Philip DeFranco’s financial advisortalks the Revision3 deal, the future of YouTube and networksPosted by Ed Carrasco on Friday, May 31, 2013 (reprinted with permission from New Media Rock Stars)

On Thursday, Revision3 acquired YouTuber Philip DeFranco’s channels — including SourceFed and his original YouTube channel Sxephil — and made DeFranco a part of their programming team as senior vice president of Philip DeFranco Networks and Merchandise. One of the key players in the high-pro�le transaction is Mike Bienstock, CEO of Semaphore Financial Solutions, a �nancial advisory services company that represents many of the top 50 YouTubers, including DeFranco. Bienstock worked with DeFranco and Revision3 on �nding an accept-able way to grow the Philip DeFranco brand, which prompted Revision3 to purchase his channels outright.

Bienstock spoke to NMR about why the deal was bene�cial for DeFranco and gave his insights on the growing YouTube landscape and the future of YouTube content.

What was your involvement in the Philip DeFranco deal with Discovery/Revision3?

Mike Bienstock: Effectively, we were business advisors to Phil in the transaction, and we interfaced with Discovery/Revision 3 acquisition teams in finding an acceptable structure and deal path forward on the transaction. We were effectively the ones that interfaced with the mergers and acquisitions teams over at Discovery on behalf of Phil.

Why was the deal bene�cial for Phil DeFranco?

Mike Bienstock: I think a lot of it has to do with Phil’s belief and kind of my belief as well in the changes that are developing in the YouTube landscape. As the number of videos keeps increasing at this substantial rate, the industry’s having a tougher time without the scale in order to handle distribution and truthfully opportunity. You could tell there’s a lot of people on Phil’s team now, and from an opportunity path perspective, this deepens industry ability for them to become stars in their own right. It really gives them an expanded opportunity track for everybody when somebody like Discovery is behind you with their cable content. We’re in a situation right now where in the past couple of years, you could kind of do a catchy thing, create a niche and build up a subscriber base where you did nothing but check the monetize button and Google made you a bunch of money. That’s changing.

The reality is that the sales machine that everybody loves through the AdSense mechanism can’t keep up with inventory. What’s going to happen is that customization is important in terms of brand deals, and custom ad deals are going to be more important. People aren’t going to throw ads on X thousand or X million impressions — they’re going to want to say, “Hey, I want my ad against SourceFed Nerd.” Because I have excellent demo data on audience — I don’t care what CPMs are — I’m going to pay much greater than the CPM scenario because we have a full-blown, interactive engagement with the audience. I think what we’re going to see going forward for all YouTubers is the branding relationship. People are going to figure out what they’re comfortable with and what brand they’re going to engage with in order to keep some level of monetization. Content creators can only create content with no income for certain amount of time. If you’re out making content, you’ve got to pay your bills and run a business. It’s going to be a much more important conversation as we go forward.

What are some other revenue streams that content creators should consider?

Mike Bienstock: I think what we’re going to see truthfully is branding more than ever. If you look at SourceFed, that’s a specific format and angle that someone will say, “I like that.” If you look at other brands like pranksters Prank vs. Prank and EdBassmaster — when you see a brand like Prank vs. Prank, people will get behind that and have meaning. The opportunity is going to be greater for people who build a brand around their niche as opposed to just being a funny prank guy.

When you say that opportunities are greater for people who build a brand around their niche, what do you mean?

Mike Bienstock: It’s about identity more than anything else. It’s kind of creating an identity around what you do around your content. When you think of Jenna Marbles, you think she’s silly, open-minded and has her puppies with her. She has her signature type of comedy. Same with “Prank vs. Prank,” you have this couple and you get this image exactly of what’s going on. I feel that’s exactly what’s going to happen. You’re going to see line extensions. Right now, all YouTubers effectively have the T-shirts because there’s a turnkey mechanism to launch T-shirts and it’s an easy revenue mechanism to work on. Merchandise is going to be a much more important revenue stream but kind of taking it to the next level.

What are some of the ways that YouTubers can do to improve their discoverability?

Mike Bienstock: I feel that discoverability is becoming incredibly difficult. If you think about it, the whole beauty of YouTube is that they get to bypass the gatekeeper. You don’t need anyone telling you your stuff’s not good enough or funny enough. You just put it right out there, you get some traction and you’re good to go. In that respect, it’s still the same and wide open. However, now there’s so much content for consumers to choose from; it’s all about networking and promotion to get there. I think collaborations — Joe Penna used to say at every conference how each successive generation of YouTubers should help the one behind it in terms of promotion and joint project. That’s when there was a steady stream of people coming into the industry. If you have hundreds of new people coming in for every handful of current players, it’s just not a practical exercise. I think that the next generation of YouTube stars are going to have to actually spend time and be skilled in building relationships with the current generation of YouTube stars. I feel that’s a very big deal and absolutely a change — you can’t just put funny stuff and stay in your home studio and have realistic expectations of making it big. You’re going to have to go out into the YouTube community and do collabs and meetups and joint ventures and work hard to spread your brand.

What do you see in YouTube’s future? Do you see it consolidated towards larger studios, and is the user-generated content on its way out?

Mike Bienstock: I wouldn’t say user-generated is on its way out, but I do think there’s going to be an extensive change in the function of the networks basically. There’s going to be an evolution in networks going forward. The days of taking a cut and making it smoother to get some ad deals here and there — I don’t think that’s going to work too well moving forward. An example of where I see YouTube going forward is “Epic Rap Battles of History.” That’s a Maker Studios property, and you have Peter and Lloyd running the face of that property and handling all of the creative elements, but they have a great team behind them and Maker’s infrastruc-ture — a lot is put in to that show, and we’re going to see more of that where the networks kind of make some choices as to whom they want to help build and put a lot of effort and energy into these properties. You’re going to see a lot of bets made by the networks on their own talent in providing stronger creative support and logistical support. I don’t mean it in more polished production, just more brainstorming on the creative side and more than just “flip on the switch and roll some content.” I think we’re going to see more higher-stakes content coming out, and it’s good for everybody.