Viacom Becomes Latest Entertainment Giant to Buy a YouTube Presence

Defy Media Acquires Three Gaming Sites From MTV's Parent Company

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Defy Media's flagship brand Smosh has 17.9 million YouTube subscribers
Defy Media's flagship brand Smosh has 17.9 million YouTube subscribers

Viacom today became the latest big media conglomerate to buy a foothold on YouTube.

The parent company of MTV and Comedy Central took a minority stake in online video network Defy Media in exchange for three gaming properties: Addicting Games, GameTrailers and Shockwave.

The monetary terms of the deal were not disclosed. Defy Media will add a board member from Viacom, but who takes the seat has not yet been determined.

The deal makes Viacom the latest of major entertainment companies investing content startups built on YouTube. Last year DreamWorks Animation acquired teen-focused YouTube network AwesomenessTV, which in turn bought Big Frame.

But the biggest online video deal came in March when Disney bought Maker Studios. That deal could eventually total $950 million. That same month Warner Bros. took a stake in Machinima, reportedly with an option to buy the YouTube network. And more recently film-and-TV studio Relativity Media has entered acquisition talks with Maker's main rival Fullscreen.

For an entrertainment company focused on youth, Viacom has been oddly restrained in its web video investments. It offers TV Everywhere apps, syndicates "The Daily Show With Jon Stewart" on YouTube and Hulu and has inked an ad sales partnership with Yahoo's Tumblr. But unlike Disney and DreamWorks, Viacom hasn't made a splashy deal for a digital version of itself.

"We are creating content people want and selling advertisers around that; that's the same business Viacom is in," said Defy Media CEO Matt Diamond. "They just come from the linear and traditional place, but they also have a very large digital platform."

Defy Media came into being last October after digital-media companies Alloy Digital and Break Media merged. Defy Media claims more than 155 million people combine to watch over 400 million videos each month. The company also counts 40 million YouTube subscribers across its brands and 10 million downloads of its mobile video apps. But unlike many of the top YouTube networks, Defy's business isn't wholly reliant on the Google-owned video service.

Defy generates the majority of its revenue outside of YouTube and is profitable, but Mr. Diamond, declining to share specific figures.

Beyond selling ads, Defy also makes money from merchandise sales and content syndication. But it is also exploring a subscription-based streaming video service, Mr. Diamond said. He described the company's efforts as early-stage testing but said that at some point it will launch aggressively. Viacom does "have a subscription revenue part of their business [and the deal] allows us to peek into that," he said.

Additionally Defy Media will promote Viacom's brands and content across its owned digital properties and network of third-party sites. Whether the arrangement would go the other way toward syndicating Defy's content on Viacom's properties "fits in the category of strategy development and other partnerships the companies are working on," Mr. Diamond said.

In addition to Viacom, Defy Media's investors include Lionsgate, ZelnickMedia and ABS Capital.

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