Disney buys YouTube video producer
Disney is buying YouTube channel operator Maker Studios for 500 million dollars (£305m) as the family entertainment giant seeks to stay in front of younger viewers increasingly watching short videos online.
It is the latest and largest acquisition of a YouTube channel network by a major Hollywood studio and represents another vote of confidence in the video service as an incubator of talent.
Disney said it would pay up to 450 million dollars (£275m) more in bonuses if Maker met performance targets. The Maker deal is Disney's biggest acquisition since it bought Star Wars creator Lucasfilm for 4.06 billion dollars (£2.4bn) in late 2012.
The purchase will give Disney ownership of 55,000 channels - including Epic Rap Battles of History and makeup expert Amy Pham's The Fashion Statement. Combined, Maker has 380 million subscribers and generates 5.5 billion views a month.
Buying Maker Studios would help Disney reach young audiences, said Kevin Mayer, Disney's executive vice president of corporate strategy, in an interview.
"They have the biggest audience on YouTube. It's very hard to replicate," he said.
He said that while Disney also reached younger viewers, their habits were changing.
"To the extent that they're finding YouTube, we want to be there too," he said. "We don't want to have any vacuums."
Mr Mayer said Disney could also find talent for its TV shows and movies in the YouTube stars on Maker Studios' channels.
It is not the first attempt to mine YouTube for characters that could be taken mainstream. In 2010, Lions Gate Entertainment released Fred: The Movie in 2010, using the character that Lucas Cruikshank turned into a viral, if annoying, sensation on YouTube.
It also follows other media giants into the space.
Earlier this month, Time Warner's Warner Bros led an 18 million-dollar (£4.8m) investment into videogamer network Machinima. Last year, DreamWorks Animation bought the AwesomenessTV network for 33 million dollars (£20m), with a bonus potential of 117 million dollars (£71.3m) if the studio met earnings targets over two years.
Peter Csathy, chief executive of investment fund Manatt Digital Media Ventures, said the scarcity of leading YouTube channel networks contributed to a run-up in the price for the few that remained.
"The mass numbers of viewers coming to these channels is what it's all about," he said. "It's the numbers and the scale. It's that coveted young demographic. Those are the contexts underlying all of this."
Richard Raddon, co-founder of online video management company ZEFR, said traditional media companies had only recently begun to see YouTube as a valuable platform in which to invest.
"A few years ago, I don't think YouTube was on their radar as a big, broad, viable global platform with an enormous audience. It is today," he said.
For Maker, the acquisition marks a stunning ascent.
Founded in 2009 by YouTube stars Lisa Donovan and her brother Ben, Danny Zappin, Shay Carl Butler and Kassem Gharaibeh, the company operates from makeshift offices spread over several buildings in Culver City, California, and generates hundreds of videos every month.
Maker raised 70 million dollars (£42.6m) in two fund-raising rounds from 2012 to 2013 that reportedly valued it around 300 million dollars (£183m). Investors included Time Warner and others.
Disney shares rose 35 cents to 79.84 dollars in after-hours trading after falling 86 cents, or 1.1%, to close at 79.49 in regular trading.