Otter Media, co-owned by AT&T Inc. (NYSE: T) and the Chernin Group, acquired a majority stake in online video company Fullscreen Inc., the latest in a push by TV-industry players to offer programming over the Internet.
The deal values Fullscreen, one of the most popular YouTube networks, at $200 million to $300 million, said people familiar with the agreement, who asked not to be named because the price isn’t public. Terms weren’t disclosed in a statement announcing the transaction today.
“The trajectory they are on is unbelievable, especially when you look at how 10- to 25-year-olds are consuming video,” Jesse Jacobs, president of Chernin Group, said in an interview. “The TV business is a $200 billion business, and it is increasingly migrating online. Fullscreen is one of the companies at the forefront.”
Chernin Group, led by former News Corp. President Peter Chernin, and AT&T are moving forward with plans announced in April to invest more than $500 million to offer Web-based channels. They follow Walt Disney Co. (DIS), which bought Maker Studios this year, and DreamWorks Animation SKG Inc., which acquired Awesomeness TV in 2013, as TV companies use Web-based content to go after younger viewers.
Fullscreen, based in Culver City, California operates a suite of online video channels. Its best-known YouTube creators include Grace Helbig, a pop-culture video blogger, and the Fine Brothers, comedy writer-directors with more than 10 million subscribers.
The company will receive an investment from Otter Media to increase production, hire advertising staff, expand its live-events business and add products, Fullscreen Chief Executive Officer George Strompolos said in an interview.
“They are giving us the resources to achieve what we’ve always set out to do, which is create a global youth-media company,” Strompolos, a former Google executive, said without providing specifics on the funding.
One way Fullscreen plans to increase revenue is to develop a paid streaming video service, according to several individuals who have discussed the product with the company.
Strompolos declined to discuss any subscription plans. Both he and Jacobs said subscription fees are one of several important ways for a modern video company to generate revenue.
The Chernin Group was the first company to invest in Fullscreen. Jacobs met Strompolos when he still worked at Google and oversaw strategic partnerships for YouTube. Strompolos wanted to build something of his own, and now runs a company, with chief operating officer Ezra Cooperstein, that has more than 200 employees.
Strompolos will retain some of his stock and continue to run Fullscreen, while London-based WPP Plc (WPP), the world’s largest advertising company, will remain a strategic shareholder, according to the statement. Comcast Corp. (CMCSA), another early investor, is selling its stake, the people said.
More than 50,000 YouTube channels work with Fullscreen, which funds production of shows, sells advertising and forges partnerships with global brands including General Electric Co. and McDonald’s Corp.
Both Helbig, who has 2.2 million YouTube followers, and the Fine Brothers, Rafi and Benny Fine, are working on television projects. Fullscreen creators also include Devin Graham, known as Devin SuperTramp, a filmmaker who chronicles extreme stunts.
In addition to building its own networks, Fullscreen advises corporate clients on how best to extend their brands on YouTube and other online forums. That may involve creative suggestions, advice on when and where to put a piece of content, or pairing a Fullscreen creator with a client.
Media companies have targeted online networks to gain expertise with young viewers and emerging digital platforms. Disney, based in Burbank, California, paid $500 million for Maker in April, with the potential for as much as $450 million in added payments if it meets performance targets.
Otter is investing in companies that deliver video over the Internet, or over-the-top, as opposed to traditional TV networks. Its first acquisition, Crunchyroll, also possesses an over-the-top business.
Chernin, 63, played a key role in the creation of Hulu, which has streamed network-TV programs online since late 2007, and bid for the company alongside AT&T the last time it was for sale. Hulu is co-owned by Rupert Murdoch’s 21st Century Fox Inc., Disney and Comcast’s NBCUniversal.
AT&T, based in Dallas, brings Fullscreen access to a network of mobile and pay-TV subscribers, creating revenue opportunities through advertising and product partnerships.
AT&T was little changed at $35.48 at 11:26 a.m. in New York. The stock is up less than 1 percent this year.
Fullscreen creators generate more than half of their video views on mobile devices, where demand from advertisers hasn’t grown as quickly as consumer usage.
While Crunchyroll built its business with anime videos, Fullscreen’s core group of creators includes Web personalities, comedians, gamers, writers, directors and musicians. This month, the company staged a live event that included skits, music and meetings with performers.
Strompolos left Google in October 2010, and since founding Fullscreen in January 2011 has focused on publicizing the network’s creative talent. He said he now wants to transform the company into a consumer brand that is “the best at programming for today’s young adult.”
Strompolos often compares his company to MTV, and he said he has been reading an oral history of the groundbreaking cable channel. The founders of MTV made one mistake, he said: they sold their company outright to Viacom Inc.
“At the moment in time where MTV sold to Viacom, they were valuable,” Strompolos said. “They didn’t capture nearly the upside they ended up creating. This lets us continue to go for a home run.”