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Monday, April 15, 2024

The Wild Rise of Moonbug—YouTube’s Magic Money Machine

In the last month alone, videos from Cocomelon, Little Baby Bum, and Blippi have been viewed more than 2.37 billion times. These three YouTube channels—which are among the biggest on the platform—have, collectively, racked up 157 billion views in the few short years they've been online. And now they're worth $3 billion.

You may not know them, but anyone with young children will. Cocomelon alone is the second-most-viewed channel on all of YouTube. And, after a series of acquisitions, all three are now owned by a single company: Moonbug Entertainment.

Their origin stories are varied. Blippi—real name Stevin John and a Mr. Rogers-like entertainer—is well known to toddlers the world over since starting his YouTube channel in 2014, as well as to those who knew him as Steezy Grossman, the man who once defecated on the exposed genitals of a friend in an early viral video. Little Baby Bum was started in 2011 by husband and wife team Derek and Cannis Holder. The pair correctly believed there was a niche in the market for garishly animated versions of nursery rhymes. A similar hunch by a Californian couple working in the worlds of children’s book illustrations and filmmaking resulted in Cocomelon.

Having swallowed up three of YouTube’s most popular childrens’ channels, London-based Moonbug has been devoured itself. The rumored price tag? A cool $3 billion, or around half of what Disney bought Pixar for in 2006.

The buyer is a group led by former Walt Disney executive and short-lived TikTok US CEO Kevin Mayer, and backed by The Blackstone Group, a New York private equity firm. It’s an astronomical rise in value for Moonbug, and proof—if it were ever needed—that children’s entertainment is big business. “It shows that kids content is a huge and very valuable market, and that digitally native companies again have valuations that rival or even better traditional media companies,” says Bastian Manintveld, executive chairman of Spanish entertainment company 2btube, which has a large children’s content arm.

“Children represent a key target for monetization strategies on YouTube,” says Alexandra Ruiz-Gomez, a social media lecturer specializing in kidfluencers at Curtin University in Perth, Australia. And Moonbug’s intellectual properties, which include Cocomelon and Little Baby Bum, are beloved by millions—so beloved that Moonbug raked in $53 million in revenue in 2020, according to financial results filed in the UK.

The interest in Moonbug and the range of other similar mergers and acquisitions over the past 24 months—from Epic’s acquisition of kidtech platform SuperAwesome in September 2020 to the $500 million purchase of reading and learning platform Epic (confusingly, this is another Epic) by the Indian educational services firm Byju in July 2021—is testament to the increasing legitimization of kids’ content on platforms like YouTube. It’s buoyed by big tech platforms’ willingness to invest in kidtech and moderation. Recognizing that the internet was never designed for kids but has been adopted by them in huge numbers, platforms and companies producing content for them are now trying to design with kids in mind. And the result is big-money deals that were previously unattractive to investors.

More money sloshing around the space means there are more opportunities for consolidation of bigger players, and with that the creation of mega production houses like Moonbug. That in turn is attracting investors as they feel more confident taking bets on established cooperatives of channels, rather than single creators who can quickly vanish. And such confidence helps push up prices along the way.

That’s a step change from the dark days of YouTube’s children content in the late 2010s. Then, sensing a gold rush from children’s untrammeled attention spans—and their parents’ desperation to distract them for a short while—entrepreneurs sought to set up YouTube channels focused on children’s entertainment. The videos, cheaply produced by gig economy workers, would co-opt some of the biggest traditional media titans targeted at children, presenting them in non-canonical—often violent—ways. The rotten videos were so pervasive, they weren’t solely limited to YouTube’s main platform, which officially isn’t designed for children under the age of 13. The horrific violence and misappropriation of beloved characters bled over onto YouTube Kids, which was supposed to be the video sharing giant’s safe walled garden of curated videos for children. The resultant scandal, nicknamed ElsaGate, was a reckoning for children’s content on the platform. Separately, YouTube battled its own issues with pedophiles hiding in plain sight on the platform. It all got so bad that one former Google and YouTube employee, Patrick Copeland, who had a 10-year tenure with the company, said in 2019 that YouTube had created a monster it couldn’t keep track of. “Take a different example of a car company where the cars were constantly crashing,” he said. “How many excuses are acceptable before you say: ‘It’s not OK for this to be happening?’”

The successive scandals, which ran from 2017 to 2019, were a low point for children’s digital media content. YouTube was hit with the largest-ever fine in the two-decade history of the US Federal Trade Commission pursuing cases in breach of the Children’s Online Privacy Protection Act, costing the company $170 million.

Since then, the children’s content industry has cleaned up its act—at least at the highest echelons. While an undercurrent of deeply inappropriate content still exists on YouTube, as a simple search of “Mickey Mouse murder” shows, it’s been largely squeezed out of the limelight by a rapidly professionalizing industry. One huge growth area in the larger kid-focused YouTube businesses is standards and practices. “We need to think about the ethics of children’s content and its implications on what we’re asking of the parents navigating this world as well,” says Maureen Mauk, a standards and practices consultant and expert who studies its history and present-day impact on families and the industry at the University of Wisconsin-Madison media and cultural studies division.

Change was inevitable after YouTube was bounced into action, banning comments on videos featuring minors and altering its algorithm to promote only “quality” content. Among those to capitalize on the changes? Moonbug. From those dark days of scandal has grown a major media business that’s well on its way to becoming a 21st-century Disney. “The Moonbug team has taken an already popular channel on YouTube and turned it into a global juggernaut by applying the fundamentals of building a global brand franchise from Disney,” says Ian Shepherd, former Disney executive and cofounder of Electrify Video Partners, a business that acquires YouTube channels. Moonbug has turned the characters from its intellectual properties into merchandising juggernauts, with associated Netflix series, toys, and tchotchkes. In the same way Mickey Mouse is appended to any number of buyable items worldwide, so you can purchase Cocomelon-branded easels, Little Baby Bum scoot-along buses, and Blippi bendable toys.

Since buying one of its first YouTube channels, UK-based Little Baby Bum, in 2018 for a rumored $8 million, Moonbug has expanded significantly. “The basic principle for creating value is always the same: Find the connection with the audience and build the potential for monetization around that audience,” says Manintveld.

Shepherd is impressed with the way Moonbug has picked up the pace of production on brands it’s acquired while also simultaneously broadening its reach off YouTube onto Netflix and TV—as well as invading toy stores. There are 122 products for sale in Cocomelon’s official online store, and 92 in Blippi’s, from branded gift wrap to water bottles and lunch boxes. It’s “a perfect case study for those wondering what the future holds for digital-first content”, says Shepherd, forecasting future acquisitions of other YouTube channels. Propelled forward by YouTube’s algorithm, the platform’s most popular kids’ channels are now morphing into powerful merchandising machines.

And that’s what is piquing investor interest. They’re not just paying for access to millions of eyeballs, they’re also buying into a merchandising juggernaut and intellectual property that can live far longer than any viral video. “The price tag clearly indicates that children's content on social media will continue to have a place,” says Shepherd. The only surprise is that it’s taken so long to clean up the top tier of kids YouTube enough to interest deep-pocketed investors.

But whether the merchandizing and money will help clean up YouTube’s Wild West of kids’ content is another question. Online video has long been an unequal industry: The top 3 percent of YouTube channels get 90 percent of the views, with the rest left to compete for the remaining eyeballs. The underbelly is huge—and often ugly. Questionable kids’ content still exists on YouTube, and it is just a click away, despite the platform’s attempts to tamp it down. As recently as October 25, YouTube said it would take action against low-quality children’s content, removing the ability to monetize videos. That’s in part because it’s facing a mountain of malicious content: 1.8 million videos were removed in the second quarter of 2021 for violating YouTube’s child safety policies.

YouTube’s underbelly remains a major concern, but even the platform’s biggest names still operate in a largely unregulated space—even though they are flush with cash. “I don't see how big-money deals and aggregating more brands would solve any issue,” says Ruiz-Gomez. “If anything, bigger advertisers have more viewers, more power, and become commercial forces that are harder to regulate. It intensifies commercialization opportunities.” Ultimately, what's good for big-money deals and merchandising might not be good for children.

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