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Disney Buys Maker Studios In Deal Worth At Least $500 Million

The Walt Disney Co. is acquiring Maker Studios, a top YouTube multichannel network, for $500 million with a performance-based earn-out of up to $450 million, the Mouse House announced.

According to Disney, Maker Studios will bring it “advanced technology” and insight into consumers’ discovery and interaction with short-form online videos, including Disney content — especially among millennial auds.

“Short-form online video is growing at an astonishing pace and with Maker Studios, Disney will now be at the center of this dynamic industry with an unmatched combination of advanced technology and programming expertise and capabilities,” Disney chairman and CEO Robert A. Iger said in announcing the deal.

SEE ALSO: First Machinima, Now Maker: Why Studios Suddenly Got Hot for MCNs

After the deal was announced, Disney shares were up as much as 0.3% in after-hours trading, to $79.75 per share. The company’s stock had closed down 1% in regular trading, to $79.49 per share, amid a broader market decline. Separately Monday, Disney announced ABC News chief Ben Sherwood will be Anne Sweeney’s successor as head of the Disney/ABC TV Group.

For Disney, the deal makes a lot of strategic sense, as the media conglom strives to remain connected to younger audiences that are increasingly consuming content on YouTube and other digital outlets, said Will Richmond, an online-video analyst who runs VideoNuze.

“It would be a huge blunder for (Disney) to lose the pulse on that market,” said Richmond in an interview before the deal was officially announced.

Disney’s deal to acquire Maker comes after Warner Bros. led an $18 million investment in Machinima, a struggling YouTube MCN focused on videogamers.

Disney’s deal for Maker, which is subject to regulatory clearances, is expected to close in Disney’s 2014 third fiscal quarter, which ends in late June. Maker Studios has about 350 employees, and they’re all expected to join the Mouse House; Disney said it has signed employment agreements with Maker’s senior management team.

SEE ALSO: Why Disney Is Taking the Huge Risk of Buying Maker Studios

Maker Studios will report to Disney chief financial officer Jay Rasulo, the company said. Maker Studios will remain based in Culver City, Calif., with operations in New York and London. “Disney is synonymous with the best entertainment and is the ideal partner for us, strengthening our position as the leading player in online video,” Ynon Kreiz, exec chairman and CEO of Maker Studios, said in a statement.

In an interview, Kevin Mayer, Disney’s exec VP of corporate strategy and business development, said the deal was driven by the fact that “Maker is the obvious leader” in the MCN space. He said the pact came together in about five months: “This was a pretty deliberate process.”

Under the current plan, Maker’s Kreiz will report up to Rasulo — rather than having the MCN housed in the Disney Interactive division — because Disney wants to integrate Maker into all parts of the company, Mayer added.

Maker Studios, founded in in 2009, claims to have more than 5.5 billion monthly video views and 380 million subscribers across its channels.

But while YouTube MCNs have been able to amass large audiences, they have had a difficult time turning a profit on original content distributed on the Google-owned video service. Increasingly, multichannel networks like Maker Studios, Machinima and Fullscreen are looking to migrate their audiences to other platforms, including their own websites, to be able to better monetize that content.

“Certainly as part of the Disney family, (Maker) would get a lot more ways to skin the cat” in terms of how it makes money from online video, Richmond said.

Disney’s deal for Maker and Warner’s investment in Machinima are the latest moves by big entertainment companies looking to delve into the YouTube space specifically and original digital content more broadly. Last year, DreamWorks Animation bought AwesomenessTV in a deal worth up to $117 million.

Maker Studio had raised more than $70 million in funding. Investors include: Time Warner Investments; Upfront Ventures; Greycroft Partners; Ynon Kreiz, Maker’s executive chairman; Downey Ventures, the investment company for Robert Downey Jr.; Elisabeth Murdoch; Fuel: M+C, the investment company for John Miller and Jimmy Yaffe; Daher Capital; and producer Jon Landau. More recent backers include French media conglom Canal Plus; Astro Overseas, the government of Malaysia’s strategic investment fund; Singapore telecom provider SingTel; and venture-capital firms Lakestar and Northgate Capital.

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