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Why Disney Is Taking the Huge Risk of Buying Maker Studios

Commentary: MCN model still unproven but there are plenty of ancillary benefits to the purchase

By Disney standards, acquiring Maker Studios for less than $1 billion is chump change considering the eye-popping purchases the conglomerate has made over the years.

But even when you consider the multi-billions CEO Bob Iger has lavished on properties like Lucasfilm, Pixar and Marvel, the Maker purchase may be his most audacious yet. Digital acquisitions have not been kind to Disney when you consider its last two big purchases, kiddie virtual world Club Penguin in 2007 and social gaming company Playdom in 2010, have not been big winners though each cost about $700 million.

As massive a global, young-skewing audience as Maker has, this company faces a basic challenge like any other so-called multichannel network: difficulty reaping advertising dollars in proportion to even the modest amounts required to bankroll production of talent including top-ranked PewDiePie and a newly signed roster of more premium talent including Snoop Dogg, Will.i.am and Steve-O. And that’s a difficulty that may not get much easier given how difficult it is to make money off of YouTube, though Maker certainly intends to try as it signaled with its acquisition last year of Blip.

Still, if Disney can figure out how to accelerate Maker’s profitability, the upside is tremendous. By amassing hundreds of channels, MCNs have the potential to be the conglomerates of tomorrow, which will surely lead to more such investments and acquisitions. Disney is buying what could otherwise end up its competition down the road.

SEE ALSO: Media bigs flock toYouTube power players

Or Maker and its ilk — Fullscreen, Machinima, Stylehaul, etc. — are merely the media equivalent of sandcastles, susceptible to being washed away by fickle audience taste and YouTube’s low barrier to entry.

What could make all the difference in determining whether Maker is built to last is Disney itself. With a little investment, Maker may be less a profit engine in its own right than it is a vehicle to accomplish other goals for the company that justify the price tag. That includes having an in-house incubator to understand how to navigate YouTube, which essentially functions as a global MSO. But programming ESPN or Disney Channel is nothing like doing same for the Internet, which the conglomerate’s struggling Disney Interactive has found out the hard way.

It’s interesting to note that Maker will operate independently enough that it isn’t being folded into that troubled division, which would be the logical place for Maker to go considering so many of the conglomerate’s other digital properties are housed there. Instead, Maker will report directly into CFO Jay Rasulo, who would certainly help his chances for succeeding Iger if he makes Maker work.

Disney is also likely looking at Maker the way Dreamworks Animation does at its own MCN acquisition, AwesomenessTV. Rather than just program freestanding content for YouTube, Maker will undoubtedly become a very powerful marketing vehicle for Disney movies, TV shows and theme parks to be touted to younger eyeballs than older-skewing media.

Disney just had itself a potent reminder of the power of YouTube considering the incredible traction “Frozen” got on the platform, where its songs were viral memes that played a small part in propelling the movie to a global franchise worth over $1 billion and counting.

Maker could also be a test bed for the content that could one day migrate upstream to movies and TV after getting a cheap tryout on a mass scale — not unlike the conglomerate already tried to do on mobile apps with its “Where’s My Water” brand.

Having Disney attached to Maker could also help the MCN’s standing on Madison Avenue. Ad sales would get a pretty huge cache of additional ad inventory to sell alongside existing properties, and with brand-integration opportunities that are pretty commonplace on YouTube.

In some ways, Maker is something of a pure-play MCN. While companies like Fullscreen and Zefr have diversified into technology companies first and programmers second, Maker has been all about scale and content. That has left the company somewhat vulnerable in the eyes of some, but with Disney at its back, there’s less reason to worry.

But with the possibility of $900 million to burn on an unproven business model, it’s going to take a lot more than just digital ad revenue to make Maker worth it to Disney.

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