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Why Hearst Thinks AwesomenessTV Is Worth $325 Million

Hearst made another big bet this week that its future lies in digital media, writing a check for $81.25 million to take a 25% stake in DreamWorks Animation’s AwesomenessTV.

The deal gives AwesomenessTV an implied valuation of $325 million — nearly triple what DreamWorks Animation paid for the teen-oriented YouTube multichannel network last year.

“It’s a bet on the future,” Neeraj Khemlani, co-president of Hearst Entertainment & Syndication and president of Hearst Digital Studios, said in an interview. “The monetization opportunities that [AwesomenessTV founder and CEO] Brian [Robbins] and everyone else have been working on are evolving as we speak.”

Khemlani said he began discussing the prospect of a joint venture with Robbins after the companies struck a pact for the publisher’s Seventeen teen-girl mag, under which ATV relaunched the property’s YouTube channel earlier this year.

“It was in the process of doing that that I really got to know Brian, and over the next several months we got to know each other’s ambitions, needs and wants,” he said. “I got an understanding how much he wanted to grow that business globally.”

He added, “There’s a lot of upside on where this is going. We are in a perfect storm of next-gen media creation.”

Hearst — whose businesses include magazines, newspapers and 39 local TV stations — already has made big investments in a digital future. The company owns a 50% stake in A+E Networks (with the other half owned by Disney), which invested $250 million in upstart Vice Media this summer. In addition, Hearst, through its venture-capital arm, has invested in other digital-media business including BuzzFeed and Roku.

AwesomenessTV, which now has about 130 employees, has grown gangbusters since launching in August 2012. The company claims it now generates some 800 million monthly views and has 114 million followers on YouTube. “They’ve developed a huge brand,” Khemlani said. “They are leveraging a large (audience) base, becoming a safe and empowering umbrella for talent. That’s a sea change in how media is created.”

Why didn’t Hearst acquire AwesomenessTV outright? By all accounts, DWA wasn’t looking to sell the division. “Jeffrey [Katzenberg, DreamWorks Animation’s CEO] is invested in it,” said Khemlani. “He’s got big hopes for this.”

It was DWA’s acquisition in May 2013 of AwesomenessTV — worth up to $117 million — that kicked off a frenzy of big-media companies buying and investing in digital-video startups.

The most sizable of those was Disney’s acquisition this spring of YouTube MCN Maker Studios, in a deal worth up to $950 million, a price tag that had some observers scratching their heads. Other notable transactions include Fullscreen’s sale to Otter Media, the online-video joint venture of the Chernin Group and AT&T; European broadcast giant RTL Group’s acquisition last month of fashion and lifestyle MCN StyleHaul for $107 million, valuing the company at $151.4 million; and Warner Bros.’s investment in fanboy-focused digital studio Machinima.

Hearst’s investment in AwesomenessTV shows that the pace of M&A and investment in the digital-video arena will continue — and likely accelerate — in 2015, said Manatt Digital Media CEO Peter Csathy.

The deal is “yet another example of traditional media buying its way into the digital-first media world fueled by smartphone-watching millennials,” Csathy said. The trend, he added, “ain’t slowing down anytime soon.”

With the Hearst investment, AwesomenessTV will gain access to Hearst’s subscription video-on-demand platform. This summer, Hearst launched CosmoBody, a fitness subscription video-on-demand service with the tagline “Get Hotter. Faster” targeted to Cosmopolitan magazine’s female demo, priced at $9.95 per month. The CosmoBody SVOD channel will be a template for similar services, Hearst said — and now, AwesomenessTV hopes to tap it as well.

“The SVOD thing was a big magnet for me,” Robbins said.

Hearst, under the deal with AwesomenessTV, is primarily an investor and isn’t dedicating employees to the venture per se, according to Khemlani. However, Hearst Digital Studios will work with the MCN to develop the SVOD platform with ATV and also will pursue business-development deals. “We are incentivized to help fuel their growth globally,” he said.

“We don’t know yet how far these trees are going to grow,” Khemlani said. “We’re in the second inning.”

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