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Here’s Why Time Warner Inc. Wants To Acquire YouTube Network Fullscreen

Here’s Why Time Warner Inc. Wants To Acquire YouTube Network Fullscreen
By: Martin Blanc
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People familiar with the matter said that although a deal is yet to be finalized, Time Warner could end up paying a price similar to the $500 million that The Walt Disney Company (DIS) shelled out last month to buy Maker Studios, another popular YouTube network. There’s been a lot of hype surrounding these YouTube networks that have emerged over the last few years. Here’s why we think Time Warner is forging ahead with a takeover bid for Fullscreen.

Short-Form Video is the Future

Culver City, California-based Fullscreen was founded in 2011 by CEO George Strompolos, and has since risen in the ranks to become one of the hottest multi-channel networks (MCNs) on YouTube. It now boasts around 380 million subscribers, and racks up almost three billion views every month, generating between $50-70 million in revenues last year.

MCNs make money by bringing together individual video channels under a single network for operational and distribution purposes, and in turn share a percentage of their ad revenues. Despite their arguably hefty price tags, media giants are betting big that YouTube channels and their networks will not only continue to grow, but will also find better ways to monetize viewership.

Shares of Time Warner Inc. are up 1.7% at midday today.

Competitors Are Ramping Up Investments in Online Channels

Despite its rapid rise, Fullscreen has not yet seen the profitability that one would expect. That said, it has a few big names behind it: investors such as former News Corp. (NWSA) chief Peter Chernin, ad giant WPP Plc. (WPP), and Comcast Ventures are early backers of the company.

Time Warner is essentially catching up with its rival Disney in the race to gain a substantial online presence. Last month, Disney confirmed its deal to purchase Maker Studios for a sum of $500 million, plus another $400 million in performance-based payouts. And while Fullscreen may not be very profitable, it is hot property right now, with the likes of Yahoo, Inc. (YHOO), AOL, Inc. (AOL), and film studio Relativity Media LLC. having expressed interest in buying the video network.

Another player making inroads in the upcoming space is the studio DreamWorks Animation SKG Inc. (DWA), which bought the YouTube network AwesomenessTV for $33 million last year. Time Warner does not want to be left behind in an industry where the dynamics have quickly shifted to distribution of online content.

Time Warner’s Content Aligns with Young Viewers

New York City-based Time Warner Inc. owns cable and broadcast networks such as HBO and CNN. It also owns film and entertainment businesses, Warner Bros. Studios, WB Animations, and DC Comics – brands that resonate well with younger viewers.

Time Warner is also set to spin off its troubled publishing segment, Time Inc., into a separately listed public company next month, as it switches to become a pure play on content production.

So it makes sense that the company is realigning its goals to focus more on video content production and distribution, and the acquisition of Fullscreen fits in well with its desire to increase its online footprint. Fullscreen’s young audience could do wonders for Time Warner when it comes to engaging users with short-form entertainment content such as movie trailers, animation clips, and moving comics.

This is also not the first instance that Time Warner has bought into the growing online-video business. Earlier this year, it acquired the video-stream site Machinima, Inc. for around $18 million. While the latest deal with Fullscreen would be several times larger, the end goal remains the same: rack up a considerable online presence to get ahead of rivals.

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