Exclusive / Candle Media’s Kevin Mayer is pivoting to meet the streaming moment

Max Tani: You guys have a huge hit with Cocomelon. But also, you’ve acquired stuff over the years that hasn’t worked out. What does the picture look like for Candle going forward? What do you imagine you’ll be talking about when you’re here next year?

Kevin Mayer: Candle was a concept that, when I left TikTok, I kind of had an idea of, and it had just happened. I was at Disney, then I was at TikTok, and it was kind of a merger between old and new media. And I felt that IP should be at the heart of everything — On the traditional side, on the new media side, that’s the basis upon which you leverage all revenue and all profit.

So we wanted to target various verticals. So “women” was one vertical, and that’s Hello Sunshine. Kids was another, hence Moonbug. We bought a Latin American company called Exile Entertainment, a Middle Eastern company called Faraway Road [which produces the Israeli drama Fauda].

And then we bought this company called ATTN, which does social media storytelling only. And the thesis that I had at the time was: One, being an independent media company was more valuable than ever, because Hollywood was becoming completely verticalized. Studios creating their own streaming services.

Bob Iger and I kind of created that. Netflix did that first, obviously, but they didn’t have a studio. We were the first major studio that decided to take all of our product that we made at Disney and put it, ultimately, into our own streaming service. There was ESPN, there was Disney, and there was Hulu, general entertainment product from ABC and from FX. So Disney was not in the business of licensing its content to third parties anymore. They had their own streaming service.

So I went around and we collapsed all of our deals and terminated them all with Netflix and all different places that were licensing content, to put all of our content just on Disney+. All the other studios did the same. So it became very difficult for an independent streaming service to license product.

That’s where you guys were going to come in?

That’s where we were coming in, us and Sony and some other independent studios. One thesis was that independent content would become more and more valuable. Really high quality, premium content was unavailable from the big studios. That was a good thesis — it was a thesis that held for a while, actually.

I also thought that competition for streaming subscribers would continue to be extremely intense, thereby creating a vastly continuously growing content marketplace. Like it had been for the last five years, growing 20-plus percent a year in terms of volume being purchased. It was huge.

And I also thought tying together these stories across traditional media, social media storytelling, and commerce would be the thing of the future. And I saw, when I was at TikTok, the amount of commerce that was concluded on-platform [was] massive and has only grown.

I felt that was a really good model — IP at the center, all sorts of all the different exploitations that you can think of for that IP across all different platforms, kind of like a mini Disney. I hate using a Disney analogy. Everyone uses it. But a multiplatform IP exploitation in the face of growing demand and tailwinds everywhere — that sounded like a good story.

Here’s what happened. Unfortunately, demand did not continue to grow. In fact, it went the other way. After Netflix reset a couple years ago, they stalled out. They were growing as well as they ever had been. So that little stumble really refocused streamers on profitability. Thereby, the content spend declined, and it declined pretty dramatically.

I didn’t think that was completely unexpected against our thesis, actually. And it’s still huge:100-plus billion dollars being spent around the world on non-sports content. And we’re small, right? So I was figuring that we’d be below the waves, right? These waves could be choppy, [so] it became harder to sell. The sales cycles were more difficult. The largesse that all these streamers had shown to content providers in the past was squeezed dramatically. It captured all of us. So that was disappointing, frankly.

Then we had the double [actors and writers] strike — that was unheard of since the ’60s, I think. That disrupted our content production on the live action side.

And the tie-in, taking traditional stories that began on traditional media and trying to retell and to extend those stories on social media, didn’t work as well as we thought it would. Also, we had one really good show called The Home Edit, which existed on Netflix, and now it’s [on] ABC. It was a good little business.

Why do you think that, in particular, didn’t work?

Take Daisy Jones & The Six, which we did for Amazon — there’s no great way to deploy it online and make money at it. You can put promotional stuff on TikTok. Remember, TikTok doesn’t pay creators, right? When I was there briefly, I created this creator fund. YouTube pays $17 or 18 billion a year. This is the only place you could really do this as a professional creator. The only place you can make money is YouTube. TikTok, by the way, is an incredible platform. But you can’t make money on it.

So it was a mismatch, frankly, and going from traditional media to social doesn’t work very well. However, stories that originate on social media can go to traditional.

That business never really fulfilled the promise that we wanted to do. It’s doing fine. It’s a good production company in a tough environment, so it’s not making as much money as we’d hoped [or] growing in the way we had hoped, that’s all in the public domain.

Reese has been a great partner. We’re really trying to get [Hello Sunshine] going and it’s profitable. The volumes aren’t going as much as we would have hoped. It’s not bearing out our thesis the way we would have liked. So it’s a tough business to be [in], and we’re not the only ones experiencing that. All these big studios are having a difficult time. We’re caught up in that. But again, still profitable — not terrible, but it wasn’t worth what we paid. That’s obvious at this point.

We bought another company, ATTN, that’s done very well. It’s done better than we planned. They [run] cause campaigns and marketing campaigns for companies on TikTok, [and] they run TikTok for Good,TikTok’s own channel promoting its positivity for culture … so we make TikToks by TikTok for TikTok. It’s kind of a weird thing. So that’s going fine, but again, it’s kind of a different thing. We were hoping to take ATTN and kind of combine it with our live action studios and have them be the social media components combined with traditional — it didn’t work that way. So ATTN is working on its own, but not playing with the others.

And then we have Moonbug. It’s amazing. I mean, I think we now have about 10 billion views a month — billion, with a b, every month. Pretty incredible. Now, all the properties in Moonbug originated on YouTube, every single one of them. And we bought all of them. We didn’t develop any of them. So Moonbug is not a creative development place to develop new products. Cocomelon was an acquisition, Blippi was an acquisition, Little Angel, all the ones we have — you name it, all acquired, all IP that originated on YouTube.

So what does work? You can have YouTube. You can pull that together in various ways and make great streaming products out of it, Cocomelon being the premier example. We had many seasons of Cocomelon, and a season is only three hours of content, in three-to-seven minute increments on short form on YouTube. The first deal we did with Netflix a few years ago, we just took that free content and pulled it into one-hour episodes. We did nothing more than take one hour’s worth of content and repackage it. And from 2021, until now, it’s the biggest show on Netflix. That’s incredible, right? Not the biggest kid show, the biggest show.

How much do they pay you for that?

I’m not at liberty to tell you. We’re doing well.

So the value of that is, basically, those people would otherwise be watching on YouTube. So why not just have them watch on Netflix?

You can tell there’s a lot of parents with kids who watch on YouTube. But some parents aren’t comfortable with YouTube. It’s a chaotic environment in some ways. They may see something a kid shouldn’t see. It’s not as clean of an environment. YouTube’s a huge, invaluable partner of ours. Zero complaints. But some parents aren’t comfortable, and those parents are comfortable with Netflix. It’s much more curated.

YouTube’s a platform. Netflix is a curated service. They pay for content, they license it, they generate it, they deliver it. It is a channel more than it is a platform. So there’s a different usage occasion, even though there’s a lot of overlap.

But the incentive for Netflix to do that deal is that otherwise, those parents, a lot of them, would probably still be going to YouTube, even if they had some level of discomfort with it?

They probably would. But, yeah, the benefit for Netflix — you may have seen the leak, we didn’t actually announce this but it has been leaked so broadly, and we can’t deny it — [is that Cocomelon is going to] move to Disney+ in a year and a half, in 2027. We had two potential buyers, and Disney ended up wanting it more, just manifested in what they pay us, right? So we’re gonna make a lot more money on Disney. Netflix did want to pay us more, just not as much as Disney. And in some ways, Cocomelon seems like a more of a Disney strong suit.

What do you think about the kind of kids stuff that Netflix is putting out or that they’re buying?

They’re buying some tried-and-true stuff that works and has worked on TV for years, like Cocomelon. I’m a little surprised they didn’t step up more. And the reason it’s so valuable to streamers is because the best lever to create value in streaming, more than acquisition, is to reduce churn. That’s it.

Why? You don’t have to remarket to these lost subscribers. It gets you a ton of revenue growth because you have stability and a growing set of subscribers. And it just makes your operation way more efficient. And the best way to avoid churn is to have people open the app as often as possible, and when they open it, spend as much time as possible on it. It’s called engagement. And word engagement — all it means is how much time you spend watching video.

The amount of time that kids and their parents right beside them spend watching Cocomelon and the rest of our product is enormous. Kids watch over and over and over. So that’s why it’s a No. 1 show with very few hours, on a per-hour basis, is incredibly powerful. … It had to be the most efficient thing on Netflix by far for reduction of churn. And I think Disney saw that.

When I was running Disney+, when I launched it, that was one of my main focuses: make sure engagement is optimized. And Netflix has been around a long time. Their systems and the recommendation engines are probably ahead of anyone else’s. They have the most data. They have very good AI technology [that] allows them to do that, and so that’s good. But it’s really kids’ viewership that just drives so much usage. And I think that’s incredibly valuable for retention.

I want to go back to the first question: Where do you see the company headed?

So what we’ve become is kind of three somewhat distinct companies under the Candle banner. We meant to have this repeatable thing: social media storytelling, personal media storytelling, commerce. We thought we could repeat that. We thought that Hello Sunshine would be that flywheel. Well, we thought that Exile, the Latin American thing, would be that flywheel. We thought ATTN could add to that flywheel. And we thought Moonbug had that for kids.

It turned out that Moonbug is the one that really looks and feels like my initial vision more than any of these other businesses do. So we have Blind studios. They’re kind of doing their own thing. [And Moonbug] is kind of the promise of Candle Media, but for kids only. So we’re kind of running them as a holding company. We’re more like they were managing them independently. At some point — Blackstone owns the company — things always get sold. That’s why they invest: a liquidity event. So it looks more and more likely that we’ll achieve liquidity through each independent company that’s within Candle, rather than Candle itself being sold in its entirety.

You mentioned Blackstone. How do you feel the relationship is going with them?

Awesome.

And how do they feel about you?

They love me.

I mean, how do they feel about you personally and the company?

It’s been harder and harder for private equity and venture capital to get investments that have liquidity. You may have seen that just in the marketplace: liquidity mess, IPOs, all those are harder to come by. And there are a lot of investors out there who are bothered by that — these limited partners that invest in private equity, like, “Hey, where’s my money?”

I think not only Blackstone, [but] all of private equity is dealing with that issue of returning cash to their investors. So I’m sure that they would love us to try to cash out of these businesses as soon as you possibly can, in terms of a liquidity event. But I will say they have shown enormous patience. Joe Baratta, the head of private equity, is on our board. He’s really supportive.

Look, is there a bit of frustration with the amount of time this might be taking now to return capital, and some of the business models aren’t working out the way we thought they would. We’re frustrated with it too. But they remain incredibly supportive. Joe serves on our board still, and doesn’t serve on many boards. Jon Gray, the president, he’s super supportive. That’s why we chose Blackstone to begin with — they stay in for the long term, and they’re growth-oriented. I think the relationship with them is great. Now we want to get this thing valuable and sold.

How do you think about kids aging, and how to capture their attention or keep their loyalty as they grow up? Is that something that you guys think about?

A little bit. We want to just focus and be present, and so we have to do what we do best. So we’re really focused on serving the audiences that we serve.

At Disney, I bought Marvel. Everyone thought, “Oh, he wanted to make it a boy’s property. Disney’s mostly girls, this fills a net demo, and it’s a way for kids to move into—” No, no: This is our great superhero set of stories. With all the business platforms at Disney, it’s worth more to us than anyone else on the planet. It could really be well-served by all the business opportunities that we can give it. Does it fill in demos at Disney? Yes. Did it have that salutary effect of maybe being a continuity point between a 12-year-old and then keeping him with the Disney family and going to Disney parks? Yes, but that was not an explicit part of our strategy when we bought it.

So we may buy properties at Moonbug which have that effect, but it’s really not our focus. We just want to serve the audience we have as well as we possibly can. We’re not doing that as well as we could yet; there’s still more room to grow and more properties to bring under our umbrella. … For instance, we have a big music business that no one even knows about. Moonbug, across all the platforms that we operate, had more streams than Taylor Swift across all the platforms that she’s on last year. That’s crazy. So our music business is actually zooming and crushing it.

So we have those two physicals. We have music, we have games that are forthcoming. We have licensing, merchandise, a lot of Cocomelon merchants and licensees to do that. And we have streaming. So there’s like five or six different business platforms, YouTube being the primary one.