Written by Young Kim
Nowadays, there has been growing number of people watching videos online habitually. This is based on the fact that people have started to create their own videos to share their interests with others meaning that there are a wide array of online videos available. This is becoming common especially among the young generation. (Gardner & Lehnert, 2016) The contents of video can be anything that creators want to share with viewers such as cooking, dance, beauty, gaming and so on. (Lobato, 2016) Along with this trend, A new type of business model, Multichannel Networks (MCNs), receives attention of the public. MCNs have started to bridge millennial content creators with video platforms, especially YouTube. These networks help creators to product, promote, distribute and market their contents in exchange for a percentage of ad revenue. However, their business models are in question in terms of profit sustainability since their revenue tends to mainly depend on ad revenue from YouTube. (PWC, 2014) Therefore, the purpose of this e-paper is not only to explore what Multichannel Networks (MCNs) is including their business model but also to figure out its limitations. Furthermore, the paper aims to give recommendations from a marketing point of view in order to make Multichannel network business more efficient.
What does Multichannel Networks mean?
With the emergence of Web 2.0, the internet has dived into the era of participatory culture where creators and viewers can co-exist and co-communicate with each others. (Gardner & Lehnert, 2016) Youtube, one of the greatest online platforms, has over a billion users. Based on Youtube statistics (2016), Every day people watch hundreds of millions of hours on YouTube and create billions of views. This figures have brought a new kind of player to the media industry, it is Multichannel networks (MCNs). MCNs are intermediary organizations that partner with content creators and sell advertising, cross-promote affiliated YouTube channels, and develop video brands. (Vonderau, 2016; Gardner & Lehnert, 2016; Cunningham, Craig & Silver, 2016) You can be confused that MCNs refers to video channels within Youtube and even considered it as subsidiary of Youtube however, they stand for networks that encompass a plenty of such channels. Therefore, it would be better to understand that Youtube is strategic partner for MCNs to monetize their content they create from creators.
The top MCNs based on Youtube platform is Maker Studios in the lead which attracts 6.20 video views in one month. The other MCNs are Fullscreen and Broadband TV with the multiple billions views. (eMarketer, 2015) The contents on these MCNs show difference from that on traditional video or TV channels. Although genres that they provide to audiences are similar to those of cable networks such as news, comedy, and lifestyle for beauty, cooking, movie, music, gaming and so on however the way they present their contents differs in various ways. Since content creators are very young and very liberal, they have a close relationship between the millennial generation. (Gardner & Lehnert, 2016) They provide unfiltered “authentic” and “genuine” contents specialized in story-telling and thereby appealing to the millennials whereas those of traditional media seems more organized, designed and sometimes even factitious. The length of the video is rather short from 5 minutes to half an hour which is quite contrary to TV channels.
Why does MCNs work? – Audience Pool
We are living in the era where we can consume and produce media at the same time. (Deuze, 2016) This phenomenon is often called as prosumption referring to “the interrelated process of production and consumption” (Ritzer, 2015). In the online video community, the prosumption makes people talk, share and edit the content more actively than before which leads the community to create a special bond. If this lasts longer, MCNs can build a special audience pool which can be strong resources to maintain their business. The audiences who are in the pool are already actively engaged in what creators have uploaded and sometimes they even guide what the creators have to do next. To sum up, once MCNs develop their audience pool, the creators can reach out potential audiences as many as they want and creators can get fruitful insight from them which enriches a quality of video and thereby the quality of entire video channels as well.
What makes MCNs profitable? – Business Model
What makes them keep doing business? Many people could misunderstand that there is only one way to make profit for MCNs, AD revenue. However, there are several ways more to diversify their profits.
1. Sharing the ad revenue
MCNs usually work with content creators providing them the knowhow, resources and audience pool. (Gardner & Lehnert, 2016) In return, the creators need to share their ad revenue with MCNs. Basically when creators upload their videos on Youtube and it starts to get popularity from audiences then an online video commercial automatically pops out prior to an online video. This is how MCNs monetize their content typically.
Since subscribers tend to advocate content creators emotionally, there is an opportunity that MCNs can ask for donating money from them. They can justify their donation in an exchange for producing better quality of video. However, the chance is rather low even though audiences want to identify creators as a reflection of themselves because the personality of video itself is usually for fun so it is hard to bring about donation.
3. Brand mentions
If creators become popular, then the third companies require them to promote company’s products on creators’ video. Creators can mention specific brand saying that it is good to use and even do product placement on their video. Since their relationship between creators and viewers is closely connected, the chance that viewers feel uncomfortable by product placement and native advertising from creators is low.
4. Launching a product & Sale of merchandise
Various MCNs start to make physical products from cosmetics to clothing in order to build their brand and increase revenues. For example, the Korean MCNs called Video Village, one beauty creator actually launched the beauty product which is whitening cream. The procedure from naming the product to packaging is entirely associated with audience’s opinion. By engaging in producing a product, audiences could feel more involved in the community that creators created which leads them to purchase the products in the end.
What need more? - Limitations & Recommendations
Despite the fact that MCNs is growing in the new media era, there are a couple of limitations which needs to be solved.
1. Share of Profits
As mentioned above, ad revenue on Youtube is a typical way of making money for MCNs. Based on Suster, Youtube is taking 45 % of ad revenue whereas the remains go to the channel. (Suster, 2013) Then 55% of revenue has to split between MCNs and the creators. However, it is hard to calculate the exact amount of revenue need to be shared. If the way how money is split among creators, MCNs and Youtube is unclear, then it directly connects to the ethical issue. MCNs might be accused of taking unfair profits which ruin MCNs’ reputation later on. Therefore, it is important for them to set up the exact standard when it comes to splitting the ad revenue up between MCNs and the creators.
2. Managing issues with their channels
The essence of MCNs is based on a variety of channels that audience can access. It aggregates from niche such as lacrosse to popular contents such as cooking, gaming and so on. (Lobato, 2016) However, when MCNs gets bigger then it becomes hard to manage whole channels and creators because they tend to focus on what is famous among their tons of channels. Then the creators who receive less attention from MCNs can be left out of the channels due to the fact that they have less opportunity of making profit. Even though some channels could be less profitable, we should remember that if the MCNs lose the diversity, then the audiences will lose interests in MCNs as well since the contents include almost all categories.
To make MCNs go further into the successful business, there are two recommendations as follows.
1. Using Various Digital Platforms
Aside from Youtube, MCNs have to use various digital platforms in order to convey their unique stories to audiences such as Facebook and Instagram. Even though Facebook and Instagram do not let online commercial come before the video is played, those could be great platforms for raising awareness of creator itself and their contents. Audiences do not need to wait for ad until it ends on Facebook and Instagram so it is more likely to be accessible. Some of MCNs uploaded their creator’s video on Facebook which is part of their whole story and once it gets popularity from viewers, they encourage them to visit Youtube to watch the rest of the story. Then the traffic heading to Youtube will get higher and so does revenue.
2. Creating Own Digital Platform
The majority of customers prefer to get content from the company that they feel familiar with. Also, it is recommendable for company to have their own platform where they can put all their content in one place so that they can control their owned content and thereby benefit all the revenue. (Gardner & Lehnert, 2016). For example, a giant MCNs Endemol Beyond USA recently launched a new direct-to-consumer platform, GetBeyond.US. The new website is designed and developed to increase direct engagement with consumers offering behind-the scenes, long-form, and exclusive content only available on this platform that carefully encompasses, engages its audience. Therefore, MCNs can increase their presence and improve their audience’s experience by establishing their own platforms for direct and active engagement. (Weaver, 2016)
The era of new media continues to grow and especially in video industry, audiences are currently entering into digital platforms and advertisers are spending money on them as well. The concept of online video is now expanding because it encourages more content creators to make their own unique video than ever before. In this context, MCNs take an important role as an intermediary organization between creators and advertisers by promoting, distributing their contents. It is clear to say that MCNs is gradually getting people’s attention but some of limitations still exist. They need to diversify limited profit structure focusing on Youtube ad revenue. Also, they have to balance between what is popular and what is niche content among a plenty of channels so that they can keep viewers as long as they can. In order to reach out the audiences, they need to have various platforms such as Facebook and Instagram. MCNs are also encouraged to create their own platform besides Youtube so that they can control their owned content more efficiently. No matter how hectic the new media era is, MCNs has become a successful business model in accordance with participatory culture where people can co-communicate each other. MCNs will stay for whileto connect the creators, audiences, online platforms in a sustainable way.
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