Is Walt Disney Co. Giving Up on YouTube Videos?

By Anders Bylund Markets Fool.com

Walt Disney (NYSE: DIS) is laying off roughly 80 people connected to YouTube outlet Maker Studios, according to a Wall Street Journal report. The unit has been struggling financially, and some of its biggest stars have been in the news for all the wrong reasons recently.

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Is the House of Mouse ready to give up on its short-form video ambitions?

You're goin' down!

At first glance, that would be a reasonable conclusion. Disney picked up Maker Studios in 2014, wrapped in an incentives-laden deal where the price tag could have added up to nearly $1 billion. The YouTube studio came with an impressive collection of high-end online video stars, including the popular Epic Rap Battles of History series and Swedish gaming commentator Felix Kjellberg -- better known as PewDiePie.

The deck seemed stacked for profitable success, but Maker Studios never quite played out that way for Disney. The studio has reportedly never been profitable, and most likely never earned out the majority of its deal incentives. Plus, it's been causing Disney's leadership all kinds of unexpected headaches along the way.

So yeah, it would make sense to just cut the cord on a failing operation. Write off the acquisition cost for the tax benefits, work out a new short-form video strategy, and move on.

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Walt Disney on the phone. Image source: Disney.

What'cha doin'?

That's not exactly what's happening here, though.

In December of 2016, Disney wrapped Maker Studios into its existing consumer products and interactive services division. These moves don't happen overnight, and the reported layoffs probably come from Disney working the cost-control magic you'd expect when two large operations gather under the same operational umbrella. Yes, most of the layoffs should come on the Maker Studio side of that equation, but some of the consumer products staff will be looking for new jobs too.

Business as usual, for the most part. But of course, it's not quite that simple.

The Journal's anonymous sources noted that Disney is scaling down Maker Studios and changing its focus. Instead of an all-inclusive, sprawling Mecca for budding YouTube starlings and starlets, the reformed version will double down on supporting huge stars like Epic Rap Battles and the Fine Brothers (Kids React, et cetera). These established stars appear to have a better shot at making real money -- but Disney is also handpicking the Maker makers it wants to keep, to ensure that their content will work in a family friendly format. And the stars who stay on may need to clean up their acts, to some extent.

PewDiePie, for example, was given the boot last week due to a long-standing habit of using uncomfortable jokes and lots of four-letter words. The final straw, at least as seen from the outside, came from a blatantly anti-semitic attempt at humor. It might have worked under some other corporation, and PewDiePie might continue to make similar jokes now that he's out on his own again. But for Disney, that attitude cuts right across the kid-friendly image the company has been building since Steamboat Willie and Snow White. Didn't even help that Kjellberg commands the largest subscriber army YouTube has ever seen.

What did I miss?

Bye, bye PewDiePie (and a handful of friends).

Maker Studios will live on without you, albeit only as an integrated part of Disney's larger consumer products operation. The studio is not going away, just making a few adjustments in search for stronger business results.

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Anders Bylund owns shares of Walt Disney. The Motley Fool owns shares of and recommends Walt Disney. The Motley Fool has a disclosure policy.