Machinima! Adventures of a Digital Content Company

Millions are watching. When will they cash in?

If not for Machinima, you might be unaware that gamers are terrified of zombies, Super Mario Bros. would have been better off if the villain had more of a back story, an Alienware X51 Mini Gaming PC will catch fire if you put it in the microwave for a couple of minutes, and Return of the Jedi, when you really think about it, has a lot of plot holes.

At this point, most of you are probably wondering: What is Machinima? How do you even pronounce that? And why should I care about all this fringe pop culture stuff?

An online programming company boasting a fanatical following among young males and a staggering 149 million unique users, last month Machinima’s videos were viewed 1.3 billion times (that’s billion, with a “b”). Across YouTube and other online destinations, Machinima claims a total of 101 million subscribers. To put those numbers in perspective, the CBS TV network has about 350,000 subscribers on YouTube and in six years has earned about 1.2 billion views for its online content.

Machinima (pronounced mah-SHIN-eh-mah) is one of a handful of players building massive media companies off Web programming.YouTube goes so far as to use Machinima as a case study in laying out its much-hyped $100 million, 100-channel strategy for 2012. Machinima has even been likened to MTV in its early days.

Yet there are those who believe that Machinima will have a bigger impact on the media business than MTV—and even the very rise of cable television overall—did in the 1980s. In other words, if you don’t know about these guys already, you should.

The company takes its name from the term machinima, which is a portmanteau combining the terms machine and cinema and that describes the company’s particular type of content. 

While has been around since 2000, the form—essentially the use of video game animation to produce short films—dates back decades. Think spoofs of popular video games (Grand Theft Mario) or art film-like montages of favorite killing scenes from Call of Duty, or even fan fiction. An early machinima series, Red vs. Blue, is now in its ninth season.

How big is machinima, and Machinima? “As a genre, I’d say that 90 percent of gamers know what it is,” says Tom Akel, executive producer of MTV Geek.“As a company, maybe every college kid playing Madden and Tiger Woods golf doesn’t know them, but most millennial male gamers do.”

Who would think there would be such a market for videos about video games produced by video gamers that have a rabid following? Hugh Hancock, for one.

“The thing you have to remember is, 10 years have passed since the dawn of Web 2.0, when creativity on the Web exploded,” says Hancock, founder of the Machinima studio Strange Company and one of the co-founders of “You’ve had the growth of all these platforms like WordPress and Blogger and Tumblr. It was all driven by UGC. And then you take gaming, which is arguably the most significant cultural trend of the past 100 years. It’s a vast medium, but unlike, say, film, is not as accessible. Yet there are a significant number of users in that group who want to do more than consume. They want to produce, and they can do that for as little as $50.”

But does that really constitute a business or merely an underground community of gaming filmmaker nerds? Maybe both. Hancock actually sold his stake in the company around 2006, after determining he was not the person to turn Machinima into a full-fledged media company. That was right around the time YouTube started humming, and the quality of videos and games started ratcheting up. “At that time, we started to forget about trying to do this on and put all our efforts into YouTube,” recalls Machinima’s CEO, Allen DeBevoise.

At the beginning, Machinima was all about Halo, the smash Xbox game centered on a futuristic alien rebel war that is now in its sixth incarnation. Then Machinima started moving into first-person-shooter games (those, for the uninitiated, are games in which the user kills lots of people), then sports games, then adventure games, and eventually, series. Today, Machinima’s YouTube channel features scads of seemingly random clips, yet it is actually a highly programmed environment. Among its products are daily series like Inside Gaming, instructional series on individual games, Wayne’s World-esque talk shows, fantasy battle series like Versus, reviews, events coverage and more. “We started remaking the traditional model,” says DeBevoise. “There were all these networks out there pushing their own sites. This was more like cable. YouTube pays for the bandwidth. They’re like the ultimate killer MSO.”

That’s where Machinima may be more than just a powerful super-niche. Some say the company pushed forward a media revolution, one in which massive networks can be built on YouTube, never involving a cable box. “The interesting thing about gaming is that it doesn’t do well on linear TV,” says DeBevoise. “Think of the old MTV model, where you’d have to wait for videos. If you’re a Gaga fan, you probably don’t want to sit through an Eminem clip. Gamers are the same. So Machinima works because it’s on demand. And with YouTube, it’s instantly global.”

“We don’t talk about cable households; we talk about getting on a billion devices,” adds Jay Sampson, a 15-year Microsoft veteran who became Machinima’s evp of global sales, marketing and advertising operations last August.

A billion views? A billion devices? Are these guys serious? Quite. The hiring of Sampson is a sign that Machinima is maturing into a serious business, as is the arrival of former EA executive Nanea Reeves, who last month was tapped as COO. Sampson has brought in 13 sales executives, adding staff in New York, Chicago and San Francisco. The company’s ad base was previously confined to makers of video games and movies, but Sampson and his team now have their sights set on categories including consumer electronics, automotive and packaged goods. Machinima boasts a client roster that includes Bing, Paramount Pictures, Motorola, Pizza Hut, Verizon and Unilever’s Axe, and ad sales have surged 300 percent over the last three years.

Meanwhile, Reeves seems to want to lessen Machinima’s reliance on YouTube while employing data to improve ad targeting. “We need to mature and become more data driven,” she says. “That’s our first big opportunity. We need to understand who our influencers are. We’re going to put the machine in Machinima.”

While goofy mashups and racy, profanity-laden clips of Halo might seem a tough sell, Machinima is so much more, having built an iron-clad slate of franchises, including reality shows such as Wrecknology (on which hosts review new products like the iPhone 4S—and then destroy them) and tent-pole scripted programs like Mortal Kombat: Legacy. That show in particular has been a smash for Machinima, generating 4 million to 6 million views per episode. As MTV’s Akel puts it, “Machinima isn’t really about machinima anymore.”

Last year, Machinima rolled out perhaps its most ambitious project yet in RCVR, a well-received scripted sci-fi drama that would not seem out of place on cable. The show, sponsored by Motorola, pulled in as many as 1 million views for each of six episodes. While Machinima has not yet decided whether to renew RCVR, another series, Bite Me, a zombies-chasing-gamers series being produced with Lionsgate that attracts half a million views per episode, is in its second season.

Machinima says it has dozens of scripted original series in development, and professionally produced content is a major priority. At the moment, Machinima’s programming isn’t necessarily the focus of Machinima the brand. Per YouTube, Machinima’s content has generated over 3 billion views, while the Machinima YouTube network has scored 24 billion.

This, as comScore puts Machinima’s YouTube channel at just 23 million users. The reason for these discrepancies: Machinima has over 4,200 partners—amateurs and semi-professionals who produce Machinima videos and partner with Machinima on distribution and ad sales.

Take Reckless Tortuga, founded by Jason Schnell. Schnell worked for various Web publishers in the mid-2000s while making comedy videos on the side with friends and family.

His spoof show, called The Online Gamer, which imagines Halo fans taking their gaming behavior into the real world, was picked up by Machinima, which offered Schnell a partnership. Reckless Tortuga saw its number of subscribers go from 50,000 to 150,000 in just a few months. “It exposed us to a whole new audience,” says Schnell, who has since quit his day job to work on Machinima videos full-time. Machinima handles ad sales, “and they don’t ever ask for creative control,” he says.

Not every partner is so pleased. According to a report last week on the gaming blog Kotaku, some producers feel trapped by what they feel are restrictive contracts with Machinima. There’s even a video circulating that’s critical of the company, produced by Machinima producer OneyNG, called Mash*tima Partnership. In the past, Machinima retained the rights to sell ads against videos produced for its YouTube channel in perpetuity. The company has since shortened its contracts and made it easier for producers to opt out, says a spokesperson.

“Of the entire group of nearly 4,000 partners, very few have ever had problems or issues—about one or two percent—over the past two years,” says DeBevoise.

Machinima’s heavy reliance on third-party content could potentially pose a problem for its advertisers as well. While Reckless Tortuga’s videos are a bit out there, those from partners Appsro and Smooth Few Films are even farther out there. Take Smooth Few Films’ The Bag Boy, which features a father explaining to his son in the game Halo that he shouldn’t “hump a corpse.” Or Appsro’s Welcome to Gameshop, an animated clip sponsored by Bing that spoofs the aggressive upselling so common in video game retail outlets. In the clip, a clerk asks a patron: “Can I interest you in a butt f–king?”—before dropping equally non-family-friendly terms.

How much of Machinima’s audience is built upon eyebrow-raising, third-party content like this? The company doesn’t break out those numbers but promises it will incorporate more ad-verification tools like AdSafe. “The long-tail content you might find across our global network is very diverse,” says DeBevoise. “Advertisers look to us to help them enter that world, translate that audience to them and translate their brand to that audience in a safe way that’s authentic. That’s something a lot of traditional media are not really able to do.”

Some wonder whether YouTube will crack down, or whether advertisers will eventually balk. Despite Machinima’s massive numbers, many agency types have still not heard of the company. The question remains how skittish the broader landscape of marketers will be about aligning themselves with such naughty content. “Edgy is a relative term—P&G used to think that Dawson’s Creek was edgy,” notes Michael Kassan, CEO of MediaLink, which consults many digital media companies.

“What Machinima’s done better than anyone else is that they’ve been insanely focused on this incredibly active community. That’s the radical difference between TV and the Web: the community,” says Fred Seibert, original creative director at MTV in 1980 and one of the co-founders of the video programming pioneer Next New Networks. “And ultimately, Madison Avenue goes where the audience tells it to go. It’s not the other way around.”

Seibert, in fact, sees Machinima¹s breakout in very broad, maybe even landmark terms. "There are these moments that happen in media. Machinima¹s just the most obvious case of this. There are dozens, probably hundreds of others percolating."

Besides, for some advertisers edgy is an asset, as it buys a brand credibility with its target audience. “I certainly wouldn’t put a game that is rated M in some of these shows, but for the right game, we seek out stuff that is dicey and edgy,” says Mona Hamilton, vp of marketing for the game publisher Square Enix.

Another plus for advertisers: Machinima is flexible. “No other network would let us do this,” Chris Meador, History’s vp of consumer marketing, says of a recent product placement deal with Machinima that generated 3 million views. Meador adds that Machinima is “far from niche—the hardest thing to get over was that they are on YouTube, and it took us a month to pronounce their name right.”

Still, others argue Machinima will have to clean up its act, especially if it wants to be acquired, which many see as the obvious next step for the company. (“100 percent,” says Scott Steinberg, CEO of TechSavvy Global.) PandoDaily reports that Machinima recently took on funding, and its value was put at $250 million. One could easily envision a media giant like Viacom, CBS or Turner snatching up Machinima to establish a beachhead in the gamer world.

Jay MacDonald, CEO and managing partner of Digital Capital Advisors, doesn’t look for Machinima to be acquired just yet, however. “Machinima’s sort of in phase two this year,” he says. “It’s the same kind of concept as Facebook and Twitter: get big, figure out what content is acceptable and later on figure out monetization. They appear to be on that track, and their investors don’t appear to be that concerned. But some of their third-party content is questionable. They’ll probably focus on cleaning that up.”

Whether Machinima will cash in and whether it can get an army of marketers behind its sometimes-spicy content are for the time being questions somewhat more difficult to answer than why Luigi wasn’t featured in Super Mario 64 or what would happen if you put a puppy in Halo 3.