Wed, Mar 26, 2014 - Page 15 News List

Disney to buy YouTube video producer Maker

FOCUS SHIFT:Disney said buying the channel network would give it access to 380 million younger subscribers and 55,000 channels, which it could mine for characters

AP, LOS ANGELES

The water tank of The Walt Disney Co Studios is pictured in Burbank, California, on Feb. 5.

Photo: Reuters

Disney said on Monday that it is buying YouTube channel operator Maker Studios for US$500 million, as the family entertainment giant seeks to stay in front of younger viewers who are increasingly watching short videos online.

It is the latest and largest acquisition of a YouTube channel network by a major Hollywood studio and represents another vote of confidence in the video service as an incubator of talent.

The Walt Disney Co said it would pay up to US$450 million more in bonuses if Maker meets performance targets, the company said. The Maker deal is Disney’s biggest acquisition since it bought Star Wars creator Lucasfilm Ltd for US$4.06 billion in late 2012.

The purchase is to give Disney ownership of 55,000 channels — including Epic Rap Battles of History and makeup expert Amy Pham’s The Fashion Statement. Combined, Maker has 380 million subscribers and generates 5.5 billion views per month.

Buying Maker Studios is to help Disney reach young audiences, Disney executive vice president of corporate strategy Kevin Mayer said in an interview.

“They have the biggest audience on YouTube. It’s very hard to replicate,” Mayer said.

He said that while Disney also reaches younger viewers, their habits are changing.

“To the extent that they’re finding YouTube, we want to be there too,” he said. “We don’t want to have any vacuums.”

Mayer said that Disney could also find talent for its TV shows and movies in the YouTube stars on Maker Studios’ channels.

It would not be the first attempt to mine YouTube for characters that could be taken mainstream. In 2010, Lions Gate Entertainment Corp released Fred: The Movie, using the character that Lucas Cruikshank turned into a viral, if annoying, sensation on YouTube.

It also follows other media giants into the space.

Earlier this month, Time Warner Inc’s Warner Bros led an US$18 million investment into videogamer network Machinima. Last year, DreamWorks Animation SKG Inc bought the AwesomenessTV network for US$33 million, with a bonus potential of US$117 million if the studio met earnings targets over two years.

Manatt Digital Media Ventures investment fund chief executive Peter Csathy said the scarcity of leading YouTube channel networks has contributed to a run-up in the price for the few that remain.

“The mass numbers of viewers coming to these channels is what it’s all about,” Csathy said. “It’s the numbers and the scale. It’s that coveted young demographic. Those are the contexts underlying all of this.”

Maker was founded in 2009 by YouTube stars Lisa Donovan and her brother Ben, Danny Zappin, Shay Carl Butler and Kassem Gharaibeh. The company operates out of makeshift offices spread over several buildings in Culver City, California, and generates hundreds of videos every month.

Maker raised US$70 million in two fundraising rounds from 2012 to last year that reportedly valued it at about US$300 million. Investors included Time Warner Inc and others.

Last year, Ynon Kreiz, the former CEO of production company Endemol, became Maker’s CEO after Zappin stepped down in acrimony. Zappin later sued his co-founders over his ouster.

The combination of Maker’s earnings and accounting charges Disney will have to make on the purchase will dampen Disney’s earnings per share “mildly” through the 2017 fiscal year, Mayer said.

Disney shares rose US$0.35 to US$79.84 in after-hours trading on Monday after falling US$0.86, or 1.1 percent, to close at US$79.49 in regular trading.

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