Defy Media’s president has made a bunch of people internet famous. Now he wants to make them just plain famous.
On a recent episode of Recode Media with Peter Kafka, Defy Media President Keith Richman talked about his stable of hot YouTube properties, like comedy duo Smosh, “Honest Trailers” producers ScreenJunkies and pop-culture boondoggle Clevver.
But he’s not satisfied with Defy’s 70 million YouTube subscribers watching 800 million videos a month. He’s got even bigger plans for his empire.
You can read some of the highlights from Peter’s interview with Keith at that link, or listen to it in the audio player above. Below, we’ve posted a lightly edited complete transcript of the conversation.
Transcript by Celia Fogel.
Peter Kafka: I’m here with Keith Richman, who is — I always call you the CEO of Defy Media, but you’re president of Defy Media.
Keith Richman: That’s correct.
I think Defy Media is a little in the Rodney Dangerfield zone. You’re a big video producer, you know how to do something a lot of people don’t. And I think a lot of folks outside a pretty small circle don’t know what Defy Media is. Am I summing that up correctly?
I think that is, unfortunately, a fair characterization.
So I always introduce you as, “These are the guys that produce Smosh.” And most people who read Recode probably don’t watch Smosh but they may have heard of Smosh. Smosh is two dudes primarily who are a giant YouTube brand, and they’ve now expanded — this is why you’re shaking your head — into a bigger YouTube brand. But started off with two dudes from California.
Yeah. I think the 50,000-foot view of Defy — because we own a bunch of other brands and channels — is we’re a big creator of digital programming from 13- to 34-year-olds.
Video primarily, right? With a focus on video.
Primary focus on video, yeah. And we are the largest owner of YouTube channels. We have about 70 million subscribers to our various channels. And this is more of an owned-and-operated model. It’s not a network model where we’re renting the channels and deals like that. We are the owners of the channels and we are the producers of programming for those channels.
You make lots of content that you own, distributed on the internet on places like YouTube, I think Facebook. We’ll talk about all of that. In an earlier era you were called Break.
Yeah, so Defy is actually the result of a merger between two companies. One, Break Media, and the other, Alloy Digital. And we came together at the end of 2013 to create Defy. And we did because we were both getting to a scale and it was a scale at which no matter how successful we were, we always felt we couldn’t invest enough in programming, so by coming together we were able to do that.
So talk about the scale. Again, assume the listeners of this podcast have never heard of Defy. How big is the company? How many folks are you reaching? Put it in the context of a TV network.
Yeah, so like I said, we have 70 million YouTube subscribers. We do about 800 million views a month to our content. A majority of that is actually on YouTube, which is a rarity nowadays when people talk about views. We get about 50 million people a month to our various websites — Break, Smosh, we have a website called girl.com that’s really popular. The company’s got about 375 people in it spread between Los Angeles, New York and some sale offices around the country.
And like you said, you started off as primarily a YouTube company, right now all the excitement around video has shifted to Facebook and Snapchat. The bulk of your business is still coming out of YouTube?
Yeah. We spend a lot of time focusing on those other platforms, but YouTube is still the most consistent and predictable platform out there.
And it’s also very trendy — I don’t know if trendy is the right word. Lots of people who are doing what you do in some capacity say, “Oh, the next step is TV.” Are you guys making a TV show? Are you buying a TV network? Have you convinced Time Warner to give you headline news or anything like that?
We’re involved in a lot of those conversations.
Really? I was being facetious. You’re going to buy a network?
Like I said, because of the scale at which the brands operate and the fact that we have 72 original shows that we produce a week, we have the ability to program a lot of content to a network already. We are in conversations about everything from taking a two-hour block to what would it be to have bigger opportunities around a lot of our channels.
I think what we’re focused on primarily is what do these brands mean and how do we get the most out of these brands in the right place for those brands specifically. So for Smosh last year we did a movie; we have another movie that we’ve announced. We have a bunch of TV opportunities that we’re exploring.
So I get why it makes sense for you guys to make a Smosh movie, you’re doing Smosh live shows now as well. And your audience will go see that movie wherever you get it to them. But you audience is also the audience that is no longer watching TV, right? They’re not even cord-cutters. They’re cord-nevers, because you’re dealing with teens and early twentysomethings primarily. What’s the point of putting your stuff on a TV network other than bragging rights?
We believe the audience will go and watch the content wherever it is. So the reason TV networks care is because they want to see if putting our type of programming on their networks is something that will attract younger viewers.
It’s very logical, right? Like, “What we have they’re not watching, let’s try something else.”
Yes. And for us there is a modicum of respect that comes with it. There’s certainly money that comes with it, because no matter what we call it today, the business model arbitrage is still in the television network’s favor.
There’s more money in TV, so why not? This is basically what Shane Smith said: “Why not go there, they’re going to pay us to put our programming on.”
It seems like you guys are not doing it yet so I can’t put you in that group, but it seems like Vice is going to be set up for failure because their ratings are very modest to nonexistent now, and maybe they’ll get an entire generation of people who don’t watch cable TV to watch cable TV, but that doesn’t seem likely.
There was a story about [how] they had to do screenings in their office because none of the folks who were actually producing the stuff watch TV or have TV subscriptions. It seems like you guys would end up in the same category, except maybe your audience is even younger than the Vice audience.
I also think it’s more broad in a lot of cases. I think if you take our 50,000-foot position, over time there will be a greater correlation between dollars paid and what people watch. And right now when you look at media, it’s pretty disparate. There’s a lot of people that make a lot of money for programs that very small audiences watch.
And this is an old story for media, right? The dollars don’t follow the eyeballs as closely as you’d expect. People have been talking about dollars moving online for years, and they are, but it’s not a one-to-one thing.
No, and it’s taken a long time on the ads side for that to happen, but certainly in the world of cable bundles and channels that were jammed in by big conglomerates, there’s even more magnification of a lot of those issues. And so we believe that as those dollars get freed up, our brands are big enough, and the audiences, and really the engagement.
What we focus on here a lot is watch time. Like how many people are actually spending time engaging with our programming, and apples to apples we fare very favorably. And so, like I said, we’re very platform agnostic. What we do know is that no matter what platform we’ve been on, we’ve managed to find an audience that really likes our content, and TV in a lot of ways is just another platform. It just happens to be one that today might monetize better, but we share your concern about what that means in the future.
Yeah, I guess I’m more curious, I don’t know if I’m concerned. It’s your business, not mine. Although I guess I’m kind of in that business too, so maybe I’m concerned. I’m also concerned, deeply concerned.
I was going to say, you’re deep in that business at this point.
Yeah, so you were big on YouTube where people go and seek out the stuff, right? So you build a fanbase on YouTube, you guys have figured that business out. Then — kind of overnight — the model shifts and everyone becomes fascinated with Facebook, and Facebook is not set up that same way. The stuff comes to you. How do you adapt your business when things change that radically?
The nice thing is we have big social presences. So on all these platforms we already go in with an inherent advantage for most of our brands. I think Smosh itself has 10 million fans on Facebook, Break has probably five million fans on Facebook, or something like that. So you already have large install bases of audiences that you can program to. So the question is more of an understanding of what kind of programming works on that platform specifically and what’s the business model that you can build around creating programming for that platform. And we’ve clearly seen with Facebook, it’s not necessarily the same kind of content.
So you make different stuff for Facebook than you would for YouTube?
Or we edit, yeah, in some ways. Sometimes we shoot entirely different stuff and a lot of times we just create edited versions that are short.
Is there an overarching theme? Like, “Oh this is Facebook content, this is YouTube content.” What’s the difference?
I actually think I heard Gary [Vaynerchuk] talk about it in one of your podcasts. What works for a while on Facebook — and this is with all these platforms, you have to stay ahead of the curve — was shorter videos with closed-captioning on them.
Something that’s going to pop, you can see it in your screen.
Clearly, food videos seem to work on Facebook. But to your point, it’s not a programmed entity where you can tell people, “Watch this first, watch this next, go from here to here.” And I believe over time they will add many more elements of true programming as they go. And so from our perspective, it’s, “How do we stay on top of the platform, learn what they do well today, and plan for what we think is an inevitable future in a lot of these places.”
Are you guys making money on Facebook? I know that’s another big concern, that there doesn’t seem to be a lot of ad revenue generation.
We always go into new platforms with what I’d say is reasonable expectations, and we’ve been thrilled but how much …
What’s a reasonable expectation?
Close to zero in most cases. Because it’s just a low bar. You’re banking on your success there, which I think we’re pretty confident in, as well as their ability to introduce a new product to the marketplace. And sometimes that takes longer. And so we got our first check from Facebook and we were shocked how big it was. That’s one of the reasons we got more excited about the platform.
Are you one of the groups that’s splitting ad revenue in that test with them?
So you’re in the group. That’s a pretty rare group. Are they giving you any sense that they’re going to expand that eventually?
I just don’t know.
Even if we turn the microphone off?
No, not even if we turn the microphone off.
Okay, and when you’re trying to figure out these bets, this is another thing that all the media companies have, Facebook opens up, Snapchat opens up. I’m sure there’s four other platforms that opened up since we started talking. You guys raised a bunch of money but you’re still resource constrained. How do you decide, “All right, we’re on YouTube, now we’re going to spend this much creating Facebook videos, we have to spend this much time on Snapchat.” How do you go through that balance? How do you balance those demands?
It’s slightly easier when you’re talking about platforms that are very well established, like a Facebook or a Snapchat. The bet there [is], you can make a reasonable assumption that over time that’s going to make sense for you even if there are some bumps in the road as to how you get there. The question is, what about those other four that you talked about? And arguably you should be on all of them. You should be experimenting and we know very well from our experience that being early is a real advantage to learning the intricacies of a platform.
Because for a while Snapchat was a tiny platform, right? It was for sexting.
I mean, DJ Khaled. Look at the people that were able to build large followings.
You’re suggesting that DJ Khaled wouldn’t be a big star if he showed up today on Snapchat?
I think it’d be a lot more challenging for him, most certainly. We look at YouTube and everyone says there’s no barrier to entry, it’s an open platform, but that’s a perception. The reality is there’s a meaningful barrier to entry to being successful on YouTube and understanding it. Knowing that, we take every new platform very seriously and we have a lot of people here that look at it.
The rationale for why we invest what in them really depends on whether we think there’s advertising opportunity that we can build around it, whether or not we think our audiences are going to end up being there because it’s an innovation or a new type of product. We’ve been playing a lot with Lively as we look at live. We don’t play that much with Musical.ly, skews a little younger than the kind of stuff that we do, just as an example.
And when you say there’s a meaningful barrier to entry on YouTube, what is that? What’s the difference between you guys and someone who hasn’t gotten into YouTube yet for whatever reason?
I think there is, one, at this stage, 10 to 11 years of learning as to how the platform works. We have a team of, I want to say at least 10 people, but might be more now, whose whole job it is to figure out how to make things work on YouTube more successfully. And that’s everything from what you title it to how you link over to the next video to how you cross pollinate between channels we have. So knowledge and education is a real start, and then just install bases of audiences.
We think of ourselves as having the 8:30 time slot after “Seinfeld” or “Friends” back in the day, because when we launch something we have a big audience to promote it to and a lot of videos that are watched that we can also point from to. So I was reading this interesting thing in Synopsis this morning about promo time given to shows. Which I thought was … I’d never seen that.
On traditional TV or on YouTube?
On traditional. I’d never seen that, actually. And I thought it was really interesting and I want to go back and kind of think about how we measure against it.
That’s kind of the main thing TV does, right? Is promote other TV shows. That’s the main benefit of being on TV is you can promote another show. That’s going to go away in an Apple TV world where you call up shows on demand, and it’s terrifying for those guys.
But on our platform, in our world, we think that we can do that between our social channels. The promotion that we can do there as well as the existing install base of people watching different kinds of content on all these platforms, we feel like we have that. And so us getting smarter about how do we use that is a goal that we always have.
How did you get into this, Keith?
My background was actually more in software. I had been doing — up in Silicon Valley — I had been doing a startup, one that sold to eBay, called Bill Point, back in ’98.
And how did you get into that?
I was working at a company called Classifieds 2000. We were one of the first classifieds companies and Excite bought us.
And you did what there? You were a biz dev guy?
I was biz dev.
You have a biz dev look about you.
Yeah, I do. Actually, I started at Disney in corporate finance. So I should have a finance look about me, too.
And what was the plan? You get to Disney out of school? Right out of school?
I went straight.
You get an MBA?
I went to Stanford, went straight to Disney, no MBA.
And you go to Stanford, Disney, boom, you should be set. You stay there for 40 years.
It was great. And then I got a call from a friend who had gone to this company up in Palo Alto called Classifieds 2000 and I started thinking about where my behavioral habits were turning and I realized I should probably …
And this is mid to late ‘90s.
This is 1995.
And people are, “Oh, internet, this is a thing.” Yahoo’s gone public probably then, Netscape is out there.
It had just gone public, yeah. Netscape had just gone public.
You were part of that troupe of …
I’m guessing you were probably a khakis and blue denim shirt guy?
You know, no one really knew what was going on quite yet. I think that didn’t really start till ’98, that was when the traffic got really bad.
So you were early.
Yeah. It was not a big pot of people that really were willing to throw their lives away in theory to go up there. And back then it was a really meaningful pay cut. Nowadays the world’s different and people treat equity a lot differently, but back then you would make half of what you were making, maybe a third in the hopes that the equity would become meaningful, and that was the big trade.
So you made the gamble, that worked out?
I was Employee 30-something, so it worked out great for Employee 30-something. And I had a really great learning experience from two talented founders who went off and I think never really did anything again [after] that company got bought by Excite. One of the things we learned …
Excite was a search engine.
For those who might not know.
It’s astonishing to tell people this now, but there used to be more than one search engine.
There were like five or six. You could get a search engine that combined all the search engines.
[Excite] was actually a portal more at that stage, too, which is why they bought Classifieds 2000 to be their classifieds vertical.
So they buy you guys out, you get out of that, how do you get into media?
So in 2002 we sold a company that I started called One Page to Sybase, and back then software was very slow and unlike today when you can just release it and it actually is pulled into the organization by people who want to use the software.
Back then it was travelling the world, talking to IT departments. And I think by and large it still is in a lot of cases. I moved down to LA to try to do something more fun in media, thinking that software moves slow. And then I moved down here and I realized that it takes 10 years to make a movie.
So you were like everyone else who … Did you grow up around here?
I grew up here, my family was here. So I just came back.
So you knew the business. But you’re like, “That looks more fun than selling enterprise software.”
Yeah, essentially my theory was it couldn’t be any more slow-moving. It was actually more speed to market. And then I actually found out it is as slow-moving as selling software.
It still is today, right? Especially for the established guys? It’s really hard for them to make a cheap, fast movie or TV show — I was just talking to someone else about this.
Yeah, and now I understand why, because I’ve been down here more and I’ve become more educated.
And that’s because what?
You’re taking big bets most of the time, and when you hire a director, you’re hiring people who you’re giving great authority and lots of money to do something with. Not to mention the marketing expense, in most cases.
And you have limited shelf space — even though that, again, there doesn’t seem to be, there really is limited shelf space — so you have to take every decision really seriously and make sure that you’re making the right ones. And finding the uber-talented people who can write those things, produce those things, direct those things and do all the below-the-line items on those things is very hard.
We can talk about how you guys have scaled in a world where that’s still happening. So then you got into media how?
So essentially after realizing I wasn’t in the business of making big-budget movies or television shows, I started looking around online and I was just going to a lot of different websites as I thought about what I wanted to do next. The real story is I missed Janet Jackson’s nipple slip at the Super Bowl in 2004. [PK laughs] And I went online and I’d always had a decent computer and a relatively high-speed connection, but the video never worked.
You said, “Show me some nudity, internet.”
Yeah, video had never worked for me. And I went and there were 5,000 websites that within two minutes of the actual event had already had it up on their website. And I thought, “Wow, that’s pretty immediate and that’s great.” And then I would go to a lot of the traditional sites and they had those pop-up players. I don’t know if you remember those.
My computer crashed while I was waiting for the video, and I spent a lot more time going to these different video sites. There was a site that I really liked going to whose name was big-boys.com. It was a funny site, and I emailed the guy and asked if I could partner with him. And later in the year he responded.
Because you liked their nip slip?
No, I just liked the voice. It was a funny voice that I thought resonated really well. Because everybody was doing the same videos. Back then it was all commoditized but it was the voice that really resonated and I thought, “This is the voice that scales, that a lot of people are going to like if we can just figure out how to do that.” And so later in the year I partnered with him and basically bought a lot of the site from him along with other friends. Although that guy still works for us — he’s in Huntley, Illinois, where he’s from. And from that I was in the media business.
And that’s what became Break?
That’s what became Break.
And then at some point Lionsgate, the movie studio, and we were just talking about how slow movie studios are, ended up owning a big chunk of what was then Break.
Yup. So in 2007 they were … Lionsgate has always, I think, done a lot to be more forward thinking and experimental.
And I think on the film side they’re just always willing to try new models out. It’s one of the things I really respect about them. They started looking and I think the approach they were coming from was, “Who are we working with on the outside?” And they’d been doing a lot of stuff with us, so we went in and we met with them and that ended up leading to the investment. And they’ve been great partners for us for a long time now.
Normally when an entertainment conglomerate or even a film studio invest in an internet thing, the notion is, “Oh, we’re eventually going to buy these guys, or we’re going to absorb them somehow and we’re going to get their digital knowledge or at least their brand.” Whatever it is, “We’re going to suck them up.” But they’ve never bought you guys — obviously, because you’re still an independent company. Why do you think they want to own a minority stake in a digital video company?
You have to ask them that going back a long time, but I think a lot of it was just learning and seeing what the platform was and having more people. But it was still fairly early in the video space.
Because they haven’t gotten into the YouTube video business, right? They’re still making movies.
They still make movies, they’re one of the biggest TV producers. They’re very prolific and now they just bought Starz. So I think over the course of our relationship, they’ve evolved as a business a lot. And we’ve seen them do things like buy Summit, and then they own the “Twilight” franchise, they did “Hunger Games.” So I think if I were in their shoes, I think they’ve been doing a lot of things which are really logical and smart for how they should grow their business.
I remember talking to you a couple years ago and your aspiration then — or I don’t know if it was your aspiration — one of the things you thought would happen was that you guys were going to get more into the feature film business and/or create a sort of sandbox for Lionsgate or whoever, where they could try out new ideas relatively cheaply and distribute them through you. Did they ever? It doesn’t seem like that ever took off.
A lot of it we started doing ourselves. You know, as our presence grew digitally, our desire and our need to do that became less relevant. So as our scale improved, our ability to fund those things …
But you had a cool pitch though, right? Which is like, “Hey Fox” — or whomever — “you’ve got this great brand, you’ve got this cool character, but you don’t want to throw $150 million at this. Why don’t you make a $2 million whatever with us.” Why do you think they’re not doing that, either with you or someone else?
I think there’s generally a lot of interest still in doing those things. We get hit up wtih that offer in some form or another a lot. The problem becomes if you’re actually big enough to be able to help them do that, you’re also using your promotional time, your own sales time, your distribution, for things that you own a bigger stake in.
Right, so why spend your time helping Fox make a superhero movie if it’s not your superhero.
Right, and now that we have this scale to launch our own IP and our own franchises, we tend to do more of that.
So I made a Rodney Dangerfield reference at the beginning. You guys announced relatively recently, I don’t know when we’ll drop drop this, but relatively recently you raised $70 million and I think people knew you were out looking for money.
When you announced you had raised $70 million, I was asking a couple different people what they thought, and they all made either the email emoji exclamation point guy or they did it in person or they said things like, “Wow.” People were really shocked that you raised that much. Why do you think people were surprised to see you raise that much? I guess let’s make it less leading.
You know, we talk about that a lot internally.
The Rodney Dangerfield problem?
Yeah. I don’t think we call it that but I might now.
Because that’s old.
I might now, yeah. Although I did just watch “Back to School.” A classic.
Filmed in Wisconsin.
Ah, the Triple Lindy. Never gets old.
Right. [laughs] Robert Downey Jr is in that movie. We’re very old.
It might be his best role. [PK laughs] It puts “Iron Man” to shame.
But I think part of it was — I think two things. We don’t spend a lot of time marketing Defy itself as a brand. So it’s one of the things when we look back that we probably should have done more of is get the name Defy out there. What we did a great job of is getting ScreenJunkies out there and making that something that’s super relevant in Los Angeles. Getting Smosh out there in the last year, of getting Clevver out there.
Because your audience shouldn’t care, will never care, who owns Smosh, right?
If it’s owned by Viacom at some point, they won’t care.
Unless it becomes shitty, they’ll care.
Right, but they’ll care about that if we make it crappy as well. So the reality is, it hasn’t been a big priority in the past to get the name of Defy out there, and going forward it obviously will be because we’ve seen a lot of that same reaction as you have.
And it seems like part of it also was there were a couple years where video companies, digital companies, were raising a lot, kept going up and up, last year NBC put a couple hundred million in Vox Media where I work, also in BuzzFeed.
And then it seemed like there was a retrenchment and you were reading stories — I was writing some of these stories — about how investors were nervous about digital and how it’s time for them to show they can make money.
You’d probably say it more cynically than that.
Yeah, yeah, well, it depends. In print I’m usually more measured. But now it seems like it’s gone back again, you’ve raised money, Mashable’s raised money, Refinery29 … they’re all different stories. But it seems like if you can tell people you’re in digital and there’s video and there’s growth, they’re into it.
I think a lot of it is that there’s more understanding. I’d say there’s still not great understanding but there’s a lot more understanding of the nuances of everybody’s business. So if you go back two years ago or three years ago, everybody was in an MCN, which is a multi-channel network. When nobody could tell whether you are programming it, whether somebody else was programming it …
This is a company that accumulates a lot of YouTube views.
Yes, but doesn’t necessarily own the IP behind the YouTube views or produce the programming. And it just created a lot of noise in the marketplace. What you’re seeing now is the people on every side of the equation are much more educated because either they’ve tried to advertise and they’ve realized it’s complicated, or they’ve kicked the tires on a lot of these companies and they realize that it’s not something that would fit into their organization. And so you’re seeing the companies that have built real voices or real brands in some way, shape or form get rewarded for having focused on programming and voices and distribution.
We were talking about costs before, and the big guys have a difficult time making cheap stuff. So the pitch for you guys is the same pitch as BuzzFeed and Vice and lots of other people, which is, “We’ve figured out how to be nimble and quick and make this stuff quickly and cheaply and iterate.”
But everyone has the same pitch and there’s still only x number of youngish employees who will work for not that much money. You still have to house them somewhere. And at some point there’s probably a limited pool of how many of these people are talented, right? So at some point, don’t you bump up against the same scaling problems that established company X, Y or Z, a Fox, a Comcast, a Disney, have?
Those are all different challenges. When you think about it, it’s can you find the right people, can you retain the right people, and what is the cost of not only the right people but of doing things at different levels.
Like if you can make an edited video right now, you’re a hot commodity in the digital world.
Yeah, I think if you can make and edit video well and if you can do pretty much anything well, you’re a hot commodity in the digital world because they’re still rare skill sets to find.
Right, but everyone’s saying, “Get me video,” right? So you have to go get a guy or woman who can make video and figure out how to scale it and figure out how to tell other people how to do it. It seems like there’s a limited pool of those people.
Right, so we have a bunch of different approaches for how we solve some of those things, but I think one of the things that really works for us — which we saw a lot in “ScreenJunkies” when we sort of expanded the programming of “ScreenJunkies” last year, we went from three shows to 16 shows. And one of the positive externalities of that was we became a place that if you were interested in that kind of content, that you really wanted to work.
And for people who aren’t watching, “ScreenJunkies” is people talking about pop culture.
It’s basically entertainment and film. You know, the goal is to be the ESPN of entertainment and film. So we launched a bunch of talk shows like “Pardon the Interruption” kind of shows, a bunch of behind-the-scenes kind of programming. But we became the place that, if you were really truly interested in film and being a film geek, we were a great place.
We had tons of people that wanted to come and work here and be part of that community. And then we had people like Kevin Smith come and say, “Hey, can I work with you guys?” And so it ranged from the small guys to the people who were relatively well established. And then we’ve seen that as we’ve scaled Smosh as well.
It reminded me a lot of what I’ve heard about HBO back in the day, which is you want to go to HBO because you’re going to be around the right kind of people who are going to elevate you. And a lot of times not only they pay you well but they give you the opportunity that you wouldn’t otherwise get. And I think that’s what we’ve tried to do in each of our brand pods.
Still, having said that, we’ll see over the next few years, you know, it’s up to us to try and make sure we’re providing the best, most creative environment for people to exist in.
So most of the stuff you make is free. You’ve played around a little bit with selling some of this stuff, getting consumers who watch this stuff to pay for it. How’s that part working out? Because everyone’s talking about having dueling revenue streams. It seems like it’s a pretty big leap to make for a lot of this content.
Dual revenue streams can mean a bunch of different things. What we’ve seen in the last few years is the ad piece of our business — which used to be, I think three years ago, 100 percent — is now about two-thirds of the business. And the rest comes from some form of content licensing — we call it that as a bucket, but it’s somebody else paying us for programming.
So there’s a consumer paying us directly, which we do some of, and I think we’re experimenting how we can do that more effectively. But I think we’re seeing success there.
What sort of stuff do consumers pay you to watch?
They paid us on the Smosh movie originally, before it went to Netflix. And right now we have a “ScreenJunkies” SVoD service which they pay us $5.
Subscription video. And do you think those people are paying because they love the stuff so much they want to have access to it before anybody else? Or they’re getting bonus stuff? Or are they just fans of the Smosh dudes and this is the same thing as buying a t-shirt?
On the EST site for the movie? I think they wanted that before anyone else. It’s why you go see a movie anywhere. I think on the “ScreenJunkies” side, they do it because it’s a program offering that is vastly different than what’s free. I mean, we have 16 shows versus three that you can have access to. And just last week we did, just an example, a roast of Captain America. And so it’s quality programming that if you’re interested in this kind of content, that appeals to you, and the promise is that we’re going to deliver that to you better than anybody else.
Where we’ve seen the biggest explosion is in the platforms that have already built the monetization model coming to us and wanting to get programming. I think that piece of the business will continue to expand, and that goes back to the conversation we had earlier which is we think there’s a hundred billion dollars of money that’s kind of going to be thrown up for grabs and the people who have …
That’s the TV business.
That’s the TV business. And the people who have access to that money, they’re looking for ways to make sure they keep it, which should benefit us. And we’re looking for ways that we can get it in a broad pool of direct and indirect opportunities. We think we’re in a great position there, and under any ecosystem we think we’re going to get paid as that chaos continues.
So speaking of chaos and the hundred billion dollars and Viacom owns a chunk of you guys, I think they gave you guys some game sites and they get equity and there are well-documented troubles with their audience, right? Your audience is the audience they used to have so you’re that site now. You’re one of those sites. They own a chunk of you. I’m sure you guys have talked about it. Why haven’t they bought you? Instead of raising money, why didn’t they buy you this year?
You’d have to ask them about that, but I think the same well-documented chaos has made them great partners. They’ve been very preoccupied as a business for a couple years.
Because they’re swapping out their CEOs.
I mean, things like that. It’s very hard for them to focus on their minority investment in Defy Media, historically.
Nonagenarian founders, yeah. Do you work within a Viacom, if a Viacom, or we can take them out and just add any random entertainment conglomerate. If they acquire you guys, does what you do work within that structure or do you have to be separate from a big entity like that for it to work?
We’re a 380-person company, so we have our own infrastructure at this point. I think it’s different when you’re a 15-person organization. A lot of times they do those acquisitions and they’re destined for failure. They invest just enough to fail because no one’s really bought into it. And everyone’s like, “We’re just going to dip our toe,” and by dipping your toe you end up drowning.
Are you watching what’s happening over at Disney? They bought Maker, that was a big deal in your space, it didn’t generate the money they thought but it’s still making a lot of money, or still generating a lot of revenue.
I haven’t followed it that closely other than what I’m reading in the news. But look, I respect the bet and I think it was smart for them to try and get into it and play around. Whether or not that was a right company where they knew exactly what they were getting into, you know, I think it’s been well documented also.
But I really respect the fact that Disney decided that this was the future and we’re going to take a stab at learning from it. In terms of what we do, it’s very different. They were not prolific producers of programming, they were in the middle of trying to make that transition. So we have a production infrastructure that is already in place that makes content that a lot of people see. So that is very transferable anywhere. I think the bigger question for us, forget acquisition, just as we talk to media companies is, how do we make their business better?
Because what will mark the success of any transaction will ultimately be, “Did this come into my infrastructure and help me build my business more effectively?” And what’s great is the steps that we need to take to make sure that’s going to happen one day are the same steps that are needed to make us a great independent company. And so building the brands, building the IP, they might be able to exploit it better, but we’re still going to need to build it in order for us to be able to exploit it, either in partnership with them or separate.
That’s a very formal answer.
But that’s the way we think about it. Because a lot of times, particularly when you’re younger, as a company, you spend time thinking of, “Well, what is that going to mean if we’re acquired?” And the reality is, who knows? Because you can’t control that. What you can control is how good you are and how great of a business you’re building, so long ago we stopped focusing on the what if.
You’ve got 380 employees. I saw a bunch of them. I’m guessing you’re probably the oldest person the building, if not the oldest?
I’m up there. I don’t think I’m the oldest, though.
So as you grow, as you scale a company and as you get farther and farther away from the demographic you’re trying to target, how do you create a system where you have people whose tastes and sensibility — and separately, managerial style that works, because you can’t touch that stuff and at some point you can’t gauge whether it works yourself, right? Like, you’re not a Smosh guy.
No, but I think one of the things we’ve always focused on as a general management team is we don’t try to make the decisions on the programming other than, “Here’s the amount that you should be spending on the programming and here’s the business.”
Because Les Moonves calls in notes for, you know, what’s the Showtime show? The terrorism show?
Yeah. He’s famous for saying, “Oh, that actor should show more breast.” Or whatever it was.
You look at, within our org, Barry Blumberg who runs programming. Barry still very much does understand that demographic. He produced content and he ran Disney television animation. What we’ve tried to build is a management team that has a long history in understanding and programming for that demographic, and the people within the creative pods themselves who are in that audience and really understand it, and it’s incumbent upon us to continue to find those people as they get older.
To some extent, I think one of the nice things about having people who are aging up in some cases is it gives us the opportunity to take the skill sets that they’ve developed that you would never otherwise develop if you didn’t come up that route and try to think about other things we can do with them. It’s one of the reasons why we’re now able to do more movies because we have people who [can do movies].
Someone came to you as a scrub and now they’ve graduated up and now they can make a movie for you?
If you look around this office in particular, you know, Jeffrey who you met, or you didn’t meet but who helped arrange this, he grew up within the organization. He started with Clever as a producer, basically, and he now runs production. The woman who runs post production, she started out as contracts administration. So people have grown up within it and we’ve built around them more traditional talent, but balancing those two, those two sides are what makes us successful today.
I saw somebody wandering around here in a Pikachu suit. Is that standard?
It’s standard that someone’s wandering around in something. The fact that it’s Pikachu is probably directly related to some show they’re shooting. I think I saw them shooting a show called “Seriously Stupid Sleepover.”
I want to go watch that. We should go watch that. I will let you go. Thanks for your time, Keith.
Thank you, Peter.