An explanation for the challenges MCNs face
By Brittney MacDonald, Life & Style Editor
With Defy Media recently going out of business, it has left many wondering how exactly they failed.
After all, Defy seemed to be one of the more successful multi-channel networks (MCNs), with properties such as Clevver and Smosh. They are also reported to have received a $70 million investment in 2017. However, the company announced their abrupt closure on November 6 of this year. Shady business practices and lawsuits aside, Defy should have been able to weather whatever storm came at them—but they didn’t. Why that is can be broken down to examine what the new media business model entails.
First of all, when I say “new media,” I’m referring to media specific to computers and the internet, with distribution and redistribution of product completely reliant on digital means. YouTube, Twitch, Instagram—all of these are new media platforms, with the content creators on these platforms using new media as a means of entertaining and communicating with the world. The MCN is a type of organization mostly based on YouTube and it’s basically the same as any television network, with a few key differences. There was a boom in MCNs about five years ago, though most of them ended up going bankrupt rather quickly.
The reason for the abrupt failure of most MCNs is because investors assume that the business models for new media and traditional media are one and the same—which they’re not. In traditional media, slow burns are common, meaning build-up is expected. Products are written or produced in large chunks, with smaller budgets if there is any doubt about how successful they will be.
With new media, the intent is to be as eye-catching as possible in order to garner views and subscribers. Companies do this so they can then either archive the content to use for copyright claims and back profit—profit made after original content stops being produced—or so they can sell the MCN or the acquired properties at a high appraised value. All content made through new media is transitory because it is subject to popular culture. Independent content creators are able to adjust and evolve their content accordingly.
However, MCNs don’t fare as well because they are often limited by what a board of investors will accept. This often means that an MCN and its acquired properties will continue making the same sort of content because it was successful in the past—much in the same way movie and television producers do, which is why there are about 105 different cop dramas on cable. The unfortunate thing is that this doesn’t translate well to new media because with the internet, it is all about the next big thing—or the next stupid thing, as some believe.
Ideally someone looking to succeed in new media would take a few acquired properties, invest money to build them quickly, and they sell everything off when the MCN is at its peak. Examples of this are Maker Studios selling to Disney in 2014 for $500 million, or AwesomenessTV selling to DreamWorks Animation in 2013 for $33 million. It’s a little like flipping a house—you fix everything and make it look pretty, but then get out before the roof starts leaking and they discover the place is haunted.
Take note that the most successful buyouts are made by people involved in traditional media. The reason for this is because traditional media has the money from other resources to sustain a stagnant MCN or channel. Often, they just want the new media presence. What they lack, however, is the ability to build a new media platform from scratch. This is due to the very unique way that new media functions—be as flashy as possible to get people interested.
That brings us back to Defy and why they failed. Unfortunately Defy didn’t get out when it had the chance. Defy Media came out of a merger of two other, lesser MCNs, Alloy Digital and Break Media. However, instead of selling when they should have, they sold off some acquired properties to then turn around and invest that money in their other properties. The high production costs of their assets, as well as the two fully-staffed offices in California and New York, bled the company dry—despite the fact their remaining properties were relatively successful. Essentially, they were the house flippers that did all the work to beautify, but then turned around and decided to move in, meaning they saw no return on their investment. In turn, they didn’t have any other income or source of revenue to help subsidize their production costs.
So why did Defy Media fail? The same reason that all new media fails—eventually people move on to something else. New media is not, and probably never will be, self-sustaining. As such it is specifically designed to be transitory and fleeting. The whole point is to get rich quick, or for some, to build a reputation for being able to advance these platforms to peak profit margins as quickly as possible.