Editor’s Note: This article was originally published on Medium.
So this past month marked the end of one of the most high-profile multi-channel networks on the web, and now one of the most infamous.
I’m talking about Defy Media. At its peak, they owned the likes of Smosh, Clevver, Screen Junkies, The Escapist, GameTrailers, Shockwave, the list goes on and on.
I imagine most of you were aware of this specifically because of Smosh, by far the most visible group in the YouTube scene, but if one channel’s involvement is the beginning and end of your awareness, you might be missing out on the whole picture.
Well, don’t worry. I’m here to help. I’m here to tell you an epic story involving a catalog, a pair of traveling pants, and Milo.
Also, keep this image in the back of your head: the image of a fishing boat casting a net in a bunch of river rapids.
In the beginning… was Alloy.
They were a catalog shop and web portal back in the late 90s, basically targeting the Kevin McAllister generation. Next to their rival dELiA*s—which had a line of department stores—they rode the dot-com bubble by going public in 1999 and buying up a book packager called 17th Street Productions the next year.
17th Street was an offshoot of book packager Daniel Weiss Associates specializing in young adult fiction (at the time basically Sweet Valley High). However, under their new name Alloy Entertainment, they’d eventually make a name for themselves such adaptation hits as The Vampire Diaries, Gossip Girl, and The Sisterhood of the Traveling Pants.
Once Alloy bought them up, of course, they were able to cushion themselves in the dot-com bust and buy up their weakened rivals dELiA*s and CCS soon after.
All this was going on with a company that was creating ads like this:
At the same time, Alloy jump started their marketing to young children by buying up 360 Youth and a number of other similar firms, putting them to use in schools.
Their first foray into video content came when they bought Channel One News, a broadcast channel beamed into schools across the US. You might even remember some of their programs if you grew up in their heyday.
Well, they kinda coast on their stocks for a bit, continuing to bulk up their marketing angle with Teen.com, a premium domain they had bought early on and parked for future use.
Hiding Away the Stocks
Then comes in ZelnickMedia. Strauss Zelnick was a veteran of 20th Century Fox and Crystal Dynamics who went hard into venture capital in the new millennium, staging a coup at Take-Two Interactive and fending off a buyout attempt by EA.
He comes in with a bold gamble to privatize Alloy, selling off some of their old businesses and injecting them with enough cash to buy up even more companies!
If you’ve watched a lot of industry news shows, you might recognize this approach as applied by Disney. Not the best in something? Just buy whoever is!
In fact, you might remember Disney did try this out themselves much later, buying out Maker Studios in 2014. It didn’t really work out for them either.
Now, the fact that Anthony Padilla sold Smosh for stock instead of cash is regretful as it is, but the narrative that the company flaked out by “never going public” is missing this key detail.
It’s because they wouldn’t go on the market because they had just pulled out the year before!
Maybe if CBS and Viacom did in fact merge together, but I digress.
Let’s pick out one of these companies they bought up in this spree and see if we can glean some extra history out of them. Let’s pick Themis Media, the original parent company behind the once-reigining publication The Escapist. Let’s give you a little rundown.
It was 1997, merely a year after Alloy came on the scene. A West Point dropout named Alex Macris gets into the early MMO scene, which at this point is basically Ultima Online and Meridian 59.
He starts a business called WarCry, which goes from a game publisher to a journalist website within 5 years.
He then moves on to an MMO consulting firm called Themis Group, which starts an e-magazine called The Escapist within 5 years.
You can see where this is going.
Then with a redesign and the recruitment of one Yahtzee Croshaw, it becomes a journalist site within 2 years.
A bunch of other people come on board, and what do you know, Alloy Digital comes by with a sack full of investor bucks and a chance for this guy to become their Senior Vice President.
What else would you do, not take the job?
Merger of Equals
By this time, Alloy had all but pivoted to a digital media company, centered around their multi-channel network Alloy Digital.
Then came the big guns — Break Media. These guys were a relatively naive group with a different set of investors and offices across the country, so both sides decided to pool their talent together! Brilliant!
It was billed as a “merger of equals”, but Alloy’s staff of course weren’t going to be outdone. Alloy’s Matt Diamond became CEO, and Macris became Director of Emerging Content.
That was 2013. You know what else came about in 2013?
Suddenly, a Pandora’s Box was opened. Subscription models became the new model of choice for creators, and MCNs have to compete with it. Not only that, but the rise of ad blockers meant that YouTube and websites had to find alternative means to continue their marketing angle.
Defy’s answer was Acumen, a market research program where they basically went and recruited teenagers to invite the team into their homes and be surveyed on the kind of things they watch.
Im going to lead you on a guided tour through the soul of the modern young person. I will be like Virgil leading Dante down into hell.
— Alexander Macris, Casual Connect 2015
Remember what I said to put in the back of your mind at the outset? Here’s where it applies.
Alloy and Defy throughout their existence have been surfing the chaotic flowing waters of kids, teens, and young adults, casting nets to try and collect as big a catch as possible.
Except they’re not, say, Disney. Or Cartoon Network. Or Dan Schneider.
So for those of you in the pro-privacy camp, you should probably consider taking a look at that side of the industry. Companies that thrive on advertising are likely doing the same shady activity, if not shutting down for it.
The Escapist, meanwhile, was immediately underplayed in their roster. They had already lost a valuable show prior to being bought out, and while Defy were able to shake hands with Viacom, The Escapist was soon plunged head-first into the spontaneous discharge of filth that was…
Suddenly, everyone starts taking sides over an issue with a noble goal propped up by the worst of the community. The alt-right was born.
Macris, of course, takes what he considers the “high ground” and starts cracking down on his own staff, eventually leading to a steady exodus over the next few years.
Then out of the blue, he emerges as the self-proclaimed “supervillain CEO” of Milo Inc.
Yes, that Milo. And yes, it only lasted a year.
But by that time, the woes of Defy Media were just getting started.
Winter in Firenza
Honest Trailers co-creator Andy Signore became embroiled in a sexual harassment scandal in August 2017. It then took until October, when the #MeToo movement took hold, for Defy Media to publicly acknowledge it and fire him.
He then went to court over it, and Defy tried to clean up their own image, but the damage was done. The investors naturally had to be getting worried. Zelnick peaced out that same year.
Not only that, the original founders of Generate—a talent agency for creators—wanted out as well. See, they had an arrangement where profits for their talent were put into a trust, separate from their own corporate funds. But after they were bought out, Defy allegedly took over the trust and merged it into their corporate funds. So while Defy was open to the idea of splitting them off, they kept refusing to follow through.
As of this writing, Defy have not formally filed for bankruptcy, but according to YouTuber Law, Defy cannot use bankruptcy to erase debts brought on by fraud, which dissolving the trust would definitely fall under.
The Final Countdown
The rest of the story should be pretty well-tread by now by the people who were actually there.
Monday, July 2 — Screen Junkies is sold to Fandom.
Saturday, July 28— The Escapist is sold to recently-public Enthusiast Gaming.
Thursday, November 6 — Defy sends out a press release saying the company will dissolve on January 2, 2019.
Friday, November 7 — Matt Diamond sends out a company-wide conference call, laying out the details of the shutdown.
Monday, November 10 — An email is sent out, updating the situation into a shutdown effective immediately. The staff at Defy’s Beverly Hills office is evicted.
Again, as of this writing, Defy Media have not formally filed for bankruptcy, which will likely be a Chapter 7 (liquidation). In that situation, the largest creditors with collateral will be able to collect their debts by selling off the company in pieces. If any money remains ripe for the pickings, then shareholders may be able to collect the last scraps. But most importantly, the debts without collateral (which here includes all the Adsense payments) will be in default and forgiven by the court to ease the process.
However, owing to the process not starting right away, it’s likely that Defy Media wouldn’t pass the “means test” instituted by the BAPCPA. I’m not a lawyer, though, so take that with a grain of salt.
The mission behind this research for me, more than just commenting on a news story, relates to a philosophy I have. It goes like this:
The present is a marriage between the past and the future.
It can be applied differently to a lot of situations, but in this case I relate it to the people affected in some people by these traumatic events. The usual thoughts turn in two directions: backwards at how such an event could happen, and forwards at how to survive and move on.
However, the information age gives us more of an opportunity to look even further back and find context in every link of the chain, allowing us the chance to learn even more lessons to apply to the future.
So the story of Defy is not just of bad business practices and shady ways of screwing people out of money. It’s the story of businessmen preying on the watching habits of children and playing a dangerous money that finally got them burned.
Stay tuned though, because the fight is far from over. Once the company finally motions toward bankruptcy or emergency buyout, or whatever else, the fight to fix this mess will continue.