Who the hell is Relativity Media? That was the first question I asked when I found out they were trying to outbid Disney and acquire Maker Studios for a reported $1.1 billion including $525 million in stocks/cash, up to $500 million in earn-out payments and an additional $75 million bonus pool in stock for talent/other employees.
Update: Maker say thanks but no thanks
Relativity Media, founded in 2004 by CEO Ryan Kavanaugh, considers itself a next-generation studio. Since their inception, they have generated more than $17 billion in box-office revenue and have divisions extending to music, television and sports. It makes perfect sense why they would want Maker Studios. It’s the one piece of the puzzle they have yet to acquire if they truly want to be considered next-generation, but is Maker Studios really worth that high of a price tag?
In 2009, Relativity Media purchased Rogue pictures from Universal Studios for only $150 million. Here we are only 5 years later and they are valuing Maker at over seven times that amount if all incentives pay out. It just doesn’t make any sense. How can Maker, which is essentially a collection of licensing agreements that allow advertisements to run against YouTube videos, be worth that much money? If there is any bubble about to burst related to YouTube it’s the network/MCN bubble. As network partners are increasingly frustrated with dwindling YouTube revenue, it is only a matter of time before expiring contracts are tossed to the wayside and partners return to a vanilla YouTube contract, which would completely render networks like Maker Studios powerless.
What is The Real Value of a YouTube MCN?
I can’t imagine that Disney and Relativity are unaware of this arrangement, so that leads me to wonder, what is the real value in a YouTube MCN? It doesn’t appear to be the channels or the ad deals on YouTube, because those could vanish at any time. By all reports it appears that the real value is you, the viewer. Your viewing habits, buying habits, and the way you interact not only with the content creators but with the advertisers who come along with them.
It used to be that there were only a couple main paths of entry into earning money from online video content. You could either get featured on the front page of YouTube or get featured by a prominent YouTuber. Either that or you were forced to work hard and wait for a lucky break that may never come. But in 2009 that all changed with the foundation or Maker, albeit slowly. Prominent YouTubers started to sell their social influence to the highest bidders. Fast forward to today and although a channel could gain significant influence via one of the old methods, now more than ever corporations hold the keys to promoting channels and creating success in the online video market.
When I heard Disney was acquiring Maker, I thought it was absolutely overvalued, but that with Disney’s track record and expertise the fit made sense and was worth the risk. With Relativity, I’m just not sure. I don’t quite see the fit as clearly as I did with Disney and the valuation makes even less sense to me. But there is only one group of people that need to agree with the valuation. The Maker shareholders. They are scheduled to vote on the acquisition on April 15th, although that date could be delayed due to an injunction filed by Danny Zappin (former Maker CEO) and a group of other ex-Maker executives who sued last summer for breach of contract and fraud, even going so far as to point to his being asked to step down being a precursor to a “liquidity event” much like the one they are expected to vote on tomorrow.
In the grand scheme of things it doesn’t matter who the buyer is, Disney or Relativity. Either one looks to be another step away from the home grown user generated talent that Maker was founded on. Both of them appear to be competent media companies that could help drive more revenue to online video content or at the very least use the data Maker has to fuel their own interests. Congratulations are certainly in order for Maker shareholders regardless of who the buyer is, because this is one deal they should accept as they immediately make their way to the bank, laughing all the way.