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MCNs Grow Up
MCNs have gone from being aggregated networks of channels to sophisticated organizations that encompass the entire range of content creation and distribution, says Digiflare co-founder Mano Kulasingam

Multichannel networks (MCNs) have rapidly become digital media's most prized assets because of their success in blending entertainment with social media interaction in a way that makes sense to millennial audiences. Acutely aware of a flat to declining TV ad spend, broadcasters have been making strategic moves to acquire MCNs. MTG has taken control of Swedish MCN Splay, Fullscreen is owned by AT&T and The Chernin Group, and Germany's ProSiebenSat.1 spent $83 million on Collective Digital Studio and merged it with its in house MCN Studio71.

Meanwhile pay TV operators are pursuing OTT avenues (like Sling TV's OTT service) or curating online video (like Sky on Demand which includes Red Bull Media House and GoPro channels. Sky is also to host Vice's first European linear channel, Viceland, this September.

Those who bet early have seen some serious returns on their investment. The poster child is Awesomeness TV which DreamWorks acquired for $95 million in 2013. When DreamWorks sold a quarter stake last year to Hearst it valued Awesomeness at $350 million. Verizon's deal for 24.5% valued the network at $650 million, but it needed the MCN's content to fuel mobile video network Go90, and begin to pay back the infrastructure it acquired for $4.4 billion from AOL. Notably, DreamWorks chief Jeffrey Katzenberg will retain charge of Awesomeness TV after the sale of DreamWorks Animation to Comcast.

And what does Awesomeness TV do? It represents brand influencers and stars like Jennxpenn and helps them make and distribute video content across platforms. In next to no time it has built close to 100,000 channels.

Once uncharitably called "middlemen" sitting between the content creators and a YouTube audience, MCNs are now major players.

"Increased investment in MCNs from pay TV, broadcast and telco organizations is one of the primary strategies traditional industry players are adopting to maintain engagement among an audience that’s critical in terms of size, reach and buying power," says Mano Kulasingam, co-founder at multiscreen app developer Digiflare. "Traditional players are recognizing opportunities to capture ARPU away from online-only platforms by investing in content that has, in many cases, huge built-in audiences."

Toronto-based Digiflare builds cross-platform apps with its Videa solution for clients including PBS Kids and CBC TV. As such it is well placed to comment on the changing MCN business model.

"YouTube is still the dominant player among MCN aggregators, but now there's increased competition from Facebook, Twitter, Snapchat, and Twitch, all of whom have made video a critical part of their audience engagement strategy," says Kulasingam. "However, on each platform, video is part of a very different conversation with the user. Ultimately, the job of a content creator who hopes to generate revenue through an MCN is to create content that wins fans and to convert those fans to other platforms with their own revenue opportunities. This means covering YouTube in addition to competing and even self-created/self-managed platforms. Why not sell your product in as many channels as possible?"

He says MCNs now exist less as aggregated networks of channels for advertising and more as sophisticated organizations that encompass the entire spectrum of content creation and delivery.

"They handle everything from talent discovery and acquisition to video content production, audience engagement, and advertising," Kulasingam says. "MCNs will be able to enhance production values, acquire new talent, and obtain a higher degree of personalization in the design and functionality of the platform. In the next few years, the ability to exercise control over the way their content is discovered and delivered is going be a fundamental part of any MCN's strategy for reaching and engaging new audiences."

Content creators and the MCNs who manage them have reached a new level of maturity, professionalism, and technical sophistication, he contends. This gives them a potential to depend less on large-scale content aggregator platforms to attract and engage audiences. That potential has been reflected in a trend toward a model that's driven by attracting revenue through direct-to-viewer platforms.

"Experimenting with a direct-to-viewer model opens up the potential for MCNs to drive up customer satisfaction with the user experience and simultaneously address problems with device and platform fragmentation," contends Kulasingam. "Direct-to-viewer enhances an MCN’s ability to control exactly how content is showcased while growing ARPU. Meanwhile, the risk of brand dilution or outright damage from inappropriate, directly-opposed, or offensive advertising (for instance) is either reduced or eliminated."

The changing priorities around digital suggest that media buyers and advertisers believe that online video is an established fact—and they’re right, Kulasingam asserts. "In an online-oriented media and entertainment space, MCN is far from a niche industry."

Social media recommendations and online reviews are already eclipsing traditional TV advertising in terms of influence over their buying decisions. According to Kulasingam, the majority of millennials have higher perceptions of brands who make them feel better informed, more engaged, or more connected.

"The next step for MCNs who manage recognizable brands and personalities is to explore partnerships across the full breadth and depth of the media landscape. I expect they’ll be pursuing direct-to-viewer avenues through self-managed platforms that cover the full breadth of mobile, tablet, console, and connected TV devices that millennials care about."