Saturday, June 21, 2014

Reintermediation Watch: The tale of YouTube and the Multi-channel Networks

Access, on its own, used to be power. But when everyone has access, as is currently the case with media forms, where does the power go? This is an ongoing theme of this blog and today we'll look at the see-saw that has disintermediation perched on one end and reintermediation at the other.

So, what are these polysyllabic opposing forces of which you speak? Fear not, they're really just a couple of hundred dollar phrases to describe the removal of intermediaries, or middlemen, from processes that traditionally bring the producers or manufacturers of goods and services in contact with audiences and/or customers. That's part one, the disintermediation. It then may be followed by part two, the replacement of these systems, but in different forms. Disintermediation has become a hallmark of the digital era in which we live as many things have become liberated from cases, boxes, and warehouses, and can flow freely as digitalia in the connected networks that make up our communications environment.

But it's not really a scenario in which there are no middlemen. People are still using online platforms, under the control of others, with terms set by others, to get their wares out there; so direct-to-consumer (D2C) or direct-to-fan (D2F) as a way of describing a business is somewhat overstated. But, to not see the reduced power of intermediaries in these scenarios is to miss a big part of the shift.

I once heard a major music label executive use the phrase ‘the physics of the web’ to describe how the labels had to learn, the hard way, not to get in the way of fan activity online, but to let it flourish, as ultimately it was going to happen anyway, and often it would confer other benefits on the artist. In the past 8 or so years online we’ve seen huge amounts of disintermediation take place, and my interest has been in the mapping it in relation to the creative industries.

In the early days of this blog I posted about the counter force of reintermediation online, with a look at some of the changes taking place in the way musicians can now operate. Such reintermediation is the response of a disintermediated and therefore highly fragmented marketplace to a whole a new set of problems to deal with, like a glut of products and services, which is the excess we get when the intermediaries or gatekeepers are not necessary to get into the system. And the smaller players, with limited to no marketing budgets, are now competing with the big players that can have big budgets, sales teams, strategic plans, and all the other advantages that go with being aligned with a corporate entity.

Continuing with this look at reintermediation today we look at a trio of events that have transpired over the past eight weeks or so, that demonstrate the extent to which reintermediation has not just taken hold, but has caught the attention of some of the largest power brokers in the mainstream media landscape. The site of all the activity is on YouTube, where companies called MCNs, or multi-channel networks, have recently become the beneficiaries of deals worth hundreds of millions, and in the orbit of a billion dollars.

Yes, the big bucks are increasingly paying attention to YouTube, and here’s why. Because the ‘heterogeneous mess’, as a colleague has called the site, both benefits and suffers from too much of everything. It’s a great thing in theory but in practice is not navigable. If you don’t know where to start on YouTube, you’ll never get started. If you do have a starting point ….on your way to that place known as the rabbit hole, where time stops, and the next thing you know you’ve been clicking around on your iPad on a work or school night and it’s 2 a.m.
The MCN’s are an antidote to the chaos.

Are the MCN's a perfect solution to the problem of content coming at us in all forms, from all sides, all of the time? No. But working better than YouTube’s original channel experiment of 2012-2013,, which saw close to $300 million, all told, doled out to both big name and small name content people, in an attempt to create more of a TV like viewing experience on the video platform.

So, you're wondering, what function do the MCNs perform? Wasn't the whole point of platforms like YouTube to remove the intermediaries, to make it possible for individuals to just post whatever the heck they wanted, for people to be able to view whatever the heck they wanted, as much as they wanted, and to be able to pass videos along, without the interference of any third parties? Well, yes. Kind of. Nice theory, but the bottleneck created by too many videos and not enough ways to differentiate them, either by creator or theme, left a void, or some would say created an opportunity.

Enter the MCNs, which are essentially the online video world's version of a ‘roll up’. The concept comes from the world of investment and refers to efficiencies and advantages that become available when several small component parts are consolidated– in this case YouTube channels, some of which can be as basic as a 1-person show. The MCNs have salespeople and strategists that, if they do their jobs correctly, get better ad rates for the YouTubers, better distribution, and better promotion than they could obtain on their own. On the advertising side of the equation there is less risk for the brands buying the ads, because instead of getting placement in a run of raw, unfiltered YouTubery, they get inventory with a proven audience and an appeal to a specific demographic. Think, e.g., beauty bloggers and cosmetics companies, teenage boy comedy and skater fashions, food bloggers and grocery stores, or mega brands like Kraft.

At the recent MIP television conference, held annually in Cannes, an speaker representing one of the MCNs explained it best. We used to think in terms of audience. We now think in terms of fanbases. And fanbases are what the MCNs traffic in, in a way that that initiatives that begin at the corporate level and try to ‘reach out to street level’ cannot. We’ve seen it tried dozens of times and we’ve seen it fail almost as many. So where is the corporate media money now going? Large chunks of it are going to the MCNs. In mid April, in a deal valued at $900 million, Disney acquired MCN Maker Studios, home to such YouTube channels as PewDiePie, Epic Rap Battles of History, and Philip deFranco, representing millions of views per day and several billion views at the aggregate level.

A few weeks later Viacom, parent company of MTV and Comedy Central, acquired a non-controlling stake in Defy Media. Defy is a multi-platform media company (with both online and offline properties) that focuses on content for 13-34 year olds. Their YouTube MCN is home to such channels as: comedy duo Smosh, pratfall and prank site, and celebrity news channel Clevver TV. The basic stats on those channels, to the end of June 2014 are:

Consider these figures in light of a recent report on the Top 500 non-entertainment brands on YouTube, that means channels operated by companies whose primary business is not entertainment. On average their YouTube channels have 82,000 subscribers, and that's up from 37,000 a year earlier. A huge jump, but their numbers pale into comparison to thousands of YouTubers, many working as 1 person shows. If the brands can't get the numbers on their own their next best strategy is to piggyback where the views actually are happening.
And because things happens in threes -- or at least that's when we start really paying attention to them -- this past week the news broke that Time Warner is in negotiations with Vice, the bad boy media company profiled in this recent blog post. If the deal goes through Vice will be valued in excess of $2 billion. Rupert Murdoch, of News Corp. and 21st Century Fox fame, acquired a 5% stake in Vice back in the summer of 2013, and for those need to be reminded, he purchased MySpace for $580 million in 2005 (when Facebook was unknown save for a select group of college campuses) and we all know what happened there.Will this latest round of re-intermediation end up like MySpace, where the corporate cash infusion and mindset allegedly sank the ship, or will it lead to evidence that media properties developed outside of the conventional systems of power and influence can get a seat at the table, and do so by entering through the side door. We watch and we wait.

Extra credit section: Not everyone is of the opinion that disintermediation is a good thing for the creative industries. For more on this topic see this article on the downside of disintermediation by intellectual property lawyer Terry Hart.

And from March 2015 a look at the inner workings of MCN's here.

Related Posts: 
Platform Capitalism, or why your parents don't understand the Internet
YouTube: When the going gets weird, the big get bigger
The festival of the stars of YouTube
YouTubers in 2015: The appeal of the Annoying Orange