Big Media Buys Up Another Hit-Making YouTube Network

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The YouTube (GOOG) land grab continues: Otter Media, a joint venture between the Chernin Group and AT&T (T), said it had bought a majority stake in Fullscreen, one of the biggest YouTube networks, in a deal that Bloomberg reports is valued between $200 million and $300 million.

It’s just the latest in a steady stream of acquisitions—Disney (DIS)buying Maker Studios for $500 million; DreamWorks Animation (DWA) buying AwesomenessTV for $117 million—that mark the arrival of the really big money to the YouTube market. The world of online video, particularly the stuff favored by younger users, has been built by tiny operations drawing huge audiences to low-budget works. Such companies as Fullscreen came in over the last couple of years and promised professional services to help the little guys scale, signing up creators who thought they might not make it by themselves.

Fullscreen has persuaded many of the big names in YouTube to sign on. The roster of talent includes the Fine Brothers, whose “Kids React” Web series is now being produced as a show for Nickelodeon (VIA.B), and Connor Franta, who leveraged a series of chatty Web confessionals into a book deal with Simon & Schuster (CBS). Fullscreen’s channels attracted 36 million viewers in July.

The company has also built a management business designed to help YouTube stars sign traditional media and endorsement deals. The company describes itself as a translation service between the creators of digital content and the people holding the purse strings for media and advertising companies. “Traditional Hollywood is buying apples, and we have this whole farm of oranges,” says Larry Shapiro, FullScreen’s head of talent. “Our value proposition is really helping take that orange and make it look like an apple.”

Now theses multichannel networks, as they are known, are reaching the limits of how far they can scale without help of their own. Once cash flowed to some from Disney, Warner Brothers, and Comcast, the pressure on the rest only ramped up further.

Peter Chernin has been positioning himself to be in the middle of this for years. He spent a decade near the top of the power structure at News Corp., then left in 2009 to form his own company to invest in media. Chernin initially focused on big budget movie and television production—its first big project was Rise of the Planet of the Apes—but he also had his eye on digital video.

In 2013 the Chernin Group teamed up with AT&T in an unsuccessful attempt to buy Hulu, and the two companies formed Otter this spring with a plan to pour $500 million into Web video services. AT&T is looking to expand its television business with the purchase of DirecTV (DTV), so placing bets on online video as it becomes more threatening to the traditional cable industry makes sense. YouTube content may hold as much appeal at traditional television to younger audiences who might be the target of new online video services. “You’re seeing larger, older school media looking to make these bets, not necessarily to make money, but on the audience level,” says Seth Shafer, an analyst with SNL Kagan. “People are trying to lock up the preliminary pieces.”

George Strompolos, the former YouTube executive who started FullScreen, will continue to run the company and keep an ownership stake. He’s supposedly working on a paid subscription service as a part of Fullscreen, although he has declined to discuss the plans.

 

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