Deal focus: AID returns to the MCN space

AID Partners' first exposure to the world of multi-channel networks (MCNs) - groups that drive views, and therefore advertising revenue, to YouTube channels through a combination of product and promotional support - came in 2014 via VS Media. The company, said to be the first and largest MCN targeting Chinese content creators, was acquired by HMV Asia, which had in turn been bought by AID.

The relationship was relatively short-lived: AID wanted full control of HMV in order to focus on turning it into an integrated entertainment and lifestyle brand, so it bought out the remaining shares in return for spinning out VS Media later the same year. The business, now controlled by management, has gone on to receive funding from the likes of CMC Capital Partners and US-based Discovery Communications.

AID's interest in the MCN space did not dissipate, though. The private equity firm knew the industry and was on the lookout for opportunities when Google - owner of YouTube - suggested it talk to Freedom! Network, a Hong Kong-based player with substantial operations in Manila. The GP ended up taking a 50.01% interest in Freedom! Network for HK$468.1 million ($60 million).

"It was initially supposed to be a minority investment but they found out we have a lot of resources and wanted to tap into that. It became, ‘Look, if you are a group company [as opposed to a minority investment] we can give you access to resources without you having to pay us,'" says Kelvin Wu, co-founder and founding partner at AID. "It was a 10-month discussion."

Founded in 2013, Freedom! Network provides value-added services to YouTube channel owners, typically small-scale operators focusing on gaming, music and reviews that want to achieve critical mass. Its offering includes access to music libraries, graphics and branding kits, content collaboration, audience development training, and support with monetization and sales. There are also cross-referrals within a network of more than 177,000 channel partners globally and 211 million subscribers. Freedom! Network gets a 5-40% share of each channel's revenue.

The company generated $20.1 million in revenue for the 12 months ended March 2016, up from $12.9 million the previous year. However, it slipped to a net loss of $860,000 from a profit of $1.65 million.

"Most MCNs are more like artist management companies, but Freedom! Network is more of a technology company. We use technology to help partners minimize their administrative work, get paid on time, and grow," says Wu. In addition to improving the technology platform further, AID will help the company offer services in more languages - notably Chinese, Japanese and Korean - and counterbalance its heavy exposure to gaming by entering other genres such as beauty and education.

While YouTube and a couple of Chinese video-sharing platforms are currently the only ones that share revenues with content creators, this is expected to change. "Down the road they will have to offer revenue sharing in order to compete, so we have a big opportunity for growth," Wu adds.

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• Topics
• Greater China
• Buyouts
• Consumer
• Technology
• Media
• Hong Kong (China)
• AID Partners
• TMT