February 3, 2012
★ An Inside Look at Machinima.com, Their Business, Contracts and Partner Program

0 comments

When thinking about video games, we usually think about Microsoft’s Xbox or Sony’s Playstation. When it comes to online videos of cats and people falling down stairs, YouTube is the first thing that pops into our heads. There was a time when the video games and online videos were so separate, both were rarely present in the same conversation. One company changed that and they’re now known as Machinima.com. Let’s take a step back and discuss Machinima (the art form) and then we’ll return to Machinima.com (the company). Machinima is a mash-up of Machine and Cinema. The most popular historical use of Machinima in the best way it relates to today’s Machinima.com is the artists who used the video-game Quake in the 90s to create compelling stories and films with very little overhead. With a few editing tools, custom maps / items and the Quake video game, filmmakers could use the environment to tell stories. These were captured, edited and then presented to friends and on the web.

The studios that developed video games that were used for Machinima films argued that the films utilized copyright material invented by the video game studios and thus Machinima was illegal. Many of the Quake Machinima titles have been lost forever but perhaps the most modern form of Machinima which was published in 2005 just as YouTube was on the rise is “Red vs. Blue“. This Machinima was created using the Halo video game and features over 100 episodes created over the last 7 years. Here’s a YouTube upload of one episode of Red vs. Blue. Over the years, as computers and Internet speeds both became faster and cheaper, the amount of gamers interested in Machinima accelerated. Ten years ago, playing a video game while capturing it to your PC using a capture card and then editing it and adding a commentary or story-line using a decent microphone was very challenging and equally as expensive. The later issue was how to distribute it. Hosting video online was not as easy then and even YouTube limited uploads to 10 minutes until just a few years ago. It’s only in the last two years that Machinima became something most teenagers could do with a spare weekend and a couple hundred bucks. As a result, online Machinima has exploded.

Machinima.com was formed in the year 2000 by Hugh Hancock as a place for Machinamists to collaborate and show off their work. Although the concept is the same today, the company is a very different animal than it was in 2000 or even 2006. Machinima.com operates a YouTube network that achieved the most video views of 2011 over every other channel on the video site. Youtube, itself has a market share of 43% of all online video. YouTube served nearly 100 billion video views in 2011. For Machinima.com to be #1 on YouTube, this may help to put in perspective just how large the network is and how powerful it has become. The company has raised nearly 15 Million dollars in Venture funds to date and, based on its fund-raising history and current performance of their YouTube channel, they are profitable and growing at an exponential rate.

Today’s Machinima.com still hosts the Machine Cinema that was popularized with Quake in the 90s but there are other Machinima.com videos that are still technically Machinima but not in the traditional sense. The majority of Machinima.com content is game plays with little editing that are start to end matches with commentary from the gamer. In rare cases, the person playing and those commentating are not the same. Machinima.com also produces special weekly shows on gaming news, culture and specialized tips & tricks broadcasts. Finally, the company holds events like their Inside Gaming Awards show complete with a red-carpet and celebrities.

What is most exciting about the company is that very few of the videos are produced by full-time staffers. Machinima.com currently has 150 employees across 6 different offices but has thousands of content creators that create videos for the company directly and these filmmakers are paid based on the performance of the videos once posted online. A small team of full-timers do create content but the bread and butter of Machinima.com’s earnings come from freelancers who are generally “scouted” by the company and sign contracts to create content for the network.

—————-

I was inspired to write this piece in a less orthodox way than most of my reports. The first video game I ever played was Call of Duty, Modern Warfare 2 on my very first gaming console, an Xbox 360. Soon after playing the game, I discovered videos with tips and tricks produced by Machinima.com. I began subscribing to interesting gamers who had their own channels in the Machinima.com Partner network and I still watch those gamers today. One thing that was of interest to me is how many of the gamers commentating tended to be younger than I’d expect. Sometimes, I was watching interesting game plays while a 16 year old told me about his High School prom and how nervous he was. This wasn’t always the case but a majority of commentators appeared to be far younger than I  would expect. In addition to this, I started hearing stories from the tech circles I frequent that Machinima.com is a very secretive company that takes advantage of young talent. The company was often compared to most record companies who recruit a clueless teen with natural talent to profit on until the teen burns out or is no longer popular (see Lou Pearlman). Surely, Allen DeBevoise (the current CEO of Machinima) isn’t running a company that exploits talented kids for pennies on the dollar but this is what the majority of skeptics were saying.

The Lou Pearlman identity people were assigning to the company was unfounded until I came across the story of MrWonanother, aka Jake and his problems with a Machima.com contract that he signed. The story, as I know it is that Jake wanted to switch to a streaming service known as Twitch and was forbidden to do so by one of Machinima.com’s recruiters, Rishi Chadha. After years of assuming things were bad, I saw first-hand that things were potentially as I had hear so I began a 2-month investigation to learn the inner workings of Machinima.com and uncover the secrets behind these contracts and how freelancers fit into the business model of the #1 channel on YouTube.

I have discovered a transcript of the chat Jake and Rishi had that afternoon in December posted by YouTube Partner, ObviouslyBen. The transcript is below:

Jake: Rishi you around?
Rishi: Yeah whats up
Jake: I was wondering how I go about leaving machinima?
Rishi: you can’t it’s in your contract
Jake: Youtube states you cannot keep me locked to machinima
Rishi: we can actually, you signed a perpetuity agreement with us what seems to be the problem? I’d really like to help you out here
Jake: I just want to be out of machinima
Rishi: why?
Jake: Im not interested in it anymore
Rishi: Why not if you don’t mind me asking
Jake: Not my thing anymore i can never get in contact with anyone other than yourself, i haven’t beniffited from the HUB which i was told i would, i feel let down in machinima
Rishi: well tell me about all the things you need help with and i’ll make sure you get taken care of that’s what I’m here for, to help you out I can’t let you out of this contract, so your best bet is to work with me here to make this a much better experience
Jake: Well to make it better it would be drop the LIVE feature. i cannot use it, as running the programs to do so make my CPU go up to 90% leaving me 10% to run a high spec’d game
Rishi: i can’t do that either
Jake: Other than its getting in contact with people which i know you cannot help me with, its either i can get the live feature removed or i will have to seek legal action
Rishi: you didn’t read the contract, that’s on you man
Jake: to remove the contract
Rishi: I can get you  in contact with anyone at machinima. i work at the damn office lol
Jake: Of course you can remove the live feature, your just choosing not to it feels, as getting people off Twitch is your job so if you cannot remove the Live part of my contract i will just have to seek legal advise from my lawyers
Rishi: I can’t remove it because you signed a binding contract with us man
Jake: So what if was just to say screw it and go and stream on twitch what action are you going to take?
Rishi: we’ll take legal actions against you
Jake: So you’ll take legal action against the people who make machinima money via videos?
Rishi: well if you break the contract then yeah we would have to man, that’s a legally binding contract you signed you signed the contract, it is your responsibility to read it before you sign it
Jake: How would it look if Machinima legally attacked one of its broadcasters because he asked to leave the program?
Rishi: look man, I’m not here to be threatened
Jake: Im not threating anyone
Rishi: if you want to contact lawyers and seek legal action, go ahead.
Jake: I just want out this contract
Rishi: well you signed a legal binding perpetuity contract so I can’t do anything about it if you want to talk with our Live Stream team, email [redacted] and CC me, they will tell you the same thing I’m not attacking you, I’m just following the legal process that is outlined specifically in your contract. nor is machinima attacking you i didn’t force you, nor did this company force you to sign that contract you signed it under your own free will
Jake: Sure feels like and attack and looks that way
Rishi: no it doesn’t read your contract, this is all outlined in there so how is this an attack?
Jake: I’m a partner of Machinima and I’m asking you if i am able to leave the program because i’d like to pursue other ventures and i’m being denied. I’m being denied by the company i supported, promoted, and helped grow. and its ridiculous you’re making it so hard to leave
Rishi: well here’s I’m coming from you signed a LEGALLY BINDING CONTRACT that states that you are PERPETUALLY partnered with us. PERPETUALLY = FOREVER you should have read your contact more carefully that’s what this comes down to So how am I in the wrong? you made a LEGAL agreement with us to perpetually partner. It’s not my fault, nor is it machinima’s fault. So it’s probably your best bet to go get a better CPU so that you can stream, or don’t stream all together this is a business, and that’s how things are run

It’s clear that both sides should have handled this chat more professionally but it was time to find answers. Is Machinima.com scouting those that don’t really understand contracts and promising the world and then holding them in a perpetual contract to produce content for Machinima.com exclusively forever?

I was skeptical if this chat was staged by Jake. He has said in videos before and after this chat session that he wanted to switch to / return to the Twitch platform which would nullify his LIVE contract with Machinima.com however he may or may not have lied to Rishi about his CPU issues just to sound a bit more innocent than he actually was. We’ll never know as Jake has declined to comment after many attempts to get in touch with him. Rishi on the other hand did agree to a chat with me and his style of writing via Skype was identical to that in the conversation I received above (grammar mistakes and all). When I began asking questions, Rishi paused for a long time and came back with, “…unfortunately I can’t answer any more questions for you…” I spoke with over 50 people over the last 60 days from current and former employees, partners, directors, advertisers and friends of those who have worked there. To the best of my ability, here are some things I learned about the company.

There are three different ways you can come to an agreement with Machinima to create content for them: (via HupitGaming.com’s Forums and confirmed by other sources)

  • Partnership Channel = any channel that Machinima.com partners into youTube
  • Partnered Director = any youTuber/Director that can post videos in Machinima.com’s channels
  • Machinima.com Employee = Personalities like MrSark, Dead Pixel, Hutch, Seananners

I’ve heard that this structure and its definition is always changing but this is generally what the situation is and, for the 3,000+ content creators, they mostly fall into the first two categories. There are channels who are independent and have their own content but are partnered into YouTube not independently but via Machinima.com. They are vouched for and made a partner by Machinima.com and the ads that appear on their channel are sold by Machinima’s ad-sales team with some additional inventory being sold by Google/YouTube as confirmed by Machinima’s CEO in this interview on Beet.tv. The content creators have mostly editorial independence over what is posted to their channel but there are strict rules as to what Machinima.com will sell ads against like the big offense among producers is that there can be zero copyright content on any video (audio, video, etc). There’s another level of creator that is allowed to post content to Machinima.com’s official channels. These individuals are approved in a more strict manner than the channels that are simply partnered. The official Machinima.com YouTube Channel contains stats that I’ll break down with my notes in italics:

  • Channel Views:122,234,782 (Number of times this channel has been viewed)
  • Total Upload Views:3,011,567,296 (Number of times this channel’s videos have been viewed in total)
  • Network Channels:3,242 (Number of Channels Machinima has “partnered” into their network)
  • Network Videos:557,587 (Total number of videos in the Machinima Network)
  • Network Video Views:20,214,611,028 (Total views of Machinima content + content posted by partners to the network)
  • Network Subscribers:79,463,920 (Total subscribers across all network channels)
  • Subscribers:4,242,994 (Total Machinima official channel subscribers)

The number I’m focused on is the “Network Channels”. 3,242 of them and it has been speculated that the majority of the channel owners are under 18.  I received a few documents from gamers who were approached by Machinima.com. There are two standard opening email formats when Machinima is looking to recruit new talent.

Hello,

I am with Machinima.com THE LARGEST online network for VIDEO GAME content in the WORLD! I’m in charge of finding talented online content producers such as you. I’m writing to see if you’d be interested in joining Machinima.com’s Directors Program.

There are a lot of reasons to sign up with Machinima.com

• You Earn Money for video views

• We can distribute your work to our massive audience of millions

• You Retain ownership of you work

Signing up is simple and you can terminate the contract at any time.

Here’s a basic rundown of what our agreement entails and what will come next:

  • You enter into a consultant agreement with Machinima.com and any videos you submit will be distributed through our network.
  • You still own your videos, and can terminate this agreement at any time.
  • You will get paid $2.00 for every 1,000 globally eligible (ad-supported) views that your video generates.

Once under contract you have no obligation to submit videos, and you can deliver them to us at your own pace. You are your OWN BOSS! However, the more videos you submit, the more people will see your work and the more money you can make (this is made easier by submitting older videos you’ve already completed.)

If you’re interested in joining the Machinima.com Director’s Program, the next step is for me to send you a contract.

To execute a contract I need the following information.

• Name

• Primary Email Address

• Paypal Email Address

• Phone Number

• Display site link (ie your youtube channel, vimeo, blip.tv, vodpod, ect)

• Legal Mailing Adress (City, State, Zip included)

Once I receive that information I will email you the contract (Note: If you are under 18, you must have your parents or legal guardian sign). If you have any questions, or would like more information, please feel free to contact me at [redacted].

AND here is another standard recruiting template:

I am with Machinima.com THE LARGEST online network for VIDEO GAME content in the WORLD! I’m in charge of finding talented online content producers such as yourself. And I’m writing to see if you would be interested in joining Machinima.com’s Directors Program.

  • There are a lot of reasons to sign up with Machinima.com
  • You Earn Money for video views
  • We can distribute your work to our massive audience of millions
  • You Retain ownership of your work

Signing up is simple and you can terminate the contract at any time.

If this sound opportunity sounds like something you would like to pursue, or if you have any further questions, email me at:

[redacted]

I look forward to hearing from you.

My assumptions were that Machinima promised the world to potential creators but that ended up not being the case. Each negotiation is different but, on average, each accepted partner channel receives per-video $50 for the first 20,000 views and $2-$4 for each 1,000 views after that. For most invited content creators, this is a lot more money than they were making already with most of them making zero dollars on a hobby that takes a big investment of both time and money. As Ryan, “OpticJ”, (Director of Gaming Partnerships at Machinima) said to me via Twitter:

“…I do feel it’s [the chat above] taken way out of context and makes it seem like Machinima is some evil empire, when we are not. In fact, we have changed a lot of lives through our partnership program, Made many careers.”

Although he wasn’t available for comment, Machinima Partner DaDoppen did sign with Machinima not because it would make a career for him but because,

I realized I’m in need of money, or at least will be in the near future, so an extra income like this would be nice.”

That’s why we do most things and this is why someone who is under 18 or if they’re legally an adult but new to business may be blinded by the offers of earning lots of money and ignoring the facts of these contracts which are locking you into a perpetual agreement.

I was able to track down five different Machinima contracts. After having a lawyer review these, things weren’t as outlandish as they were being made out to be by the people I spoke to. The majority of past and current partners I spoke with were disappointed that they hadn’t reviewed the contracts more but these documents differed no more than a standard content creator contract that you would sign for a small production house as a filmmaker, actor or other post-production job.

Standard non-compete agreements were in place that made it difficult for content creators to jump ship to a competing network easily. There were also agreements that content you uploaded while a Machinima partner would be monetized, promoted and leveraged by Machinima forever even though you technically still owned the content. However,removing the video from your YouTube channel seemed to be fine and Machinima would then no longer be able to monetize it. Also, leaving Machinima’s partner network means you’re no longer a partnered channel since you were under their umbrella and you’d have to re-apply to YouTube to get partner status back.

The truth is, I kept finding blog posts, forum threads and receiving statements from Machinima’s content creators that read like this blog post:

In addition to making us feel like shit, they were very careful to make it sound like they were not giving this offer to anyone else. In reality, they give it to anyone and everyone. Quality does not matter.

Aside from Business 101 tactics, there’s nothing wrong with a big company intimidating someone into accepting terms that are favorable to the company and not the partner. Machinima clearly has the advantage but I had yet to find any evidence of wrong-doing aside from a bit of bullying when meeting with potential partners.

Nothing I saw required producers to perpetually upload content to Machinima.com until the end of time. I went to Machinima for answers. After a great deal of time and phone calls made to over dozens of employees, I finally got in touch with a spokesperson at the company who was willing to speak on the record. Here is a brief Q&A chat. The plan was to edit this into the article but I believe a lot of context is lost by piecing this apart. It’s best to share our interview in its entirety:

  1. Are there stats about Machinima you can tell me? Machinima has approximately 150 employees. The bulk of Machinima staff is located at corporate headquarters in West Hollywood, with satellite offices in New York, San Francisco, Seattle Chicago, and the UK.
  2. How many contracts does Machinima have with external content creators? Machinima maintains a vast network of 3000+ channel partners and directors (combined total) who create content for their personal channel and Machinima’s flagship YouTube properties (Respawn, Realm, Sports, and the Machinima main channel).
  3. How young is the threshold for creating content for Machinima? Machinima understands that many viewers are aspiring content creators, so the range is typically between 18 and 34. Should a content creator be under the age of 18, a parent or legal guardian is required to sign any contract with Machinima.
  4. Is there an average age of directors? 16, 20? The majority of partners are 18 and older.
  5. Has Machinima ever carried through with legal action against a director or partner? Machinima has not had to resort to legal action against any of our partners or directors to enforce our contracts. We believe that is because we are dedicated to providing world-class service, maintaining open lines of communication and most of all,  creating mutually beneficial relationships with all of our directors and partners.
  6. Does Machinima require parent or guardian consent on directors who under age for their country of residence? In accordance with all local laws, Machinima requires parental or legal guardian consent on the contract. In support of this requirement, Machinima personnel regularly review contracts prior to processing the channel and initiating the network invitation.
  7. What is the action taken if a content creator is found to be under the legal age in their country of residence? In the unlikely event a content creator is found to be under age, Machinima is quick to contact the partner/director, explain the necessity of a parent or legal guardian’s co-signature, and put a hold on the channel until applicable parental signature(s) have been verified. Machinima further supports this educational process by speaking with parents or legal guardians to address any questions.
  8. Are there multiple contracts at Machinima and are these set in stone for every producer? Currently, Machinima offers content creators a Channel Partnership Contract and a Director’s Contract. The Partnership Contract is designated for producers who seek to earn revenue from their personal channel, enhance the creativity of their content, and overall increase their fan base. The Director’s Contract maintains similar traits to the Channel Partnership contract, yet primarily differs in the action that Director’s can submit video content to our flagship YouTube properties (Respawn, Realm, Sports, and the Machinima main channel). While we use the same contracts for all of our partners, we negotiate these contracts individually with each partner.
  9. Can you explain more about the rumored perpetuity clause? Is it a clause that locks in creators forever? Machinima is dedicated to ensuring partners are happy with their Machinima relationship, growth of their personal channel, and enhanced creativity of their content. Our contracts do not require our partners to continue to exhibit and produce content solely for us for any period of time; however we do require that so long as content is exhibited on a partner’s YouTube channel, then we have the right to sell the advertising against that content. Our partners are free to distribute their content on any other website or through any other means outside of YouTube without any obligation to us. It is important to note that we invest significant amounts of money and time in our partners and often pay our partners more than the revenue generated by their channels because we believe in everyone with whom we partner. Because of this investment as well as our dedicated sales force and incredibly large audience, we are able to create substantial value for our partners on YouTube that they would likely have not been able to achieve on their own or with many of our competitors.  We’re very proud that many of our partners have been able to earn substantial sums of money as a result of our partnership.
  10. Is there any talent at Machinima that is locked into a permanent contract with them to produce work forever and only upload video game content to Machinima and no other competitor for as long as they live? We have no contracts like that, nor does any media company. Machinima understands that negotiation and contract revisions are a significant aspect to business agreements. It is always our goal to reach mutually beneficial terms with current and potential partners, to maintain open lines of communication about contract terms, as well to keep an open door policy to field partner questions and goals.

Since my conversations with Machinima.com, I’ve reached out to my contacts of past and present content creators and a few competitors of Machinima to hear their thoughts on these statements. The result is that many of those who spoke up initially to badmouth the company back in December were suddenly hard to reach. The dozens of contracts I received from content creators were filled with the typical legal jargon but those that referenced a clause that locked you into a partnership with Machinima forever turned out to be modified by people who had a bone to pick with their previous employer. Of the two contracts who referenced a permanent lock on all content to Machinima, those sources came forward stating that they were falsified.

At the end of this investigation, I learned a lot about the inner-workings of a company that so often is associated with a healthy mix of secrecy toward their business practices combined with the millions of fans who idolize the company and its stars. The result of secrecy with a rabid fan base is that rumors about Machinima that have been passed forum to blog post to tweet for the past 6 years have become almost folklore. There is no Machinima secret service that comes looking for people who utter the phrase, “Machinima Contract” among friends and this small company that is the #1 channel on YouTube has yet to hold any partner or director to them forever or taken legal actions against a content creator who just walked away.

What started as a story about lies, child slavery and the recruitment of vulnerable talented teens under false pretenses became a story of a company that is focused on creating great content and paying out money to guys who wouldn’t have made a dime otherwise.

I do see that Machinima.com is making an incredible amount of money off their talent and the math I have received from anonymous sources has shown that the company only pays out a small percentage to creators compared to what they themselves make per thousand video views. However, this is not “evil” by definition as I’ll apply the math that most full-time employees do when they are debating becoming a consultant in their field.

Employee makes 75,000 USD a year doing technical support for an IT firm. This works out to about $36 per hour pre-tax. After taxes, it’s more like $20-$25 an hour. He hates that the IT firm charges $150 an hour for his time because he takes home far less than that. His logic is he can start his own company, work for himself and charge $100 per hour for the same work undercutting his old employer and bringing home more cash. Fast forward one year and the cost of doing business such as a vehicle expenses, infrastructure, accounting, business taxes and the time he spends not billing clients with business related activities like advertising, marketing, business management and wooing new clients works out to less than he made at the IT firm where he only had to fix servers and not deal with the other finer details.

In the talks I had with past content creators who wanted to vent at Machinima.com’s business practices, their argument came down to the one I detailed above. “Machinima pays us nothing and pockets most of the money.”

This is not a Machinima problem. This is an economy of scale problem. Once you leave Machinima’s network with thousands of producers and a built in audience of millions, you’ll make the same or less than you did just making content and uploading it.

Like any business, Machinima has its faults. One of those being the grammar problems on display by the front-line of their recruiting staff and partnership teams that represent the company to potential talent but this is not an issue that anyone should be worried about aside from high school English teachers.

In my 60 days of analysis on the company, Machinima is like any other media firm. Things are not all peachy but a company that exploits talented children? Hardly.