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DeBevoise: Machinima Focused On YouTube But Eyeing TV

Online Video Network Raises $18 Million After Laying Off 42 Employees

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At a time when online video companies are struggling to build sustainable businesses beyond YouTube, gaming network Machinima is tightening ties with Google's video service.

Less than a week after laying off a large chunk of its sales team and outsourcing sales to YouTube, Machinima has closed an $18 million funding round led by Warner Bros. But rather than use the money to create programming off YouTube, it's planning to double-down.

"Certainly for us in the short run, the focus is on creating new content franchises that'll be born on YouTube and have a huge branding and audience on YouTube but might flourish off YouTube," said Machinima CEO Allen DeBevoise.

As part of its investment, Warner Bros. will look for opportunities for Machinima outside YouTube, such as TV. "That's not our expertise," Mr. DeBevoise said."Certainly for us in the short run, the focus is on creating new content franchises that'll be born on YouTube and have a huge branding and audience on YouTube but might flourish off YouTube."

A number of online video networks have seen their growth stunted by YouTube's 45-55 ad-revenue split and have looked elsewhere for more generous terms. Internet entrepreneur Jason Calacanis summed up the complaints last summer in a pair of blog posts.

But cutting out the sales staff doesn't mean Machinima is out of the ad business. On the contrary, Mr. DeBevoise said the company plans to more aggressively build customized, branded content for advertisers.

Warner Bros.' involvement could open up a new revenue source for Machinima by helping to license and distribute its content. Mr. DeBevoise said the company would like to have that second revenue stream but added that advertising will remain a "fundamental."

Last year Machinima had been reportedly looking to raise up to $70 million. A year later it only pulled a quarter of that, which could signal less than enthusiastic investor interest. That hesitation wouldn't be surprising in light of online video networks complaining about how hard it is to build a sustainable business dependent on YouTube.

At the time, Machinima was looking to fund a flagship TV franchise -- something like HBO's "Game of Thrones" -- but scaled back those ambitions over the past year.

"We were really having a lot of strategic conversations last year with a number of companies -- some in the media space and some not -- about what's next for Machinima," Mr. DeBevoise said. "Some examples were to raise [money] to do a lot of premium content and there were different models we played around with."

In the end, Machinima went with existing content and distribution partner Warner Bros., which produced the series "Mortal Kombat: Legacy II" that streamed on Machinima's YouTube channel last fall.

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