Peter Kafka

Recent Posts by Peter Kafka

Machinima Wants a Mega-Round. Who Wants to Invest in a YouTube Giant?

With more than two billion YouTube views a month, Machinima is one of the biggest players on the world’s biggest video site.

So, how much is that worth?

The people who run the video network are going to find out. The company, which focuses on videogames and the young men who love them, is out looking for a “mega-round” of financing. The results may be a bellwether for YouTube and its ambitions to take on TV.

Last year, Machinima executives raised $35 million in a round led by Google. My understanding is that, this time out, aided by bankers from Allen & Co, they’re looking for at least that much, and possibly much more — perhaps in the $70-million-plus range.

The money is supposed to help the company advance its content ambitions. Instead of relying on clips contributed by YouTube amateurs and semipros, Machinima wants to spend more money licensing original shows, like the Warner Bros-produced “Mortal Kombat” series it has run, or a forthcoming series from director Ridley Scott.

And, instead of just running its new shows on YouTube for free, Machinima wants to figure out how to create a subscription business, a la Hulu Plus or Netflix, which could run on other platforms, like Microsoft’s Xbox, as well as Machinima’s own, non-YouTube site. In an ideal world, Machinima would find funding from a “strategic” partner, like a movie studio or TV network, to help it navigate that world; it has also talked to more conventional financial players.

Valuation will be interesting. Last year’s round pegged the company at about $200 million, and Machinima executives will argue that they’re worth much more now, because they’ve figured out how to reach an elusive and important audience. (Talk to anyone connected to Machinima and they will invariably tell you to look at the weekend box office . “Those are our people,” they’ll tell you.)

On the other hand, lots of people have figured out that turning a big YouTube audience into a big advertising business is really hard. Google is happy with the site because it keeps growing and generating more ad revenue, but lots of YouTube partners are doing a lot of grumbling.

Machinima executives have zero intention of leaving YouTube and its billion viewers, but they definitely want to find other outlets for their stuff. The trick will be finding someone to help foot the bill.

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There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google