One of the more consistently popular genres on YouTube (GOOG) is the video-game re-stream. Gamers record themselves at play and post the thrilling action, with or without voiceover commentary. Each month such highlight reels draw billions of views, drawing an audience that tends to be the young men who are among the hardest targets for television and print advertising. The grip these videos hold on the male mind has led to proclamations that Machinima, the most popular outlet for gaming videos, just might be the future of television. The company is now trying to fulfill that destiny by raising tens of millions of dollars to jump from mere YouTube channel to full-fledged media company.
The stars seem to be aligning for video-game streaming as a commercial media form. Google, which has already invested in Machinima, announced this year it would make it easier to stream games to YouTube. The new Xbox (MSFT) and PlayStation (SNE) consoles have been designed to make it easier for gamers to record and share videos of their on-screen exploits.
The fact that the practice is illegal could be a problem. Or maybe not. Gaming companies own the rights to stream videos of their games; earlier this year Nintendo (7974:JP) decided to make an issue of it by asking Google to redirect the advertising proceeds of such videos to Nintendo. Gamers complained, and there is some evidence that Nintendo has reconsidered; the company declined to discuss the issue on Monday. Still, the law is pretty clearly on Nintendo’s side.
Other gaming companies have often looked the other way because the gamer videos are essentially guerrilla advertisements for their products. At times game publishers have even actively promoted the use of their content.
Markus Persson, the creator of Minecraft, a game based on breaking digital blocks, said last month that he had met with YouTube and was tempted to start taking a cut of the advertising. He decided against it. Some predict that the math will only become more tempting if something like Machinima begins making real money. “It’s just such good business for game companies that they’re comfortable with rights issues,” said James McQuivey, an analyst at Forrester Research. “The moment people start to make money from this is the moment the red flags are raised.”
Copyright is not the only thing standing in Machinima’s way. The company may be peaking: In March, people watched 2.2 billion of its videos—only slightly higher than the 2.1 billion views from July 2012. And the company has lost some ground among the top YouTube channels, according to ComScore’s Video Metrix rankings, although its viewers continue to spend far more time on average than they do with other popular channels. The company did not respond to a request for comment.
If there are other ways to hold the attention of young men, Machinima wants to find them. The company has been experimenting with original content, including a live-action show, based on Halo, and made in partnership with Microsoft. Already about half of Machinima’s video is originally produced content, according to a person with knowledge of the company’s programming.
While the shows stay close to the company’s roots as a gaming clearinghouse, they differ from its earlier subject matter in one big way: They cost money. According to the profile of the company in Wired earlier this year, some shows cost about as much as a cheap basic-cable production. Not much, perhaps, but more than the zero dollars it had been paying for highlights of gamers’ online activities.
Machinima’s increased ambitions explain why the company is attempting to raise a mega-round of financing, according to AllThingsD, rumored to be as high as $70 million. It will need the help if it hopes to make it in a notoriously difficult business. “They would have to spend tons of money to make original content, and you don’t make that much money from Web video,” said Dan Rayburn, an analyst with Frost & Sullivan. “That’s a completely different business model than what they have today.”
Machinima could yet be the future of television online. It’s just not clear how bright that future is.