Want to know how smart a bet Google made when it purchased YouTube for $1.5 billion in 2006? Independent companies that were built almost entirely on YouTube’s platform are being sold for nearly that same amount.
In March, Disney acquired Make Studios, a network of over 50,000 YouTube channels with close to 400 million subscribers, in a deal that could value the company up to $950 million. Then in September, an investment group took a stake in Fullscreen, a network with 3 billion monthly video views, that valued the company between $200 million and $300 million. And finally StyleHaul, a network that specializes in beauty and fashion shows, was acquired for a $150 million valuation. As Digiday’s Eric Blattberg put it, “It’s a good time to run a big YouTube network.”
Here’s another way to put these valuations in context. Fullscreen, a company launched in 2011 and distributed on a platform less than a decade old, is valued higher than what the Washington Post went for when it was sold to Jeff Bezos.
How did we go from prognosticators worrying that YouTube would always be a loss for Google to massive valuations and revenue for both YouTube and companies that use it for distribution? Well, you could probably point to December, 2010, when the company launched pre-roll advertisements. Before that, it was only running Adwords-like text ads. With that move, brands that were already spending millions to develop television commercials could simply re-purpose those same commercials on YouTube at mass scale.
Vevo and its backers also deserve a lot of credit for their prescient early YouTube strategy. For decades, music labels had been giving away their music videos to MTV and VH1 for free (for marketing purposes) and the executives at Universal and Sony were determined to do a better job at monetizing the web. So they created an online networks that distributed their signed artists’ music videos mainly on YouTube. That’s why if you watch a music video on YouTube today, it likely has a Vevo logo on it.
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The move paid off. As of 2012, Vevo was bringing in an estimated $280 million in annual revenue and receiving 3.1 billion views a month. It began looking for more backers at a valuation between $700 and $800 million. And in 2013, Google took an official stake (likely over worries that Vevo would otherwise move its network over to Facebook), that valued the company at $700 million. No doubt having so many music stars actively marketing themselves on YouTube paved the way for mainstream legitimacy, allowing other major media companies to invest in the platform.
With YouTube itself projected to generate $7.5 billion by 2015 and as much as $30 billion in just a few years, Google’s $1.5 billion bet on YouTube in 2006 may go down in history as one of the company’s smartest. I couldn’t help but compare it to the $30 billion Comcast paid for NBC Universal. How long until a YouTube network sells for that much?
Are you beginning to understand why news companies are suddenly investing so much in video?
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