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Disney targets millennials with $500M takeover of Maker Studios (update)

Maker Studios in Culver City is the closest thing the world has to a viral video factory. Disney plans to purchase Maker Studios for $500 million.
Maker Studios in Culver City is the closest thing the world has to a viral video factory. Disney plans to purchase Maker Studios for $500 million.
Grant Slater/KPCC

Walt Disney Co. said Monday it will buy digital video company Maker Studios for $500 million, part of its strategy to reach young people on YouTube, the company said.

Maker Studios makes and distributes digital videos targeting millennials. The Culver City-based firm has more than 55,000 channels on YouTube with 380 million subscribers. (KPCC visited Maker Studios in 2012 and created the video profile above.)

Disney said the deal will better position the company in the online video realm, and one industry observer agreed.

“YouTube has proven itself to be a good place to create viral content, and if somebody already has an audience on YouTube, especially a millennial group, they are going to be able to tap into that audience very quickly,” Ira Kalb, an assistant professor of clinical marketing at University of Southern California, told KPCC.

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In Disney's announcement, chairman and CEO Robert Iger said: "Short-form online video is growing at an astonishing pace with Maker Studios, Disney will now be at the center of this dynamic industry with an unmatched combination of advanced technology and programming expertise and capabilities."

Under the deal, Maker could earn up to $450 million more if "strong performance targets are met," Disney said in a press release. 

The deal is expected to close in Disney's third fiscal quarter. 

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Disney's move comes as more entertainment companies have become active in the YouTube space as a way to reach younger consumers. Last year, Glendale-based DreamWorks Animation purchased a popular teen network on Youtube called AwesomenessTV.

USC's Kalb said Disney probably realized that paying $500 million for Maker Studio’s 380 million subscribers and 5.5 billion views per month was a better deal than Disney trying to reach that audience on its own.

Plus, when you post a video on YouTube, you’re not just reaching subscribers on that channel; you have the potential of reaching their friends if the video is shared, Kalb said.

Millennials are a key consumer group for entertainment companies because of the size of their disposable income. The challenge is how marketers reach them. Unlike generations before them, millennials are not “brand loyal,” Kalb said. Instead, millennials place value in the things their friends like and share on social media.

YouTube plays a role in this. For example, Kalb said some young people post “hauling videos,” in which they rave about the clothing they just bought. In some cases, companies pay them commission if their YouTube video spurs clothing sales, Kalb said.

Kalb said consumers can expect to see more Disney content on YouTube after the company’s purchase of Maker Studios. He said it shows content is being distributed on a wider range of channels and networks. 

“There used to be three TV networks, then we had cable TV with hundreds of stations. Now, with the Internet we have the opportunity to have millions of stations,” Kalb said.