The Rise of Multi-channel Networks
The advent of MCNs has attracted considerable mergers and acquisitions attention from big media and telecom companies, who are looking to expand their participation in digital video
Amish Dedhia, Associate Director, PwC
Entertainment on the move is the mantra in the connected world. Video viewing habits are evolving rapidly, not just in mature markets, but globally, and especially among younger audiences. That explains the rise of Multi-Channel Networks (MCNs) — outfits that curate their own/aggregated video content and distribute them on online video destinations. Now, traditional media and telecom companies are trying to get in on the action by launching Over-The-Top (OTT) platforms or buying stakes in these new networks.
The advent of MCNs has attracted considerable mergers and acquisitions attention from big media and telecom companies, who are looking to expand their participation in digital video. As per media reports, Disney acquired Maker Studios for $500 million; Otter Media, a joint venture between Chernin Group and AT&T, acquired stake in Fullscreen with a deal value estimated between $200-300 million. Players like TVF, Culture Machines, Qyuki and HomeVeda have received equity investments from financial investors like Tiger Global, Cisco, Zodius, Blume Ventures, among others.
These deals are being driven by the changing behaviour of audiences and advertisers in the video and television ecosystem. Younger audiences are more and more watching short-form video online and on mobile devices, making them increasingly hard to reach via traditional television. Advertisers are following all those viewers onto digital platforms and video spending is starting to shift towards digital. Demographic shifts are leading to rapid growth among audiences in emerging markets. Media companies are looking to build global distribution networks to tap into this growth opportunity, particularly from expanding middle classes with rising amounts of discretionary income.
Emerging economies like India are mobile-first, and growth in media consumption in these places is happening primarily on mobile devices. MCNs can reach these audiences without the high infrastructure costs associated with traditional pay-TV, which means that media companies can achieve global scale much faster than ever before. Distribution on digital networks offers rich user data, which can be analysed to create relevant content and provide brands with the desired audience reach. MCNs also offer a platform to discover creative talent.
Telecom operators have a captive audience base in terms of their users, who are consuming content online on smartphones. Presence in the online video segment enhances the data usage and also offers the opportunity to provide relevant content to the targeted set of users. Opportunity to increase ARPU and gain from the advertising revenue has prompted telecom operators to play in the digital video segment by organic and inorganic means.
There are two predominant ways for an MCN to make money. One is the advertising revenue which is based on the number of views. Platforms like Facebook and YouTube have the reach and capability to generate advertising revenues on the videos shared by the MCNs on the respective platforms. These platforms retain their share of the ad revenue and pass on the rest to the MCNs. The MCNs further retain their share of the revenue and pass on the rest to content creators. One of the activities undertaken by MCNs is to aggregate and distribute content of existing media/television firms. MCNs support individual artistes and small media firms in producing, curating and distributing their content online. The capability to spot creative talent and help them monetise has been the key to success of MCNs. MCNs are now creating their own content and have the end-to-end capabilities ranging from creative ideation to production to curation-distribution to monetisation. Some MCNs are creating their own digital destinations and investing in the marketing capability to generate advertising revenue. This would help them develop a loyal user base and generate advertising revenues, which may not have to be shared with platform partners. MCNs are also investing in creating Intellectual Property in terms of web-series and channels. This helps them gain access to the second key revenue driver — sponsored content. MCNs partner with brands who can sponsor content either in the form of branded shows, brand theme programmes or in native advertising. The entire share of revenue flows from the brand owner to the MCN in such cases.
The future of MCNs may lie in their ability to evolve into Multi-Platform Networks (MPN). MCNs in this case have to go beyond distributing their content on the Internet either with platforms like Youtube, Facebook or their own destinations. The key to success would be to develop quality original content which can be distributed across platforms ranging from mobile to television. Verizon’s recently launched mobile app is a social entertainment platform for watching and sharing primetime shows, music, sports and videos. MCNs enter into contracts with Verizon for delivery of original content or shows from their libraries. Destinations owned and operated by MCNs can also attempt to provide a complete user experience around the entertainment genre they are targeting. Distribution channels like TV, Facebook and YouTube offer similar User Interface across genres, whereas MCN destinations can augment the experience by adding relevant ancillary inputs. Reaching relevant audience and leveraging the data analytics around the user profile can be a recipe of success for the MCN as well as the advertising community and brands. Complete consumer engagement can help in targeted communications with the consumers when they are not actively consuming content on the platform. MCNs focusing on kids have been able to achieve reach and scale based on the animated play stories and rhymes, which resonate well with the target audience. Multi-platform expansion can accordingly be the key for MCNs to capitalise on the audience’s loyalty to creators. Players like Fullscreen are likely to launch their own subscription-based video on demand version. However, the reach and monetisation success of the paid networks is yet to be witnessed in the Indian markets. TV Channels are coming up with their OTT formats, which may be in competition with the MCNs.
Counting on monthly views with less monetisation may not be the mantra for success in the current scenario. MCNs who can demonstrate the ability to create IP, reach and influence loyal domestic audience, right use of technology and data analytics and the commercial monetisation through multiple means may be in a position to attract interest and investment from global strategic and financials media investors. Investors would like to back strong business models and value the related synergies in creating and delivering quality online content combined with access to untapped creative talent and valuable IP.
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