Machinima boasted more than 2,100,000,000 video views last month. That is 2.1 billion. It’s YouTube’s largest multi-channel network, bringing together over 7,000 channels under the banner of “entertainment for the gamer lifestyle”.

You’ve probably run across the Machinima network yourself – particularly if you’re male, between 18-35, and know what the Internet is. Describing itself as “The Dominant Video Network For Gamers”, Machinima the company should not be confused with machinima the artform, which is the use of carefully composed and choreographed realtime gameplay footage to tell a cinematic story. It was the emergence of this new form of accessible and low budget filmmaking in the mid 90′s that eventually led to the founding of the Machinima network.

 

Who Are Machinima?

With the release of John Romero’s groundbreaking First Person Shooter Quake in 1996, creating and sharing machinima (then, via in game executable demo files) was able to take off thanks to the relatively small file sizes of these “videos”. The term machinima itself hadn’t been formally coined at that point – instead fans simply referred to these creations as “Quake Movies“.

In 2000 Machinima.com was founded by Hugh Hancock as a place to simultaneously focus and expand the “Quake Movie” community just after the launch of the divisive Quake III – a stellar title handicapped by its highly restricted filmmaking capabilities. Machinima.com provided helpful resources and articles for those looking to get into digital filmmaking, and exclusively featured some of the most anticipated community releases such as Tritin Film’s “Quad God“.

In 2006, Machinima.com took to YouTube as an early adopter of the young video platform, and carved out a niche for themselves that quickly widened. Machinima today is the most viewed YouTube channel, ever, and “the no. 1 global video entertainment programming brand for young males worldwide”.

Machinima.com Circa 2000

Though Machinima have branched out wildly since their “Quake Movies” days, the company has stayed true to its gamer roots, maintaining eleven core YouTube channels that feature everything from live playthroughs, industry coverage (with Chris Hardwick AKA The Nerdist) and episodic machinima (such as Red vs Blue), to gaming related web-series (The Clan), sketch comedy (Reckless Tortuga’s offerings) and glossy, branded tie-in’s (such as Mortal Kombat: Legacy and Halo: Forward Unto Dawn).

These expensive, high profile licensed adaptions are perhaps what Machinima have gained the most press for in recent years, but with 7000+ smaller partners creating reams of content daily, all under Machinima’s banner, most gamers are probably familiar with them through sheer osmosis alone.

After all, 95% of all gamers watch gaming related videos on YouTube.

As a YouTube network Machinima’s business strategy is a fairly simple one; accumulate as much content that will appeal to gamers across their channels and then sell the advertising space directly to sponsors keen to speak to their audience. Machinima boasts an incredibly large demographic – roughly one in four men aged 18 to 35 who stream online video watch Machinima content. This vast field of prime advertising real-estate isn’t going to waste, watch any of the networks videos and you’ll sit through one expertly targeted advert after another, but despite this over the last few months we’ve seen and increasing number of reports that state Machinima simply isn’t profitable, and worse, is dangerously close to running out of money.

 

“…the company is still unprofitable on $40 million in revenue in 2012, sources say. Now 12 months past its last financing, it’s unsurprising to hear the company may be running low on cash.”

A History of Mixed Success

This might come as a shock for any casual fans of the “by gamers, for gamers” style network, but Machinima’s meteoric rise in popularity was far from self-funded. In 2008 Machinima received their first investment (of $3.8M), followed by a second round in 2009, a third in 2010 and a fourth (worth $35M, lead by Google) in 2012. Today, the rumour is that Machinima are looking to raise a further “mega-round” of investment to the tune of $70M.

Writing for AllThingsD, Peter Kafka has speculated that the money, if raised will be put towards restructuring Machinima’s core business model, stating that:

“The money is supposed to help the company advance its content ambitions. Instead of relying on clips contributed by YouTube amateurs and semipros, Machinima wants to spend more money licensing original shows, like the Warner Bros-produced “Mortal Kombat” series it has run, or a forthcoming series from director Ridley Scott.”

Furthermore, he goes on to state that:

“…instead of just running its new shows on YouTube for free, Machinima wants to figure out how to create a subscription business, a la Hulu Plus or Netflix”

It’s not uncommon for this sort of rhetoric to accompany fundraising rounds – after all, who wants to ask investors for more money to carry on with the same activity that hasn’t been profitable so far; cut through the business speak and the fact remains Machinima needs to raise this cash simply to pay employees and keep the lights on. Somehow, the costs of running Machinima are just too high.

 

Ridley Scott and Machinima plan on teaming up to produce 12 short Sci-Fi films.

Where exactly does all of Machinima’s money go? How do 2.1 billion views a month, with no associated bandwidth or hosting costs make Machinima only $40M in revenue a year? How exactly does Machinima spend that much to begin with? We’re not Machinima’s bookkeepers, we don’t have all the answers, but it’s possible to speculate.

The first factor to consider is Machinima’s rapid, venture funded expansion. They have had explosive growth from a small website to a large multi channel network operation without needing to perfect their business model and strategies. Machinima’s core staff has grown into the hundreds and maintaining 11 primary channels as well as 7000+ partners is not unlike herding cats. This element of the business clearly creates a large organisational burden on the company. Machinima’s rumoured plans to lower their reliance on these difficult to manage partnerships is telling.

Regarding their premium content, when Machinima does deal with the high end, branded content tie-ins that they’ve become known for, heavy royalty and licensing fees become a major factor that most people don’t consider.

Machinima’s expansion into every form of gamer focused entertainment has left them unprofitable even at $40M of revenue a year, meaning expensive licensing agreements and the sheer scale of their operation could well combine to bring Machinima down, not forever, (a little bit like twinkies) but certainly as we know it. Upstart speculate that their latest money hunt could well be Machinima’s last.

No matter what happens now, whether Machinima manages to raise more money to continue operations, or if they are acquired by a larger entity, such as Time Warner, Machinima is about to change. What will this mean for the multi-channel giant and its viewers? It’s impossible to yet say, but with such a large audience engaging the network daily, it’s going to be difficult to please everyone.