Are Machinima’s struggles to monetize a sign of broader MCN challenges?

Peter Kafka had an interesting piece on Machinima, one of the biggest and oldest multichannel networks (MCNs) trying to make a business on YouTube.

According to Kafka, the company has been hunting for another round of funding for much of the year, and has undergone two rounds of layoffs. He also reported the company’s CEO. Allen DeBevoise, is looking to hire a CEO to take his place and he would move up the chairman’s suite.

It’s an intriguing set of developments in a space that, for the most part, has pretty white hot for much of the year. Machinima has massive traffic – something on the order of 2 billion views per month across its various channels on YouTube – but has yet to figure out how to make enough money on this traffic to put it on a positive revenue path above a significant venture capital burn rate. Other big MCNs, such as Full Screen and Maker keep taking venture funding as they aggregate significant channels and viewers, but none of these players – with the exception of Revision3 – has seen a significant exit or IPO.

Which begs the question – can a standalone MCN be a successful company in the long run?

I think the answer could be yes, but only if these companies can successfully figure out a way to monetize outside of the YouTube advertising network. Most are trying hard to diversify, but make no mistake that the vast majority of the revenues come through video views Google’s video network.

One potential way would be to strike more deals with traditional broadcast and cable providers, as well as push their content onto TV screens through smart TVs and connected set-top boxes (something many already are trying to do today). That said, connected device viewing and models for potential subscriptions for any of these efforts are still embryonic and uncertain at best.

One potential risk all of these players face is a potential turn in the VC environment. The appetite is strong now for the MCN space, but in a downturn I expect it could turn as the overall monetization for these companies is still pretty speculative long-term.