These 4 Multichannel Networks Plan to Capitalize on the Cord-Cutting Generation

A glimpse into NewFronts strategies

By now, it's a given that millennials—some of them having cut the cord, others never having had a cord to cut—are consuming an unprecedented crush of video content on a growing array of platforms and devices. And while appointment viewing is largely a thing of the past, it is also accepted that the bond that audiences, notably younger ones, have forged with content creators found on YouTube, Vine, Instagram and beyond is infinitely more unbreakable than their parents' affinity for the likes of, say, Jerry Seinfeld or the cast of Melrose Place or any other TV star from the past you'd care to name.

Multichannel networks, built on the power and reach of YouTube and serving as a bridge between creators and brands craving to reach this base of young, hard-core fans, now constitute a 5-year-old ecosystem, one that finds itself all grown-up and yet as always remains in search of the latest, greatest ways to produce and distribute high-quality content—and of course, the next big video star.

And their appeal goes way beyond the screen. Take Twaimz, one of the creators for network Fullscreen. Not only do his videos log millions of views, but his recent tour of the U.S. sold out 22 dates, says Fullscreen founder and CEO George Strompolos. "Why is this happening?" he asks. "He has caught the hearts and minds of an audience."

On the eve of the annual Digital Content NewFronts where the freshest programming ideas will get pitched and some $3 billion in ad business will be up for grabs, Adweek caught up with Strompolos and top executives from Maker Studios, Defy Media and Studio71 (formerly Collective Digital Studio) to learn about the issues they face as they chase coveted millennial consumers and talent, and all those advertiser dollars.

What would you say is the biggest issue you face heading into the NewFronts?
George Strompolos: [Millennials] are watching less and less TV every year, but that doesn't mean that they're not consuming entertainment. If you're an advertiser that's used to spending all this money to reach customers and sell products, you're kind of scratching your head and saying, "Where do I belong?" It's our job to translate that and make it easier for a marketer to reach a customer in those new ways.

Reza Izad, CEO, Studio71: There's not a standard unit of measurement. We have clients that are measuring success on EMV [earned media value] formulas and those formulas, which are coming from third parties, literally differ party to party depending on what the client is using. Making sure there is a consistent, singular methodology is going to accelerate the business going forward.

Courtney Holt, evp, head of Maker Studios: The way that our influence typically is tracked doesn't always align perfectly with the traditional metrics. That's a little bit confusing to media planners and marketers who want all things to feel similar. We don't have standardized forms of measurement against all the ways that we do business. We're trying to make our business seem very rational.

Keith Richman, president, Defy Media: Every year, people go in and reinvent the wheel. They go in and talk about their new slate of programming and they introduce all this IP that may or may not get made, and it confuses the marketplace to some degree because TV has had for a long time a standard scorecard. We don't have that here.

With so many new platforms and methods of distributing content, how important does YouTube remain to your overall business?
Izad: If you really look at ad-supported marketplaces, Google is the only partner that has been funding and paying for content across the web. Facebook is just getting into the game. They're in inning one if you were to even call it that; maybe they're at the first pitch. Hopefully, they evolve into that kind of partnership, but really, YouTube and Google are the only platforms that have historically paid their partners and have done it at scale. They're the reason most people were able to afford to build out these infrastructures. Everyone gets so excited about the new kids on the block, but they're still not really writing checks.

Holt: It's exciting that new platforms like Facebook and Snapchat are coming on and becoming viable platforms for distribution of content, but they also are a little bit different. We talk about programming having a primary distribution channel, and now we're looking at secondary and tertiary distribution channels.

Strompolos: They have a little bit more competition on the video side from Facebook and Snapchat and other players, but YouTube is so entrenched. They are the only major social media platform that actually has a revenue-sharing program that rewards the content providers. There's been some experimentation from some other platforms, but YouTube has built it, they've scaled it, they've internationalized it, and they have the copyright protection to go along with it.

Richman: They're still hugely important. They remain one of the largest video platforms in the world, and they serve as a great distribution point and marketing vehicle at the top of the funnel. I think anyone who says that it's not as important is probably fooling themselves. That isn't to say that there are not a lot of other platforms that are gaining in importance or becoming relevant.

What are some of the challenges managing young creators and helping them work with brands?
Izad: If you're going to have a relationship with talent, there needs to be trust. You need to be able to communicate with them in a way that allows both sides, the brand and the talent, to come to some kind of agreement around what's being executed. We spend a lot of time with our brand partners, explaining to them how the world works on our side of the table.

Holt: We really try to explain to talent and respect the balance between "This is good for my brand" and "It's good for business," but you don't have to do something that's going to alienate your audience. We can do these things in a way where we actually help you enable more views but ultimately enable more money, but not in a way that's destructive or distracting.

Strompolos: The transition from hobby to profession often has a learning curve to it. Because the talent tends to be pretty young, oftentimes their parents are still actively involved in their lives. That's not a bad thing necessarily. The creators in this space tend to be fiercely independent. When they come in and they have 100,000 subscribers on YouTube or 1 million followers on Twitter, in most cases they built those themselves.

Richman: What advertisers are interested in more now are scalable products that don't involve as much reinvention of the wheel and don't involve as much risk in the final product. The custom programming around content was like a drug. It's what got them interested and excited because it was built around them.

YouTube and other MCNs are creating content for subscription-based services. How much growth is there in this when users are used to getting that content free?
Izad: There's a long history of that model being successful. We're in very early days, and there's going to be winners and losers like there is in all of these things. But we think there's a very compelling argument to make that there will be more than Hulu and Netflix as winners in this game.

Holt: Content is the great differentiator. As you look at services that have come online, whether it be Netflix or Hulu or others, they differentiate themselves with their content. We want to put our content where there's a potential to reach an audience. To me, it just means that more opportunities to distribute content means that you can invest more in content.

Strompolos: The fans want to elevate their favorite stars and creators to new heights. They want to see them succeed. When it comes to paying, certainly if a creator has a million subscribers on YouTube, we don't expect a million people to pay. But there is a core fanbase that says, "Wow, this is cool. It's important to you, therefore it's important to me."

Richman: I've long believed that people will pay for content, and they'll pay for differentiated programming. The question is just, at what scale, and what brands are associated with that. Over time, new bundles will be created that will incorporate those brands that people really care about. Today, we pay for a lot of programming that we don't value. There's huge room for new subscription services to be offered on an à la carte basis.

How do you see the relationship between MCNs and the so-called legacy media evolving?
Izad: If you look at the Fred movies [based on a character created by Lucas Cruikshank for his YouTube channel], they were hugely profitable to us, more so than what we may have earned in the YouTube environment. As a studio, we take a very singular approach that we're looking to maximize the value of the IP we're partnered with or we own. Whether that's TV, YouTube, Facebook, whomever, that's the game we're playing.

Holt: If you're looking at all the ways you can achieve audience these days, linear is still a very viable way to do that. In the world we're moving into, we think channels really matter, and so we're looking at how that's going to align with our overall strategy. It's the best of both worlds. We love the idea of testing concepts, ideas and characters and seeing how they can evolve. I like this idea of convergence; I think it's good for everybody.

Strompolos: For our subscription service, we're licensing content from a lot of studios. We're a buyer. We're licensing shows and movies from Fox, Sony and MTV. On some levels, we're competitors—we compete with ad dollars, we compete for attention from consumers—but on more levels, we are collaborators.

Richman: The opportunity for us to partner on taking our IP or our finished programming and putting it on their existing distribution, and them working with us to help make their short-form programming successful, is going to become more and more material.

Many say the term MCN is outdated. How would you describe what you do?
Izad: MCN is a bad word in some people's minds, but I don't care what you call us. It's really, what we do is pretty specific and, I think, differentiated enough from our competitive set that I'm not worried about the label. We view ourselves as a premium content purveyor and distributor online.

Holt: We say we're a media company and we kind of always have. We started as a studio; we make a lot of content; and we distribute a lot of content. You're starting to see more of the commercial implications of the things we incubate through talent channels, including our Spark initiative. These are things that I think are very different from a network that is effectively managing inventory.

Strompolos: We're not in love with that label, but we don't hate it either. It's just a label. But when you kind of look at the companies that are categorized as MCNs and you peek under the hood, they're actually quite different businesses across the board. Fullscreen is a global media company, and we develop creators and we create great programming experience. That's really what we do.

Richman: We've always been pretty consistent with how we've described ourselves. We're a content creator, programmer and distributor. Most of the people in our company are actual producers of programming—they create content. A huge chunk of the rest is dedicated to distributing it. Unlike a lot of those guys, we're actually owners of websites for most of our brands.

This story first appeared in the April 11, 2016 issue of Adweek magazine. Click here to subscribe.