well they do. The content is often less polished, raw and sometimes more profane. It will take some time to become comfortable.”

But one of the reasons Disney bought Maker is to tap into the YouTube grit that connects with younger audiences, and Richmond believes they will be careful not to mess with the Maker Studios philosophy.

Disney’s track record shows that it is able to take control of a company and amplify its resources and reach, without disrupting the spirit of its brand. For instance, Disney was able to successfully integrate Marvel, whose IPs were not a natural fit with Disney’s ethos, by allowing the company to keep creative control while tapping into Disney’s distribution and marketing machine to make it an even bigger success (Marvel’s The Avengers, for example, grossed US$1.5 billion at the global box office in 2012).

“Disney bought Maker to learn about the kind of YouTube authenticity that works well and how it connects with audiences, so they’ll be careful not to disrupt the formula.”

Morgan Spurlock, a New York-based filmmaker, agrees, saying he can’t imagine Maker would allow Disney’s entrenched family values to be part of the deal.

“Maker has come out making a business model on free thought and people being able to create the things they want,” he says. “That’s what it means to be a Maker, and I think that part of the warts-and-all purchase of this must be the freedom for Maker still to be able to do that. Otherwise, why would Maker want to potentially sabotage all the goodwill they’ve built with users up till now?” he says. “I think what it brings to Maker is the ability to grow and expand and really become a much larger studio in their own right with the backing of this much larger studio.”

The key word here is potential: Disney now has the ability to incubate new shows, films and franchises, adds Tuna Amobi, senior media and entertainment analyst at S&P Capital IQ.

“The price tag for this is eye-popping for a company this size, but when you think about the Disney empire and what they can use this to do…I think that’s the potential long-term upside,” Amobi says.

 From StreamDaily, with files from Melita Kuburas

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