YouTube MCN Definition:
"A multi-channel network (MCN) is an organization that works with video platforms to offer assistance to a channel owner in areas such as "product, programming, funding, cross-promotion, partner management, digital rights management, monetization/sales, and/or audience development" in exchange for a percentage of the ad revenue from the channel."
Official Wikipedia Definition
“I have over 200K views a month; there has to be a way to make more than 100 bucks a video.”
LIKE DEFY MEDIA, YouTube MCNs (Multi-Channel Networks) promised a solution any content creator would love:
“Focus on creating, and we will work on securing brand sponsorships and better AdSense margins.”
This partnership was just what the market needed. Brands get marketed friendly content, and creatives build sustainable hands-off revenue streams. YouTubers like the owners of Smosh and 50 others sold their channels to Defy Media in return for stock shares and hopes of increased revenue.
So why did Defy and the YouTube MCN model fail?
Hype, then market changes, then debt. In Defy Media’s case, it all came to a screeching halt when its creditor seized its assets. Ultimately, they weren’t able to deliver on their promise. The MCN model has plummeted in popularity, and many creative entrepreneurs are using innovative solutions for content monetization. The Dads of YouTube, Rhett, and Link are one of those creative entrepreneurs. They offered an out of the box solution that saved Smosh and gave them the freedom to create without the added pressure of finding brand sponsorship.
Defy’s Promises and YouTube MCN Hype
At the heart of the YouTube MCN promise is more money and less hassle. They sold this promise by being big.
Small independent creators don’t have access to brands and data analysis needed to scale their monetization. The MCN model aggregates these smaller channels into a fine-tuned network that can farm 300 million views a month. This scale gives them leverage that independent creators don’t have. They get access to YouTube’s exclusive analytics and a seat at the table with brands like Nike and Toyota.
Bigger is better.
Bigger is also more expensive and harder to manage. Access to exclusive data with YouTube means that you need data analysts for 50 major YouTube channels. It means you need social media and brand managers. It means you need a detailed business plan that meets real industry needs.
Creatives are big picture people. We can innovate and make fantastic art, but we are often blind to the small things. When we hear bigger is better, all we see is bigger. It is a flaw in our ideation process. The 50 YouTube creators had the same line of thinking when they signed with Defy Media. It is what the investors probably thought when Defy raised 70 million in series B funding.
These investors and creators weren’t able to foresee that Defy’s lack of infrastructure would prevent them from providing each channel with the support they needed. YouTubers like this on Reddit complained that they never received their promise of brand partnerships. This YouTuber explains how the MCN model doesn’t have the time and resources to improve AdSense margins for every channel. MCNs have a pattern of using their resources to only promote their most popular channels.
Defy, and the YouTube MCN model bit off more than it could chew. These complaints are a sign that the value of these companies was overhyped. Bigger wasn’t necessarily better.
YouTube Policy and Market Changes
Defy received 60% of its revenue through YouTube. YouTube is the bottleneck of the MCN model and controls whether it lives or dies. So when YouTube changed its community guidelines around ad-friendly content, MCNs had to either invest obscene amounts of money in content monitoring or drop thousands of creators from their networks. Many MCNs chose the latter. YouTubers could no longer rely on MCNs to protect them from copyright issues and community guideline infractions.
This, combined with the fact that YouTube removed the ability for MCNs to run Adsense ads on their videos, meant that there was almost 0 value that MCNs offered creators. MCNs could not provide those higher returns because they no longer controlled the Google ad placement. All MCNs had left to offer was brand sponsorship, and they saved these offers for their top tier creators. All the smaller creators were left stuck in an MCN contract paying out 15% of their ad revenue for nothing in return.
Hype Means Debt
That 70 million in series B funding in Defy Media meant that there was a lot of pressure to keep up appearances. And when their pitch was all about being big, they couldn’t do anything that signaled austerity. This is the kind of hype that plummets a company into debt. In Defy’s case, they turned to Ally Bank to keep the purse strings full and open.
The loan wasn’t enough. Things began to look dire when Topix filed a $300,000 lawsuit claiming that Defy wasn’t paying advertising fees. Similar suits followed, and Defy finally took austerity measures with multiple rounds of layoffs.
The cat was out of the bag, and it was clear to investors and creditors that Defy was running out of money. They couldn’t keep up with the hype. Ally Bank finally called their bluff and seized all of Defy’s assets.
And just like that, 50 YouTuber channels were out of a job and a paycheck. Smosh and others had to fight Ally Bank for control of their channel and two months of ad revenue that Defy owed them.
Mythical Offers A New Hope
If big money execs couldn’t manage a 50 channel youtube network, then maybe one successful YouTube duo could manage a small handful. Two best friends from North Carolina saw another opportunity to create something together. Rhett and Link negotiated a deal with Ally Bank to buy Smosh and save 30 careers.
Rhett and Link’s Mythical Entertainment gained 24 million new subscribers through the purchase. Their time on YouTube is one for the history books. They started by making goofy music videos, and now they own multiple channels, including a variety show, vlog, food channel, and podcast. They even have a YouTube TV show, published a book, and are live performers.
The backbone of their success is found in their promise to make things together. This promise isn’t concerned with hype or short cuts. It is about friendship. Since their commitment is always to the collaborative process, they can perpetually move the goal post and try new things without fear of failure. This is the kind of creative collaboration and freedom Smosh has at Mythical.
A Better Way Forward For Content Monetization
Creative entrepreneurs helping creative entrepreneurs.
The bigger is better model fell flat because views don’t fuel content monetization, it is driven by content. This YouTuber explains how the right video can make money with only 100 views. Rhett and Link were monetizing their content long before they were viral and long before anyone made money from Adsense.
One of their first paid YouTube videos was in 2007. They made a country music song about corn hole and simply cold-called businesses to sponsor it. They found one that would pay $2,000 to make the video and a $20 CPM (cost per thousand views). The song ended up getting 1.7 million views.
$20 CPM’s are unprecedented. The industry standard is $2.50 CPM. MCNs would sell unrealistic promises of $10 CPM’s and Rhett and Link were making twice that before MCNs even existed. They didn’t have access to big brands or exclusive data. They were just two young engineering grads making goofy music videos in their garage.
Rhett and Link aren’t content creators; they are creative entrepreneurs. Their model developed through aggressive trial and error. Now they have a fine-tuned media company that produces volumes of high-quality content with multiple revenue streams. Their business model and revenue strategy are thoroughly detailed.
The critical difference between Rhett and Link’s Mythical Entertainment and Defy Media isn’t size. It is content and process. Their friendship happens to have the perfect balance between the two. Rhett is a big thinker kind of guy, and Link is meticulously obsessed with the process. This balance has bled into their media company.
The co-founder of Smosh, Ian Hecox shared their vision of the future in an interview with Hollywood Reporter,
“Smosh and Mythical are incredibly aligned on where we want to go in the future,” notes Hecox. “We both want to attract and foster new talent and grow our brands from within. And we both have a lot of big ideas on how to grow the revenue outside of YouTube AdSense. We couldn’t have landed in a better place.”Ian Hecox
There are other creative entrepreneurs looking to help creatives. Rhett and Link have proven that this model works far better than the YouTube MCN model. We could see other successful channels like The Try Guys follow suite. They are another example of a self-managed channel with their own production company. Strategic alliances aren’t only for big channels. Models from the business world show how they can help channels increase YouTube revenue per view. The best organizations equipped with supporting the monetization of creators are other creators. Look Law is one.
A New Kind Of Law Firm
We are partnering with Veritas Arts to raise 10 million for the development and production of faith-based intellectual property assets. Veritas Art understands the intersection of truth and art. They are creators and know what the market and culture need from faith-based films. We plan to support other independent creators with a similar vision and see it become a reality.
We are a creative law firm obsessed with giving legal and business advice to creatives. Our hands-on experience in content creation gives us the ins and outs of the industry. Like Rhett and Link, we have learned from trial and error. We can provide creatives the resources and counsel they need to build a sustainable business model and revenue strategy for their business and art.