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Art by Matt Vascellaro.

An Uneasy Union: When Disney Met Maker

By  |  Dec. 2, 2014 7:06 AM PST
Photo: Art by Matt Vascellaro.

When Disney CEO Bob Iger struck up a conversation with Maker Studios CEO Ynon Kreiz at Allen & Co.’s Sun Valley conference in 2013, it wasn’t obvious to him why Disney would need the money-losing startup that managed YouTube videos for online stars like Swedish video game fanatic Felix “PewDiePie” Kjellberg.

But over the course of the next several months, he and others at Disney came to see Maker as a key digital asset that could help it reclaim an audience that was too old for the Disney Channel but not yet watching its bigger broadcast and cable networks like ABC or ESPN.

Disney paid handsomely for the potential. The final price was $500 million upfront with a potential $450 million more if Maker met certain performance targets—in total, around what Facebook paid for Instagram or nearly four times what Jeff Bezos paid for the Washington Post.

The sum surprised more than a few inside Disney, many of whom had been uneasy about the company since the beginning. Even some of Maker’s investors thought the fledgling business would go for less.

“When we heard the number, we were in shock,” said one person close to the company.

In the broader media industry, Maker’s exit, aggressively engineered by the savvy Mr. Kreiz, also set a high-water mark for media companies purchasing YouTube networks. The next largest exit came for Maker competitor Fullscreen, which was valued at around $250 million when it sold a majority stake to a joint venture between the Chernin Group and AT&T. In one stroke, Disney’s bet kicked off a flurry of copycat deals and validated a business model that still hadn’t proved a path to long-term success.

The story of how the deal came to pass—based on interviews with people involved in the deal at both companies—shows how startups and traditional media companies continue to make strange bedfellows. Some within Maker questioned the wisdom of teaming up with a legacy media company. And to this day, there remains questions within Disney over how much it paid and what exactly it bought. (This is the second article in an Information series on tensions between tech and media. You can read the first piece here.)

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