Machinima Seeks New Funding

 In Acquisition/Investment, eSports, News 25, 2013 •, the online site best known for taking videos created by gamers promoting their in-game exploits and then publishing the content on YouTube, is reported to be in the hunt for a sizable new round of funding. According to The Wall Street Journal’s All Things D site, Machinima has contracted with boutique investment bank Allen & Company to secure upwards of $70 million or more in new funding. In May of 2012 Machinima raised $35 million via a funding round headlined by Google Inc. Desipte last year’s capital infusion the game video network laid off 10% of its staff in what was characterized as a refocusing of resources to different kinds of content. The reason behind the new round of funding is suspected to be a new strategy to secure significantly more exclusive online entertainment content in the Netflix mold, and possibly developing its own proprietary Hulu-like portal to deliver that content to viewers.

Impact: Where Netflix goes, others follow. Last March Machinima tallied 2.2 billion YouTube views for the month. That’s a substantial audience to leverage. Yet even $70 million would be soaked up pretty quickly by production costs. Netflix’s 13 episodes of House of Cards is reported to have cost $4.5 million and more per installment, and the content provider is said to be trying hard to keep per episode costs to $4 million for its other original series such as Hemlock Grove and Orange is the New Black. Just one full series could eat up $52 million at those rates. Machinima setting the stage to mimic Netflix is both a bold as well as a risky proposition. The network is already attracting the coveted young male audience in droves, which is a plus. The question is can Machinima convert those game replay YouTube watchers into paying customers of thematically similar video content? We are reminded of the experience of G4, which made a big splash as the first major game cable channel, yet lost credibility over the years with its core audience as a proliferation of game web sites ate away at its user base, and the channel broadened its content mix beyond games. Not that this model cannot work – MTV having proved otherwise after cable competitors began chipping away at its music video monopoly in a world without thousands of music web sites. With G4 in its heyday the question was always how much content about video games did gamers want to watch? Machinima faces the same issue. It’s a big leap going from user-generated content using game engines to exclusive television programming. With the expenses and stakes so high, Machinima must hit a succession of home runs from the start to draw enough revenue to satisfy investors and to grow. Netflix was already a big dog in home video rental, with an IPO under its belt, when it transitioned into content streaming. Machinima doesn’t have that advantage as it pursues Internet video riches.

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