Money-losing MCNs face reality and start restructuring

The office of Sandbox Network [SANDBOX NETWORK]

Companies that manage YouTubers are downsizing after expanding too quickly and poorly managing their growth.

Known as multi-channel networks (MCN), they develop YouTube acts. They do everything from event booking to image promotion.

DIA TV, Sandbox and Treasure Hunter are the largest MCNs in Korea.

Sandbox Network said last month that it is restructuring as it continues to lose money. It blames tough market conditions and higher costs.

Sandbox was founded in 2015 by game YouTubers Dotty and Lee Pil-sung, who used to work at Google. The company is well-known for having popular YouTubers in Korea, such as Kwaktube and Calm-down Man.

Driven by the successful recruitment of popular YouTubers, the company’s sales rose from 60.8 billion won ($46.2 million) in 2019 to 89.9 billion won in 2020 and then 113.7 billion won in 2021.

In recent years, losses have mounted, from 7.2 billion won in 2020 to 12.1 billion won in 2021.

“The company overexpanded its businesses because it was optimistic,” said a spokesperson for Sandbox.

Sandbox uploaded a job post for its Syuka World YouTube channel last March, but ended up letting the new hire go in just eight months, leading insiders to complain of poor management.

Sandbox is not the only one of the three in trouble.

Treasure Hunter has also been facing losses over the years. Its sales increased in 2021, but its deficit increased at a faster pace, from 4.8 billion won to 6.1 billion won.

MCNs make money from advertisements. With YouTube, Google’s Adsense takes 45 percent of the profits and the rest goes to the creators. From there, the MCNs get 20 percent of the take of the creators.

“The business involves high fixed costs as there is a lot going to the creator, and many employees are needed for production and administration,” said Kim Bong-jae, one of the writers of the book called, “2023 Content is Everything."

Foreign MCNs abroad have also shut due to low profitability.

DEFY Media closed in 2018. Disney Digital Network, formerly known as the Maker Studios, was one of the world's largest MCNs. It was acquired by Disney in 2014 for $50 million but closed in 2019.

“We cannot compare the MCN market in the early stage and the market right now,” said a spokesperson for Sandbox.

The spokesperson stressed that the company will focus more on the production of content intellectual property (IP) and expand IP business.

Treasure Hunter is also expanding new businesses including the metaverse and NFT.

“The job as intermediary will reduce once the industry becomes stabilized, so they would need to focus on IP to produce additional values,” said Noh Ga-young, one of the writers of the book, “2023 Content is Everything.”

BY KIM IN-KYOUNG [cho.jungwoo1@joongang.co.kr]