Buyers Briefing digital season: The true value of MCNs

Buying YouTube multichannel operators is the trend of the moment, but do those leading the takeover charge actually know what they are acquiring?

TheFineBros – Fullscreen’s biggest channel

This week, seasoned media reporter Peter Kafta revealed that Peter Chernin’s media group and US telco AT&T are set to buy leading multichannel network Fullscreen.

No major surprise there – the Chernin Group and AT&T launched their Otter Media joint venture in order to invest in the burgeoning digital video space, and have already put US$10 million towards buying crafting video site Creativebug.

Furthermore, former Fox boss Chernin already has a stake in Fullscreen, which vies with Maker Studios as the world’s largest MCN by subscriber base, having lead a US$30 million funding round in the firm last year.

The price Kafka reported, however, was eyebrow-raising. Sources have indicated the deal will value Fullscreen at between US$200 million and US$300 million. This compares with the near US$1 billion Disney is paying to acquire rival Maker (through an initial US$500 million investment and another US$450 million dependent on performance over a number of years).

Considering Fullscreen is currently the fastest-growing  MCN, according to stats from online analytics site SocialBlade (with 27.5 million subs added in the past 30 days), and has the most member channels (almost 33,400), it is unclear why Disney’s valuation of Maker is potentially four times the price Otter will pay for its digital video specialist.

It’s also key to remember none of the MCNs – even leading ones like Maker, Fullscreen, Rightster and Vevo – are actually making profits at this stage.

Could it be Disney feels there is more security with a company helmed by former Endemol CEO Ynon Kreiz, or that it has identified strong long-tail revenue potential among Maker’s 26,569 members?

Or could it be that the traditional media giants chasing this new slice of digital video industry pie simply don’t know the real value of what they’re getting into? Mergers and acquisitions are the done thing in entertainment media right now, with major firms at all levels seeming to line up new partnerships virtually week, but buying an MCN is different to buying a cable company, a channel operator or a production company.

Of course, deals for hundreds of millions of dollars won’t bring Disney or Chernin Group down in the same way the infamous AOL-Time Warner merger of the early noughties damaged both companies. But who’s to say where this is all ending up, especially when analysts and commentators expect a Google or an Apple to buy a major content company before long?

We all know what happened the last time traditional media blindly went head-first into a burgeoning digital media industry. Is it possible we’re seeing the groundwork being laid for the new digital bubble to burst?