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Warner Bros. Nears Deal to Acquire Machinima

Warner Bros. is close to clinching a deal acquire full control of Machinima, the gamer-and-fandom-oriented digital network in which the studio is already an investor, Variety has confirmed.

News of the advanced talks between WB and Machinima were first reported by The Information. According to a source close to the negotiations, the deal is not done yet but the parties are “very close” to completing an agreement.

Warner Bros.’ buyout of Machinima would value the digital player at less than $100 million, after the studio declined to meet Machinima’s asking price of $150 million (twice its projected 2016 revenue), according to sources cited by the Information. Jefferies is repping Machinima in the deal, per the report.

Reps for Warner Bros. and Machinima declined to comment.

In 2014, Warner Bros. led an $18 million investment in Machinima, one of the first YouTube multichannel networks, which was struggling to achieve profitability at the time. WB then led a follow-on round of $24 million in February 2015. With the funding, Warner Bros. has had the option to acquire Machinima outright.

Other Machinima investors include Google, MK Capital, Redpoint Ventures, Coffin Capital and Machinima founder Allen DeBevoise.

By becoming full owner of Machinima, WB would be able to better leverage Machinima’s young male gamer audience against its major content franchises, such as its DC Comics properties, according to Peter Csathy, founder of investment and advisory firm Creatv Media. “Machinima has its sights set on an originals strategy, and Warner Bros. properties are a great fit here,” he said.

ESports is another area where the two companies can work together: Time Warner-owned Turner has formed competitive video-game venture ELeague with WME/IMG, and Machinima could be woven into that initiative very organically.

Machinima, founded in 2000 before YouTube even existed, shifted its business to capitalize on the rise of viewers on YouTube. But it couldn’t turn the corner financially and was forced to undertake several rounds of layoffs, including cuts last year.

Under CEO Chad Gutstein, who joined Machinima in 2014, the company has made a concerted effort to diversify revenue streams off YouTube, striking several distribution and subscription VOD deals recently.

Machinima operates a network of partners who produce some 100,000 videos per month on YouTube, and in addition to that the digital media firm has boosted its own lineup of original series. Machinima originals include “BFFs,” a comedy drawing on tropes from first-person shooter games; “150 Facts,” focusing on behind-the-scenes info about popular entertainment franchises like Transformers and the Avengers; and “The Bacca Chronicles,” an animated series featuring YouTube star and “Minecraft” specialist JeromeASF.

In August, Machinima announced a deal with Amazon to offer its original programming as an add-on subscription service under the Amazon Channels partner program. It also has deals with Sony’s PlayStation Vue in the U.S., British satcaster Sky, Chinese consumer-electronics firm LeEco, AMC Networks Iberia, and Chinese internet giant Sohu.

In addition, Machinima’s eSports docu-series “Chasing the Cup” aired earlier this year on the CW, and the company has licensed several series exclusively to Verizon’s Go90, including the live-action “Street Fighter: Resurrection” and “Transformers: Combiner Wars,” which debuted Aug. 2 on Go90.

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