Why Time Warner Is Investing $25 Million in Maker Studios
Old media gave its stamp of approval to a new digital media model on Thursday. Maker Studios closed a $36 million round of funding, including $25 million from Time Warner.
Never heard of Maker? You've probably watched one of its low-budget, yet professionally-produced videos on YouTube; it's one of its most popular professional content providers.
The funding also includes Los Angeles venture capitalists Greycroft Partners and GRP Partners, as well as Robert Downey Jr.'s Downey Ventures, Elisabeth Murdoch—the investment company for former News Corp exec Jon Miller—and Academy Award-winning producer Jon Landeau.
Perhaps most important, Time Warner will get a seat on Maker's board and will get insight into how the digital studio is succeeding on YouTube.
Why is this important for Time Warner?
This builds on its acquisition of the digital sports content site Bleacher Report for $175 million in August, as it looks to establish a foothold, and an understanding of, low cost, high return digital content. (Read More: Here's Why MGM and Time Warner Need a Big 'Hobbit'.)
It has 140 million YouTube subscribers ,and sources say it's on track for north of $50 million over the next year, despite the fact that it only recently started building an advertising team.
And Maker isn't settling for just one revenue stream. In addition to revenue from YouTube, it's building its own sales team targeting mobile ads. The company also sells music and merchandise around its YouTube stars.
What does the mean for other digital studios?
It's a testament to the fact that they're profitable, growing fast, and hot targets for high-profile investments, acquisitions, and eventual IPOs. These companies are valuable because they're a sure-thing bet for advertisers to reach the so-called "lost boys" of marketing—teens and 20-somethings who don't watch TV ads.
Here's why investors need to pay attention:
These digital studios have the eyeballs, the ad dollars and they're truly global. They're growing reach and revenue fast, they have big media and tech companies on board, and they're expanding beyond advertising, building multiple revenue streams.
There are two other hot digital studios—both bigger than Maker—worth noting.
Machinima, which focuses on videogame content and the valuable young male demographic, is the biggest content creator on YouTube, with about $70 million in revenue this year, and as much as $150 million in revenue projected next year.
In addition to its ad revenue, it's working on a new business model which it'll launch in the first half of 2013: selling subscription access to content of video downloads. In May it raised a $35 million round of funding, led by Google and it's heavily partnered with Warner Brothers to promote its Mortal Kombat game.
Break Media, which will generate more than $50 million this year, is on track to grow to at least $75 million next year, or more, depending on the success of its new revenue streams. Break, which is 42 percent owned by Lionsgate, runs ads for all of the nation's largest advertisers, considered a fail-safe way for the likes of P&G to target 20-something men. In addition to advertising, the company's working to launch a commerce business next year. It's also developing long-form content to distribute through traditional TV and movie studios.
—By CNBC's Julia Boorstin; Follow her on Twitter: @JBoorstin