We covered a number of topics including:
– YouTube’s $100 million channel initiative breathed life into MCN’s
– MCN’s making money off clueless talent
– That MCN’s exploited talent early on and have to evolve

The Confessional is a series of anonymous interview with influencers, brands, marketers, agencies and MCN executives to get honest, no-bullshit opinions on working in the space – the biggest gripes, the toughest lessons, the most valuable advice.

The following has been edited and condensed for clarity.

What was it like when you were starting out and finding new talent?

I started back in 2010 – I was working in network TV and producing some digital content. I had some insight to how powerful it could be, but it wasn’t something people took seriously yet. A friend had suggested that I would be good in the YouTube space. At the time it felt almost fake or scammy. I thought,  “What do you build with a YouTube star? How do you make money off that?” The partner program was super new and selective — it was invitation only.

“Viral videos” were still a real thing – it was a very different time then.

What was it like when you founded your MCN?

Originally, we were strictly a talent management company. Nine or ten months after launching our company, people were knocking on our door trying to figure out how to get in, either as executives or investors. Everything really started to take off when there was this $100 million original channel initiative – where YouTube funded original content. We saw this investment happen, people were approaching us, and we understood things were going to accelerate fast. We needed to figure out how to stay ahead, to scale our business and compete.

As MCN’s have scaled – how has the relationship with talent changed?

I’m not a fan of management companies being owned and operated by networks. It’s like the old Hollywood studio system, people are getting screwed. You get the talent young and put them in a crazy contract for two years, and if they explode, then you’re there for the ride. You didn’t have to do anything.

Some of the bigger MCNs have become so massive there’s no way they are properly servicing their signed creators.  In early 2012, most of the networks were super focused and creators were looking for a place to call home  YouTube did not yet have a YouTube Space or really any formal creators team or production team, at that time networks swooped in and started signing up talent.  Back then, creators were just looking for basic things like management and advice.  So when these networks reached out and offered some service (even with no proof or credibility) many creators flattered and excited signed up without understanding what they were really signing up for.

There are creators who signed up for an MCN several years ago, but didn’t know what they signed up for..  It’s almost the same as how AOL will make millions of dollars off of people who are still signed to AOL dial up, even though there are clearly much better options out there and they have become pretty much irrelevant in that regard.

What does the industry need?

Some creators get big so fast while they’re still young. When you are just starting off, that’s when you come across scammy companies that screw you over. If you are coming up and that’s your first experience it’s going to make you paranoid. All because some email came in your inbox like, “This seems credible.” There are 16 year old kids who have never even had a summer job before… They likely do not have the knowledge or guidance to figure out who to partner with or when to say no.

We need conversations like: What resources do creators have to protect themselves? Who do they trust? Who is a credible source? The industry needs that credible, completely independent resource for creators. It would be helpful to come up with, like, the five things MCNs need to do. Number one is transparency with their earnings and where that money is coming from.  So many networks add no value to pre-roll. Creators need to know how the money is being generated.

I think Hank and John Green’s The Guild may help with a lot of this.

Is it harder for creators to make money on YouTube?

It’s more competitive, and it’s a more saturated market. There used to be creators who could work the system, to get to the front page — boom, they made their $5,000. Not anymore. It’s much harder to game the system, but YouTube has gamed it for themselves. There are a few creators that they heavily promote, maybe with commercials or recommended tabs, just these five people Youtube wants you to watch and make into stars.

There are definitely creators who are YouTube darlings – they aren’t that relevant anymore (they don’t have big audiences like they used to) but YouTube still always hast them at the events, on panels, getting write ups. I think that it’s a little bit of legacy thing. They’re pushing the idea that the darlings are still relevant, but really, they’re not.

I will say there are a lot more ad dollars being shifted into the eco-system which is a great.  But, we need to continue as an industry to question what is valuable and the market value.  Is it views?  What if they are not organic?  Is it content quality? Is it access to eyeballs that will convert to purchases?  Not every view is created equal… we need to continue to push to the forefront the most valuable assets in our industry so that we can continue to evolve.

What’s the role of MCN’s now and in the future?

MCNs have done a really good job of creating and pushing this idea that they are needed in the space — that’s literally what they do. They’re marketing themselves to the brands and ad agencies and as a result they’re generating deals.

In five years, many MCNs will still be around, but it’s going to continue to become far more competitive. We’re seeing more focused networks pop up, and established companies come into the space. MCNs might transform to become focused businesses. Maybe you’ll have companies that become agencies, then become production companies, then become… whatever.

I never would have thought we’d be where we are today. I genuinely thought that there was  going be a revolt against MCN’s by the top creators. Most networks built their brands on the backs of creators – and many exploited some people early on.  That being said, YouTube has stepped up to created some systems to flag exploitation.

The short term goal for many of the MCNs was to aggregate as many views as possible and sell.  Now that the excitement and novelty is starting to ware off, many of the independent (and even acquired) MCNs are forced to figure out a sustainable business.  

We covered a number of topics including:
– The early days of YouTube MCN’s and signing creators
– How the relationship with MCN’s and creators has evolved
– How Hollywood’s influence is killing creativity on YouTube
– How money and success can negatively impact on creators

The Confessional is a series of anonymous interview with influencers, brands, marketers, agencies and MCN executives to get honest, no-bullshit opinions on working in the space – the biggest gripes, the toughest lessons, the most valuable advice.

The following has been edited and condensed for clarity.

———-
What were the early days of MCN’s like when you were starting out?

Acquisition and signing was always my thing. But when I joined an MCN, there was really no book for it. We figured it all out by diving into the [Youtube] CMS.

We started scaling like crazy when we realized there was a very profitable segment of the business nobody was going after. There was this mid and long tail group of creators that were largely neglected – there was no clear pathway to monetization. It left us open to pick who we wanted and say: we want to work with you.

How have things at MCN’s changed?

After monetization opened up for everybody and our whole business shifted — we realized we had to start figuring out real value. At that time, it was all about digital growth. We were interested in social media economics, what makes a YouTuber grow, and a lot of it was education. We weren’t burdened by transactions.

Transactions make you a little dumb with digital. It’s a narrow focus: the brand is asking for this. You don’t really learn anything. But when all you have is, “I need to turn this person’s 10,000 subscribers into 500,000 subscribers,” — then every trick in the book that you learn, you’re going to a partner like, “Let’s try it.” It was a scrappy time, but I think there’s a need for it to come back. Transactional doesn’t grow you on that level — when it’s just money, it distracts and detracts from innovative growth.

What’s the focus for most creators today?

Most creators joining MCNs will say, “I just want sales deals,” when they have less than 100,000 subscribers. At that point you should be focused on digital growth, sales isn’t going to do much for you. You spend your time trying to figure out how to get that thousand-dollar deal or you spend your time growing, so you can have a ten-thousand-dollar deal.

Frankly, the best kind of development you can do is developing your own brand — that’s where the real money is. How do you have a fanbase that’s meaningful and will follow you, so you can move around? How do you build content that people care about? The smart creators are the ones that are able to develop their IP in such a way that it’s something that can extend beyond themselves.

What’s your perspective on the explosion of MCNs signing creators?

I can track it back to one YouTube launch of a feature in the CMS. Before, the way you invited channels was super manual. It was an incredible burden to get a single channel in and half the time they’d be rejected, for God-knows-what reason. In 2013 YouTube started the roll up tool, so you can invite dozens of channels at once. Things just exploded.

How did things evolve after that, with you and your competition?

It quickly became clear who was winning, and who the targets were. Every second that people on channel partnership teams were working meant big money. We knew the land grab was going to be over quickly. Creators started taking notice, and signing bonuses and minimum sales guarantees came into play. MCNs took deals they knew would lose money just to build their profile and value. In this second wave, MCNs became focused on revenue, not “This person’s cool, I want to work with him. Maybe he’ll be the next big star.”

The third wave of MCNs is when acquisitions started: Maker got bought for a billion dollars. You started juicing up your enterprise value to sell for as much as possible. Digital people got a crash course in the corporate world — it was an interesting time. We had already recognized the market opportunity, now we had to identify what the next evolution of MCNs would be.

What’s the thing you want people to be talking about, but they aren’t talking about?

The one thing that keeps me up at night is Hollywood influence coming into digital. It’s killing creativity on the platform — since it started, content has gotten worse. For creators who’ve gone to premium platforms, there’s this reaction from fans: “We liked you for what you were doing, why are you trying to do this other thing?” The idea of making fans pay for that, when the best version of you is free? When people talk about premium digital content, my stomach hurts.

The reason I started in digital is this: I believe in the democratization of media and in building an entertainment middle class. I hate gatekeepers, I like creators having control. People have the idea that if something has more money and people behind it, it’ll be better. I inherently disagree.

I’m interested in the weirdos creating stuff that revolutionizes audiovisual art and makes us think a different way, not the people who are playing the game, working the system, being super brand-friendly. It makes me sad that content is losing out in the algorithm. YouTube used to be for the outcasts, and I want it to be punk again.

What’s the next evolution of MCNs and creators?

There’s three different groups. First, the people building their own platforms, using the influence of their creators. Second, there’s some positioning themselves as digital marketing agencies with media sales, influencer stuff. They recognize that the most important value is in access to creators. And there’s MCNs building out other types of businesses—TV shows, movies, games—which they co-own with creators.

One type of MCN is not being addressed as much—this goes back to the idea of building the entertainment middle class—it’s the one reinforcing education on digital platforms. It’s finding new, interesting opportunities for YouTubers making $10,000 a year to go full time. Nobody’s focusing there, and there’s a lot of room for MCNs to fit into that market and add a lot of value. The original vision was figuring out how you grow talent in your network. Even though every major MCN has lost that vision, it’s still valid. I hope to see a lot more of it.

What’s your perception of creators these days?

I’ve worked with multimillionaires from YouTube, and they’ve earned every penny of it. To get that audience behind you is winning the lottery. When you post that first video, you don’t know if it’s going to get ten views or a million. Every time you do that, you buy a lottery ticket. But once Youtubers go from making nothing to making millions… once all the money’s at play, it adds a lot of pressure to something that was fun. Money doesn’t make people happier — fIfty percent of the time, I’d say it makes them sadder.

The major points of our interview transcript include:

•           – Why YouTube created MCN’s and how they’ve evolved
•           – Why creators often sign with MCN’s
•           – How brands should work with creators

The Confessional is a series of anonymous interview with influencers, brands, marketers, agencies and MCN executives to get honest, no-bullshit opinions on working in the space – the biggest gripes, the toughest lessons, the most valuable advice.

The following has been edited and condensed for clarity.

Coming from the MCN side of the equation – what was it like working with the brands, the creators, the agencies? What worked and what didn’t?

My understanding of the MCN industry is that Google created it as a way to help produce better quality content and help support creators. It’s largely populated with people who are coming from the talent side of the equation versus the advertising agency side or the technology side.

The biggest challenge is that the industry is new, so the norms have not been defined clearly. You have the MCNs, you have the agencies, and I’m saying “talent agencies,” like WME and CAA. You have the advertising agencies. You have managers. You have creators.

You have a lot more inputs to that equation than what you had back in the old television days. All those inputs and all these people who think that they have a role in the equation make it complicated to establish any real norms, or rules of engagement, metrics, and ways of doing business.

The players have not clearly defined their roles, and because of this everybody is running towards every opportunity. And that causes murkiness. That causes aggravation. It causes the true value of influencer to be masked because of the immense amount of waste of people’s time to get to the bottom line.

So, depending on your entry point you could end up with a very different deal?

Right, and just to focus on the MCN part of it, one of the big problems with MCNs is that they don’t harken back to their mission. Basically their mission was not defined by themselves.

Their mission was defined by Google and it is to add value. That’s ambiguous, but you could say there’s three places that MCNs could add value.Very few are doing this. You could say ad agencies and talent agencies could do two out of three of these easily. 

•       – By growing views & subscribers
•       – Providing business and/or production support
•       – Growing revenue

So, it’s important for MCN’s to be doing something different – creating technology, interesting integrations with available APIs etc.  Because you want to differentiate yourself and if you want an acquisition it’s good to own IP or unique processes .

Even if a creator is signed to an agreement, then at some point that creator’s going to want to get out of that agreement or that agreement’s going to expire. That’s not something other companies really want to invest in because you can go and hire talent.  This is the secret many in Hollywood do not want you to know, talent will “go” with almost anyone who is creating interesting stories, product, services.  The challenge is managing the workflow.  A lot of brands have success working directly with talent.

Anybody can hire your talent. That’s something people forget.

So, what’s the future of MCN’s?

It’s hard to build a product in technology that is actually going to be used by creators, but that’s the need.

We should be more focused on technology to help channels grow.

My classic example is Brendan’s Omelet Channel and my Crêpe Channel, and your handler at the MCN says, “Hey, Brendan. There’s this guy who’s making omelets and you’re making crêpes and you basically have the same audience and you’re both releasing videos on Tuesday. Why don’t you switch to Wednesday and point people there to Interviewee’s channel on Tuesday? And he’ll reciprocate and then down the line, let’s see if there’s a collaboration we could do.”

So, that is a perfect example of not only adding value, but growing the network because traffic goes back and forth.  A couple of MCNs have automated this process again points to the power of making great product and/or using technology to add value. More monetization opportunities. That’s an example of a great way an MCN could add value.

What actually happens is that everybody goes running into the space and the investors who put money in go, “Hey, wait a minute. You guys aren’t making any money. You’ve got lots of expenses, but you’re not selling enough.”

So, the MCN’s try and sell more media (not just brand integrations). The problem with that is that that media is already being sold by a person who has a Google business card OR it’s being sold in real time via an exchange.

The largest ad exchange called ADEX, which is part of DoubleClick, which is owned by Google.

By definition, if you have a seat on the exchange, you can buy and sell YouTube inventory. So, you can just go bid on channels in the exchange because there’s not an exclusive. You can get that inventory if you want it and probably pay less than what the Google salesperson is selling it for if you buy it via the exchange.

So that’s a challenge for MCN’s. Any savvy media agency is going to know that they can buy inventory via an exchange. They have a trading desk.

That is a perfect example of how an MCN fails because an MCN goes to try and sell more media, which isn’t really working because of the exchanges. And, as a result, helping to grow their audiences is falling by the wayside.

Why would the MCN’s sell media? Forget about that the exchange even exists – there are hundreds of Google salespeople crawling over every agency with piles of data. You can’t compete with that nor should you.

They [MCN’s] are just not going to sell the media. They’re not going to get the price that they want. And, the customers don’t want to buy their media because they’re able to get it already and from a cheaper source.

So, how were you guys actually adding value to creators?

Every channel, as part of our agreement would get optimized. We were trying to create technology to solve this, so that it wouldn’t become such a manual process.

You really need a technical understanding of what the Internet and in particular YouTube is…how it works. If you don’t understand the technical intricacies or the map of how to navigate this web, you basically won’t get the views that you need for free via SEO. And that is, once again, a point where MCNs have failed, where they don’t offer leadership. They don’t offer enough of those services.

I’m proud that we offered that. I think most MCN’s just made a lot of promises, and were just casting a wide net and pulling channels in as fast as they could without actually delivering much value.

There’s a lot of name dropping and that’s like heroine to a lot of young creators. They want to work with the big names or go to Hollywood and that’s what sucks them in. They have a little success and they think they’re going to be on CSI. That’s it. They’re just like, “Oh, my God, Hollywood. I’m doing this. Yeah.”

Let’s transition to the advertising side of things. Do you feel brands are doing enough to capitalize on this space?

What’s happening now is that MCNs, advertising agencies, talent agencies, and creators themselves are making it very difficult for a brand to figure out how to get from A to B.

I think that brands over a certain size…let’s say, if you have over $50 million in gross sales per year, they should be interacting with influencers and creating content directly.

And when I say “directly,” I meant they shouldn’t be going down the chain, the digital agency goes to MCN, who goes to the manager, who goes to so and so and then finally goes to the creator who comes up with the idea. That needs to stop.

There’s no reason to have that kind of expense. The whole thing about the Internet is that it removes layers, so you can have more direct control and access and that usually means you save money and you can do things quicker. And that’s what should be happening in 2015.

It should be, “Decide, create, deploy, measure.” And then you just keep doing it.

In terms of execution, there’s always tension between the creator and the brand. What do you think is the best way to navigate that?

Well, that’s called “creative tension” and that’s something that has existed since day one. And it exists in the writers’ room. It exists on the set.

When Martin Scorsese or Francis Ford Coppola is yelling at you and Marlon Brando in “Apocalypse Now” to act a certain way.  It exists everywhere. So, I think people are just basically fucking idiots if they don’t understand that.

But you have to set and control expectations. My rule is early, loud and often. You over-communicate to ensure everyone’s on the same page throughout the process.

What advice do you have for those working in the space?

I don’t care what anybody says. This is goddamn 2016.

There is so much talent, out there.  If someone’s an asshole and difficult to work with.  Guess what. You can find somebody else just as good. I’m not saying it’s going to be easy, but you can find somebody.

The major points of our chat include:

•       The difference between buying on reserve vs Trueview
•       Why more people should be buying media on reserve
•       Whether MCN’s actually increase CPM’s for their talent
•       How many YouTubers don’t understand brands

The Confessional is a series of anonymous interview with influencers, brands, marketers, agencies and MCN executives to get honest, no-bullshit opinions on working in the space – the biggest gripes, the toughest lessons, the most valuable advice.

The following has been edited and condensed for clarity.

Can you explain the difference between buying in auction (TrueView) and buying media in advance (with reserve) on YouTube?

Think of it like a restaurant reservation. There’s a hot new restaurant in town and you want to go to this restaurant. Let’s assume you have to pay 20% more to make a reservation, right? But you can make a reservation well in advance for the best table, for your one-year anniversary, but your meal is going to cost 20% more. That’s like buying on reserve.

You know that you want to eat at that restaurant and you know the day you want to go eat there. You probably would want to make a reservation, especially if, let’s say, your anniversary is around Valentine’s Day or New Year’s Eve or Christmas when you know that it’s going to be busy at the restaurant.

While buying on reserve is paying a premium to reserve your media (or table if we’re continuing with the analogy) and TrueView is like walking in and hoping that you’re going to get a table.

Now, it could be that you walk in and it’s a slow night and a slow week. You get an amazing table and you pay 20% less. But, if it’s a hot restaurant, you may know that it’s never dead. You’ll have to show up and you’ll maybe wait an hour and then you’ll get a table. So it really sort of depends on the inventory — your risk tolerance — in a sense. Some people would prefer to take the risk and potentially get a really great deal, but other people are less risk-averse and would rather say, “I’d rather reserve in it advance, I know I’m going to get it. I don’t have the tolerance to go and show up and eventually have to wait in line.”

On TrueView, can’t you get the same inventory (ie any channel you want) but cheaper than reserve?

Buying on TrueView is operationally difficult to target on the channel level. Technically, yes, you can do it. There’s a section in adwords where you can target even to specific videos if you want. In my experience, though, that is an operational headache.

There’s also the idea that if you’re targeting a very specific set of channels and you’re in the auction, there’s a lot fewer impressions that you could win. If you’re like, “I need to fill a million impressions, only on these five channels,” you need to make sure that you win almost every auction to fill the campaign.

The final point – there are certain times of the year, Q4 for example, where TrueView is generally more expensive than reserve. I think if you were a sophisticated buyer of TrueView, you could probably target individual channels and get the same content for less, but there’s also risk involved. Maybe you won’t get the exact inventory you want because its already been bought on reserve or you’ve been outbid.

On the media side, creators often join MCNs thinking their CPMs are going to go up because more of their inventory is going to be sold on reserve. How often do you think that typically happens for a creator in an average MCN deal?

At the MCN I work at, when we talk about renegotiating or resigning channels, media and higher CPMs are oddly not a huge part of conversation. I don’t know if that’s a choice we make or that’s just not something that our creators ask about. Most of our creators are more concerned with content guarantees and with ancillary revenue opportunities. Book deals, licensing, stuff like that.

But I totally agree with you. I have to imagine it’s a bigger point of conversation for your mid- to long-tail creators, because I think that most of them are self-aware enough to realize that they’re probably not big enough to get brand integration deals. I have always been a huge fan, maybe naively, of reserved media. I think it’s one of the very few win-win-win products that MCNs offer.

Selling reserve video inventory is better for the creator because they don’t need to do anything and their CPMs go up. Even with YouTube rev-shares, those net CPMs are 20-30% higher than what they’re already getting via the auction and other AdSense revenue.

Selling reserve inventory is good for the MCNs because it’s operationally easy to do. Obviously you need to have a little bit of understanding, but there’s no back-and-forths with creators, margins are predictable because it’s based on flat pricing. Selling on reserve you don’t have unexpected travel expenses, you don’t have all of the stuff that comes with working with influencers — which is worth it, but it can be unpredictable. I think it can be a fairly decent margin business.

It’s an easy way to get revenue in the door at anywhere from between 20-40% margin depending on how you can scale it.

The third win is with the brands and agencies, in the sense that I think you could make a case that its more premium inventory than you could get anywhere else, or at least more targeted or more transparent. You could argue that a lot of the inventory that MCNs have in their network is among the most premium video inventory on the web. I think that’s good for advertisers.

For brands that do not understand or don’t feel comfortable with influencer marketing, buying media  allows them to dip their toe in the water.

That is my belief on the media side of things.

But, I don’t think selling the ad inventory has really been a focal point of any of the MCNs.

How do you think the brands and creators have evolved to work with each other? One thing we hear a lot, especially from creators, is that brand’s don’t ‘get it’ (ie that brands don’t understand how to work with YouTuber creators). But, do creators ‘get it’? Have they adapted to work with brands?

I think brands have adapted to working with creators more than creators have adapted to work with brands.

I wonder if part of this, is the result of creators having gotten into this business because they didn’t want to get real jobs. They figured out what they love to do and they’ve been savvy enough to figure out how to make a living doing it.

I often get asked by creators “Why can’t I just do a cool video and just slap a logo on it. Why is that not good enough?”

They don’t understand that these companies have real people working for them that want to be great at their jobs, who want to work hard and provide for their families, live happy lives.

The prevailing perception among YouTubers, is that brands are just some faceless organization with a shit load of cash that is just indiscriminately throwing money and they don’t actually want something in return.

In reality, there’s someone who’s vouching for this creator or making a decision and their boss, understandably, expects a report showing why they made this decision. There’s hundreds if not thousands of people involved in the entire process.

We have gotten to a point where certain people treat popular YouTubers in such a way that the YouTubers don’t feel that they need to think about accountability. They think that because they’re the new hot thing, they don’t have to be accountable.

So what’s the outcome of this in terms of project execution?

I continually experience that kind of over-promise, under-deliver from the creators …a lot of them are super entitled. They’re a pain in the ass to work with.

They are surrounded by Yes Men and Women, management, MCNs.

I hate to say this, but in some ways creators are almost like a commodity in a sense that, if the [REDACTED – NAME OF FAMOUS CREATORS] are a pain in the ass to work with, there are 50 other channels that are pretty similar to. That’s the case across the board.

Eventually, everyone will get wise that some creators are easier to work with others, word will get around that so-and-so is difficult to work with.

I think some creators are going to realize that they have burned themselves by being hard to work with. In some cases, yes they’re hard to work with because they’re jerks or they’re entitled, but I wonder if another part of it is that creators don’t know when to ask for help, or they try to be a one-man team, but they’re getting five brand deals a month and they’re making $10 million a year.

There’s no one-person company out there that makes $10 million in revenue. Most organizations that are bringing in the amount of revenue that a lot of these creators are doing are creating sustainable businesses by making sound business decisions, by hiring a staff, by putting structures in place to be able to follow timelines and execute deadlines. I understand why some creators may have no interest in doing that. They may not personally want to make $250 thousand a year on 10 million in revenue by building themselves into a company.

They may prefer to keep it independent and to make $10 million salary on $10 million in revenue, but I think eventually a lot of them will either burn out or they’re not going to be able to handle that much big money, and in two years, word is going to go around that they’re not easy to work with, and they’re going to fall apart.

Many creators were outraged by this information, and a reporter for NMR went so far as to say that this should be a “red flag to creators currently signed with Maker because it essentially says that a lot of money is being left on the table strictly because the MCN doesn’t want to deal with helping mid-level and smaller channels — creators who could really benefit from ANY added income — which is the majority of their client base.”

It’s expected that some are frustrated with MCNs – thirty thousand dollars is likely more than most creators in Maker’s network make off their channels in a given year, and I agree that creators need to be cautious.

STAFFING BRAND INTEGRATIONS
First and foremost, brand deals take time to do well – I’ve been doing these since 2006 and have overseen thousands. They take A LOT of time when major brands, and multiple ad agencies are involved due to the layers of approvals. Before you get to the actual work there tends to be rounds of contract negotiations, and then, once a project is awarded there’s client and talent management, rounds of feedback, project managers, and so on. People’s time adds up very quickly, and with attorneys charging $350+ an hour expenses add up.

We’re in a service industry, and that requires man hours because how well you treat your clients is just as important as the quality of work you do. Although, digital advertising is booming, we haven’t been able to automate a lot of things – this is still largely a relationship based business.

So, an account manager at an MCN is vital for providing support and resources to the channels – but he or she has only so many hours in the day. How many clients can they ‘deal’ with while maintaining a reasonable level of service? 1? 5? 10? 20? It varies, but there’s certainly diminishing returns at some point. Clients don’t feel special if they’re being rushed, their phone calls never get returned, or you hardly know their name.

HOW SIZE IMPACTS DEALS
The key to understanding the current situation is realizing how the MCNs such as Maker, Fullscreen, and Awesomeness have built and sold their businesses – not because they’re in the service businesses but largely based on the scale of their networks.

According to Linkedin, Maker has 500 employees, but nearly 30,000 channels in its network – that’s a ratio of nearly 60 channels for every Maker employee. Fullscreen and Awesomeness have even fewer staff members per channel (according to Linkedin), with Fullscreen averaging 79 channels for every 1 employee, and Awesomeness averaging 195 channels for every employee. Note the disparity in employees per channel (which I’ll explore a bit more later).

RATIO OF MCN EMPLOYEES TO NUMBER OF CHANNELS

Knowing this, do you think it’s realistic to think there really is any way that an organization like Maker is able to provide a deep level of hands on service to 99% of its creators? Why would any large MCN ‘deal’ with smaller creators when they can get more bang for their buck with the big creators?

Smaller creators within these networks are not getting the ad dollars for brand integrations (paid brand placements within videos) for a reason – its not profitable for the MCN. A brand integration, for a channel with ten million subscribers can take just as much time and as many resources as one with ten thousand. Right or wrong, it makes smart business sense, for these large MCN’s, to focus on the channels within their network where they can generate more revenue for less work.

Going back to the exchange NMR reported on – an MCN could, in theory, take that thirty thousand dollars and distribute it to a dozen ‘up-and-coming’ channels within their network. If they did so this would take reaching out to at least a dozen individuals, negotiating the rates, then establishing contracts, project managing the flow of client information, ideas, and edits and revisions across a dozen different videos. This much work would be a lot for one individual and could easily require several people to get involved, eating time and money.

Assuming a generous 33% profit margin on top of what the creators are paid, Maker gets $9,000 dollars for its efforts. Depending on the length of the project $9,000 dollars may not be enough to cover the costs of a single employee working on the deal. Or, Maker could hold out for a $300k deal and instead allocate the $300k to one or two top creators in their network, cutting the workload down to a fraction, keeping their biggest talent well paid, and increasing their profit margins exponentially. Where one employee was generating $9,000 in revenue for the MCN, they’re now generating $100,000 for what is more or less the same amount of work.

Every MCN account manager knows these numbers and so, out of the dozens or hundreds of channels they are responsible for, they will dedicate the majority of their time and resources towards the biggest one. This means that small creators are often overlooked in brand deals, leading to situations like this one.

THE IMPLICATIONS
I don’t know the specifics of the deals creators are making with every MCN, but its clear many are unhappy. A cursory search of Google for ‘I want to leave my YouTube MCN’ reveals hundreds of blog posts, commenters, and videos of YouTubers desperate to leave contracts they signed. Below are some of the juiciest comments I found while scanning the various forums and blogs where creators were voicing their discontent

“I’ve now seen a small glimpse over to the other side of the online video world. The grass isn’t always greener it seems.”

– Obviouslybenhughes.com

“I fucking hate 95% of MCN’s.”

– Phil Defranco

“They destroyed my youtube channel”

– Yelp

Likely in response to the overwhelming level of discontent, YouTube rolled out a policy in 2013 which made it easier for YouTube Creators to get out of their MCN contracts.MCN’s have an obligation to deliver on the agreement’s they’ve made with talent, but at the same time talent should enter into any deal with their eyes wide open about the economics at play.

Simply because you’ve joined an MCN does not mean you’ve got a team of people who have your unbiased best interests in mind. In fact, the numbers show that if you join a Maker, Fullscreen, or Awesomeness it is virtually impossible to receive any deep personal service.

So what does this mean for MCNs and creators?

MCN 2.0
These larger MCN’s, let’s call them MCN 1.0, are focused on scale (and they’ve made a great deal of money, having been acquired) as a result of this approach. But, is this the future of the MCN’s?

We’re seeing more and more creators taking matters into their own hands entirely. They’re hiring their own managers accountable to them as well as joining traditional talent management agencies such as WME or UTA.

No doubt, in response to this trend we’re seeing a crop of MCN’s that are more hands on, management focused, and, most importantly, owning a clearly defined vertical or role. For instance The Collective represents high-quality, produced web content that has a chance to make it to TV and beyond. Tastemade is solely focused on food channels, and The Whistle is focused on sports.

To service these creators, these MCN’s average no more than a dozen channels per employee – a much more realistic amount to cultivate a real relationship with talent. There are potential benefits to this on the sales side as well, a verticalized MCN is more inclined (and able) to sell ad programs that’s a better fit for talent if all the talent has the same focus.

Whether these vertical specific MCN’s will be the future remains to be seen. However, there’s an element of ‘innocence lost’ in the industry. Creators are skeptical and skittish after having been sold on the idea that the MCN is going to help them grow and make more money, only to find themselves actually making less and doing all the work themselves.

I’d argue that the era of the MCN 2.0, with more staff per channel and clearer focus will garner more benefits on behalf of the creator and be a more sustainable business model in the long run.

Citations:

* Maker Studios Linked-In

*1 Fullscreen Linked-In

*2 BigFrame Linked-In

*3  Machinima Linked-In

*4 StyleHaul Linked-In

*5 AwesomenessTV Linked-In

*6 Tastemade Linked-In

*7 The Whistle Linked-In

*8 Collective Digital Linked-In

☨Top 100 YouTube Networks Filtered by Subscribers.

☨1 Digital-Video Startup Whistle Sports Raises $28M from Emil Capital, Sky, Liberty Global, Derek Jeter and Peyton Manning (Variety)