Bad Hombre

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Hi Jodie – thanks for the great post! I too have been following the MCN space for a while, and though fascinating there is one looming problem for all of them: it isn’t profitable. Not even close. YouTube is by far and wide the biggest distribution platform, and the numbers just don’t work out.

If you’re bored, here’s how the dismal math works for YouTube:
– Revenue split: YT takes a 45% cut of the revenues. Of the remaining 55%, the split is 70% to the talent, and 30% to the MCN, which leaves the MCN with 16.5% of the overall revenues.

– CPMs: For professional TV content, advertisers are willing to pay $20-30 per thousand views (CPM) of a 30-second video ad. For the majority of MCN content that CPM is much lower – in the $10 range or less since the content is viewed as subpar quality (which it is).

– Ad impressions: Further, not every viewer is served an ad on YouTube. The rough guess is about 1 in 3 views are served an ad, and of those, if given the choice to skip, less than half watch the ad. Also, a lot of millennials use ad blockers – about half is the industry estimate. So really only 1 in every ~12 views are actually served an ad. These are the views you can charge for.

Putting all this together, let’s say a video gets a million views. Of the million views for the video, only 83.3k result in “ad impressions”, which converted at $10 CPM gives $833. MCN’s cut is 16.5%, which is $137. That’s a measly 1.37 cents per view, all-in, after everybody is paid. Only the very very top performers like PewDiePie, or viral videos like Gangnam Style are able to make a decent profit.

The 45% cut, and the low quantity of ads served makes it virtually impossible for MCNs to stay alive, so really the only way for MCNs to make money is to find a different distribution platform other than YouTube. You might notice this is now basically the same business model as a talent agency: find talent, find a distribution platform, take a small cut of their revenues.

Once everybody understands that MCNs are basically talent agencies for 14 year old kids who desperately yell anything into a camera for attention, I wonder if the hype will live on.

Awesome post Zach, thanks. It does seem like ESPN is facing a existential crisis of having to re-position themselves in this new digital, cord-cutting world. At the same time, it seems like their best strategy for now could be to fight that trend as hard as they could, and try to keep as many viewers in the ESPN TV channel by not investing in other platforms. Nothing else in the ESPN business come even remotely close to being able to fund the business’ needs, namely the mind-blowingly expensive long term sports rights contracts. Digital media, mobile, Tencent, MLBAM are all cool projects that are directionally correct given the business climate, but even if you are successful in building an audience there, will they be able to monetize them enough for ESPN to be a viable business? ESPN, along with most other cable channels, need to see a change in consumer behavior of actually paying for content online before they can commit to a meaningful transformation of truly going digital. In the meantime, maybe investing in those high-priced personalities and keeping them exclusively on air is the only fighting chance they have.

On November 20, 2016, Bad Hombre commented on Comcast combats cord-cutting :

Thanks for the interesting post Lena. The tides are definitely turning against Comcast and all other cable companies which are slowly becoming obsolete. In the short term Comcast can mitigate this effect by diversifying their revenue streams as you mentioned, or by bundling it with internet and landline services. The crux of the issue though is that the product itself is inferior to the rising platforms like Netflix and HBO Go that offer full episodes, on-demand, without ads, for fractions of the cable bill. In terms of actually improving the cable product itself, I think Comcast has done a phenomenal job with the X1 making the user interface as smooth as their online competitors, and allowing content to be saved on the cloud and viewed from any device through an authenticated login. Cable also has the edge of having the latest content and live content. Though I imagine these to eventually shift to an online space, Comcast will have to fight hard to hold on to the exclusivity of that type of content that online players cannot offer.

On November 20, 2016, Bad Hombre commented on The NFL Goes Digital :

Great post Billy. I agree the digitization of many different aspects of the game provide great additional content that has never been available before. The NFL should be careful of protecting their lucrative broadcast rights, but I agree with Mike and Matt above that they are being to restrictive today. I view this extra content as complementary content to the traditional view of the game, not a substitute. On the contrary, I suppose the NFL is worried about changing viewer habits of watching content online, even if it isn’t immediately cannibalistic today, and is doing everything to protect the ecosystem as-is.

On November 20, 2016, Bad Hombre commented on Idolizing nerds: Putting the “e” in sports :

Thanks for an interesting post Sylvia. As a gamer myself I find this trend fascinating and hope it continues to grow. However, I do have doubts on eSports’ ability to ever be a standalone business. The core demographics of eSports audiences are young, tech savvy millennials, notorious for not willing to pay for anything online, which makes subscription or pay-per-view unlikely to be successful. Broadcast rights for TV will also be unlikely as young audiences tend not to watch linear TV. Monetization through ads in online views will be challenging too since the audience is scattered across so many geographies, requiring a large, distributed ad sales team that caters to each local market. Perhaps the biggest strength and benefit of eSports is cultivating a community of passionate gamers that help promote the core business of in-game sales?

On November 7, 2016, Bad Hombre commented on United: Flying the EcoFriendly Skies :

Muy bueno, Nasty Woman. I can see the benefits of increasing fuel efficiency, infrastructure improvements, and adopting navigational technology as a win-win scenario for United. However I have some doubts on what United’s incentives are to adopt more of the other 3: recyclable travel products, alternate fuels, and using electric vehicles for ground operations. These seem like initiatives that require hefty costs or investments to United with no tangible or direct benefit to United besides general PR to consumers. I suppose the biggest challenge of the fight against climate change for any company is really how to look for more effective and well-aligned incentives.

Bravo. I am impressed by the Navy’s leadership as one the leading fossil fuel consumers to set such high standards in lowering carbon emissions, by relaying the efforts to their supply chains as well as leading by example. It seems though a lot of the battles have been a win-win scenario for the Navy. I wonder what factors will matter when the decision comes to a choice between cost and performance, and if those factors will differ significantly vs. other arms of government or corporations.

On November 7, 2016, Bad Hombre commented on The Caribbean: Land of Extreme Sunshine or Extreme Hurricanes? :

Gracias amigo. Firstly I must point out that the CCCCC needs to come up with a better acronym that can be said faster. I also had no idea the important defense mechanism coral reefs act as. As climate change escalates, maintaining the coral reefs and investing in the other security measures you mention seem like an additional dimension of expense the country was not expecting. It’s unfortunate that climate change is caused more from emissions of other industrialized countries, but other communities such as the Caribbean overindex in paying the costs of more frequent natural extremities. I wonder if the Caribbean and other communities hit by disasters are solely responsible for the costs of preventative measures such as restoring coral reefs or the other security measure you mention.

On November 7, 2016, Bad Hombre commented on Thanks To Climate Change, The World Is Not Your Oyster :

Great post amiga. While I am not much of an oyster fan myself, I am intrigued that such seemingly small changes in climate have already affected some hatcheries’ output by 80%. How much more resilient is having a farm in the backyard like Island Creek to these climate changes? Can it be a completely separate, man-made body of water that can be protected entirely from climate change? I suppose I’m curious as to what levers affect the viability of aquaculture technology in different settings, and if we would ever have to resort to it at a large scale from continued climate change.

On November 7, 2016, Bad Hombre commented on Impact of Climate Change on Vail Ski Resort :

Great post amigo. As an avid snowboarder myself it’s saddening to see the impacts of climate change ripple all the way to one of my favorite mountains. While I agree there are several ways to help the business model, I wonder if investing in non-snow related activities a realistic plan for Vail and for ski resorts in general. Ski resorts are usually located in far, distant mountains which does not seem like an obvious place to invest in fixed assets that aims to attract foot traffic. Many of the summer attractions can be better placed strategically in places that are closer to cities where it is easier to attract people to come by which may be critical to be able to compete against other summer destinations such as beaches, parks, theme parks, etc. I suppose you would need to run the numbers but my guess is that many of the resorts including Vail may be better off just passively managing the business off-season, and prioritize finding a way to better utilize the winter seasons.