Market Insight

Rightster acquires Base 79 and Viral Spiral

July 14, 2014


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Rightster, the global video distribution and monetisation network, has acquired the remaining 75% of Viral Spiral, a Multi-Channel network (MCN) it did not already own at a total cost of up to £4.1 million. At the same time the deal was announced Rightster also revealed it intends to acquire Base 79 for up to £50 million, subject to shareholder approval, and has raised £42 million through the issue of 75 million shares at £0.56 per share, to part-fund the acquisitions.

Base 79, the largest MCN outside North America, has more than 1,100 content partners and generated £3.3 million in net revenues in 2013, making a loss of £3.7 million. If shareholder approval is granted, the deal will be completed with an initial £25 million of cash with a further £25 million of Rightster shares dependent on Base 79’s and the combined Rightster entity’s performance over the following twelve months.

Rightster also published updated usage figures for the first half of 2014 delivering on average 371 million monthly video views over the six months. This was an increase of nearly 50% from the final half of 2013 during which an average 250 million monthly views were requested. With respect to revenues, Rightster experienced growth of 184% over the same period. Rightster stated this was due to a greater number of publisher partners on the company’s syndicated global publishers network, content Rightster distributed on Rightster’s channels around compelling events - such as the FIFA World Cup.  Rightser also indicated that as it enters its second full year in operation it is continuing to strengthen its relationships with key advertisers and their agencies.

Our analysis

This is a serious step up for Rightster which, according to its own size calculations, is currently one third the size of the final, merged company – 371 million views per month compared with 1.1 billion if the deals go through. The world of digital content and rights exploitation has recently seen a flurry of high-value investments by large companies in smaller multi-channel networks; for instance the recent investment by US-based cable network Scripps in YouTube network and content creator Tastemade. But this deal, in defiance of recent convention, is the acquisition of a large network by a small one. It may be a result of the new climate – with many multi-channel networks now owned by the giants of linear content programming such as Disney, Dreamworks and Scripps, independents may see a bigger business as a stronger one. With Rightster’s audience set to triple, and the advertising market benefiting from economies of scale, the returns to the company are likely to more than triple allowing Rightster to scale faster.

Such a multiplicative effect is an advantage for Rightster, which will be seeking to gain scale to push the business towards profit. According to its accounts, the company made an operating loss of £17.3 million ($27 million) in 2013 on a turnover of £6.2 million ($9.7 million), and also made losses in 2012. Base 79’s YouTube business has bigger audiences and works in more genres. Base 79 runs UK YouTube networks including comedy channel Bad Teeth, entertainment channel You Generation and sports channels Copa 90 and /Football, the last of which had accumulated a total 41 million YouTube views at the end of June. Rightster’s heavy expenses are not instantly solved by this acquisition, although they will be alleviated by the size of the companies it plans to absorb. Ultimately, though, Rightster may use Base 79’s expertise and range of clients to develop a more efficient performance.

The deal comes at a point when the market is very top-heavy. Rightster describes the new combined company as the fourth largest MCN by views; nevertheless, the giants at the very top of the rankings are powers much larger than Rightster. Maker Studios was bought by Disney (https://technology.ihs.com/495520/disney-spends-big-to-acquire-mcn-maker-studios) for what could amount to $950 million (£554 million) with performance incentives, and its channels command (by its own figures) 6.5 billion monthly views. With the caveat that the company’s audience measurement is not standardised, such a number is six times the quoted Rightster number of 1.1 billion. Scaling up rapidly in size makes sense partly because you have to be huge – at least in audience terms – to count at all.

Geography
Europe North America
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