To woo younger generations of viewers who watch videos online and on mobile devices, traditional television studios are rapidly snatching up venture capital-backed online video startups, known as multichannel networks (MCNs). Warner Bros. Entertainment Inc., a division of Time Warner Inc. (NYSE: TWX), has already made a purchase, and Walt Disney Co. (NYSE: DIS) is closing in on a target.

MCNs are the latest step in the evolution of online video, first popularized by quirky user-generated clips on YouTube, which Google Inc. (Nasdaq: GOOG) bought for $1.65 billion 2006. The demographics of the audience are clearly attractive to TV advertisers too. Hit shows on MCNs have millions of Generation Y and Z viewers.

For example, PewDiePie, a 24-year-old Swedish gamer, boasts 24 million subscribers.

No wonder Disney just acquired Maker Studios Inc., the MCN producer of PewDiePie’s content. Since 2009, Maker has raised $66 million in VC from Greycroft Partners, Upfront Ventures and Time Warner Investments. It produces thousands of videos on YouTube, generating roughly 5.5 billion monthly views. Among its contributors are Jordanian comedian Kassem Gharaibeh and actor Robert De Niro’s Tribeca Enterprises. “Short-form online video is growing at an astonishing pace," says Disney chief executive Robert Iger in a statement.

Ynon Kreiz (pictured), CEO of Maker Studios, adds that the $500 million deal with Disney would strengthen Maker's position as an online video producer.

“It’s kind of a land grab,” says Wade Layton, managing director of CIT Corporate Finance’s media group. “If you can aggregate a lot of eyeballs and not spend a lot on the content itself, it’s an interesting model. You can make money just on the exploitation of that content. It helps a company like Disney.”

Disney has been an active acquirer in recent years, with several significant multi-billion dollar deals under its belt. The company bought Pixar Animation Sudios for $7.4 billion in 2006, Marvel Entertainment for $4 billion in 2009 and Lucasfilm Ltd. for $4.05 billion in 2012. Disney also procures digital content providers for under $1 billion, including the $700 million deal for Club Penguin, an online gaming community, for example, in 2007.

Meanwhile, Maker has done a bit of dealmaking in its own right. In August, it bought video distribution network Blip, a New York startup that raised $24.3 million from VC firms including Bain Capital Ventures and Canaan Partners, for an undisclosed price.

Now that it inked a deal with Culver City, Calif.-based Maker, Disney is following in the footsteps of Warner, which made a similar move when it bought an $18 million stake in Machinima, a video game-focused YouTube MCN. The deal, also announced in March, includes participation from investors MK Capital and Redpoint Ventures. Machinima has about $67 million in VC funding.

Bryan Cave LLP’s Ronald Jacobi notices the trend too, adding that traditional Hollywood companies are “definitely looking to smaller content providers.”

Subscribe Now

Complete access to real-time information and analysis of news and trends in the industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.