M&A Alert—March 25, 2014
Disney Acquires YouTube-Based Video Supplier, Maker Studios, for Up To $950mm
Author: Tom Brehme
Transaction Size: $500 - $950mm
On March 25, 2014, The Walt Disney Company (NYSE: DIS; market cap: $138b) announced the acquisition of YouTube-based video supplier, Maker Studios, for $500mm with an additional $450mm in performance-linked earn out.
Maker Studios is one of the early pioneers in creating multichannel networks centered on YouTube, enabling artists to create, distribute and monetize their original content on the video network. The company, which focuses on content for Millennials, has created an ecosystem of short videos specifically for web consumption. The company enlists thousands of YouTube creators to post content related to video games, fashion, music and other topics on the video site. It then collects a portion of these creators’ advertising revenue in exchange for financial and promotional support.
The company has more than 55,000 YouTube channels, 380 million subscribers and 5.5 billion views per month. The company works with content creators in over 100 countries and receives more than 60% of its viewership outside of the United States. PewDiePie, the most popular channel on YouTube with its more than 25 million subscribers, is part of Maker’s network.
In late 2013, Maker Studios introduced a technology platform, Maker Max, which allows content creators to better manage their video libraries and engage with viewers. Maker Max is designed to be a one-stop shop for all the information creators need to grow their audiences. It provides a dashboard with analytics to show views, subscribers, revenue and social engagement around their videos.
Maker Studios was founded in 2009 and is headquartered in Culver City, California with operations in New York and London. The company has raised $81.5mm in funding from Advancit Capital, CANAL + SA, Collaborative Fund, Daher Capital, e.ventures, Greycroft Partners (Dana Settle), Lakestar, Northgate Capital Group, Robin Downey Ventures, SingTel Ventures, Time Warner Investments (Rachel Lam), TomorrowVentures, Upfront Ventures (Mark Suster) and YouTube.
Maker Studios will remain independent within Disney and will report to Chief Financial Officer Jay Rasulo.
The Walt Disney Company (NYSE: DIS; market cap: $138b) is an international entertainment and media enterprise with five main business segments: media networks, parks and resorts, studio entertainment, consumer products and interactive development. Disney is a Dow 30 company and had annual revenues of $45b in its fiscal year 2013.
Kevin Myer, Disney’s EVP of Corporate Strategy and Business Development, was a key executive sponsor of the transaction.
Disney is paying an initial $500mm for Maker Studios, with an additional $450mm tied to an “aggressive” performance-based earn out. Maker’s most recent valuation was approximately $300mm in September 2013 when it raised its Series C.
Transaction Value: $500mm – $950mm
TV/Invested Capital ($81.5mm) 6.1x – 11.7x
TV/Maker Subscribers (380mm) $1.32 – $2.50
The most comparable M&A transaction is DreamWorks Animation’s acquisition of AwesomenessTV in May 2013 for $33mm, with $117mm tied to performance-based earn out. The teen-oriented YouTube network had approximately 14mm subscribers and 800mm video views at the time of acquisition.
Other notable recent comparable transactions of online video content publishers include Discovery Communication’s acquisition of Revision3 and YouTube’s acquisition of Next New Networks. Earlier this month, the Warner Bros. division of Time Warner led an $18mm round of funding for another YouTube-centric online video network, Machinima. German broadcaster ProSieben, through its Red Arrow Entertainment division, just acquired a 20% stake in Collective Digital Studio, a YouTube multichannel network with 600 channels, 100mm subscribers and nearly a billion views per month.
In effect, Maker Studios has helped create a whole new universe of video content made specifically for the web rather than television. Maker has achieved considerable scale and reach particularly with Millennials (birth dates between 1980s – early 2000s) who are increasingly migrating their screen time to YouTube and other online video destinations. By acquiring Maker Studios, Disney gains programming expertise, advanced technology and distribution capability around short form online videos.
Maker manages 55,000 YouTube channels, most of which provide a pipeline to young consumers for Disney’s characters and franchises. Disney is betting on Maker to help it learn how to best interact with the “raised-on-the-web” generation.
Architect Partners’ Observations
Traditional media is working to navigate the transition from well-established and economically known forms of distribution (ex. broadcast TV, cable, satellite, DVD, pay per view and theatre) to emerging platforms with evolving economic models (ex. online and mobile). The acquisition of Maker Studios is about Disney directly participating in these new distribution opportunities. Maker Studios brings Disney a quickly growing and valuable audience of teenagers and young adults, the potential to build similar audiences with other demographic groups and a team who can successfully execute on Disney’s digital vision.
YouTube networks are increasingly becoming a hot commodity in Hollywood. Maker Studios’ acquisition is the latest and largest of a YouTube network by a major Hollywood studio and represents another vote of confidence in the video service as a viable incubator of content and talent. Large media companies such as DreamWorks, Time Warner, Discovery and Disney have all shown their acceptance of this new digital opportunity, and we expect to see more activity within this space.