One of YouTube’s biggest networks is seriously diversifying its interests.
This past February, YouTube gaming giant Machinima struck a deal to sell video on Vimeo’s on-demand platform.
Machinima’s deal with the video-sharing site followed a similar deal between Machinima and digital video subscription startup Vessel. That deal now premieres many of Machinima’s top shows on Vessel months before they appeared on YouTube.
While Machinima nonexclusively distributes almost all of its videos through YouTube, the Vimeo and Vessel deals signal an effort to find new audiences and new ways of monetizing that audience.
“We have to go where the audience is,” CEO Chad Gutstein told Business Insider.
Machinima first became notable as a multi-channel ad network like other big YouTube players Maker Studios and Fullscreen. The business model involved signing contracts with popular YouTube creators, selling ad inventory on their videos, and taking a percentage of the revenue.
As YouTube has evolved, so has that business model. Over the last year, Machinima has focused on creating quality shows in-house like a “RoboCop” spinoff and “Mortal Kombat: Legacy” and launching stars like gamer JeromeASF and comedian Andre Meadows. Today, Machinima far more resembles a movie or television studio than the ad network it started as. As such, Gutstein is borrowing a tactic called “windowing” from traditional media to make a profit on its increasingly high production-value channels, shows, and videos.
Big budget films and television shows use “windowing,” or releasing content in multiple formats and venues, to guarantee a profit on their investment. International distribution, digital and Blu-ray sales, subscription services like Netflix and Amazon Prime, and television rights are just a few of the ways that big budget movies make a big return. Gutstein thinks a similar structure could help social video evolve.
“You have to improve the economics of the business so people can invest more in the product,” Gutstein said. “We’re at the beginning of that virtual cycle in social video. I think, within a decade, companies like ours will be able to produce content at the same budget as the highest quality television.”
Machinima’s audience rivals some television networks in size, but the company is still looking for new ways to make money. While YouTube can pay, its ad margins are hardly that of television networks. Gutstein hopes the Vimeo and Vessel partnerships can provide lucrative payouts that will support videos produced at the $US3 million to $US6 million per hour budget of high-quality television.
“The Vessel deal and the Vimeo deal are about finding new ways for our customers to engage with our content … We’re experimenting,” Gutstein said. “We don’t know how the story ends, but we’re trying to learn how our audience engages with our content and what the price elasticity of demand is.”
One of the biggest issues for viewers is sifting through that mixed bag of vast content that Machinima’s creators produce. Machinima’s 32,000 creators produce around 32,000 hours of unique content per month. For comparison, most TV networks produce between 600 and 3,000 hours per year.
With the Vimeo deal and the Vessel deal, Machinima hopes to create a “curated” version of their content that presents only best and most popular videos and shows.
Whether it works is anybody’s guess, but Gutstein is predictably optimistic.
“In a world of infinite choice, the curator is king,” Gutstein says.
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