Defy Media, the multi-channel network (MCN) formerly overseeing some of YouTube’s most successful content creators, is being accused of stealing over $1.7 million dollars in revenue owed to 50 of their former business partners following a company shutdown last year. After two months of waiting, these paychecks still remain in limbo.
Last week, Matthew Patrick of The Game Theorists released a video statement to his YouTube gaming channel detailing how the executives for the MCN service he was contracted under failed to pay all of their associated content creators for their work in the wake of the company’s sudden bankruptcy. The collapse wasn’t the result of lost revenue or lack of talent, but rather the faulty nature of the MCN service which can act as legal representation for copyright protection at best or an income-leeching Ponzi scheme at worst.
So what is an MCN? In the past, YouTubers were actually required to sign up for these networks as a partner in order to obtain advertising revenue from the platform and implement their own customized thumbnails. Nowadays, this is no longer the case as these liberties are granted to any user with sufficient watch hours and subscriber counts without the need for big business intervention. Instead, an MCN can sometimes be a tool for content creators to either obtain direct sponsorship and TV deals with industry associates (such as Dreamworks or Disney) or a means to afford legal protection from fruitless copyright problems over fair use commentary — a routine plague for those within the field of entertainment criticism.
“Based on the system that YouTube has set up,” Patrick states, “those companies are the only ones with the tools that can offer those protections.” This could be argued as a form of insurance, though with such a new market comes a catch.
The real kicker is the fine print of these contracts. When content creators agree to a partnership deal with an MCN, the income of their channels is handed directly to the network. It’s a middle-man scenario where the company acts as the intermediary between the YouTube platform, creators, and the fruits of their labor. The MCNs are trusted to handle all of these earnings within their accounts, cut their (overpriced) percentage from the pile, which is eventually passed onto the creators at whenever time management sees fit — which Patrick revealed could be delayed by months at a time in order to “make their books look better for the investors.”
“The more I spent working for an MCN,” Patrick said, “the more I started to see the questionable way they ran their business… it’s like if your employer sent your paycheck to the water company, or the electric company, or McDonald's or whatever others services you planned on using throughout that month and then it eventually reaches your pocket. Everyone gets their cut and then you get access to the money that you rightfully own.”
“It’s still your money that you earned at your job,” he continued, “it just went through everyone else’s hands first. That’s the loophole these MCNs started to realize they could exploit to make themselves look bigger.” It was at this point that Patrick made the argument that by an MCN perpetually holding onto this revenue — which is generated only from the services of their clients, not from the MCN themselves — Patrick directly labelled this a “Ponzi scheme founded on good intent” that was destined to fail since “it’s all built on nothing.”
Fast-forward to today, these creators are instead left with nothing but an uncollected debt, overwhelming bills to be paid and a bitter taste of betrayal. According to Patrick’s sources, the debt was handed off to Ally bank, one of Defy Media’s key financial backers, who will have to make the determination of who gets paid in an industry surely outside their realm of knowledge. Before the video began circulating and reached over 5 million views, a representative for the bank released a tweet stating:
“Ally made a loan to Defy Media that [Defy] was unable to pay back after experiencing excessive losses and the owners refused to continue to support the company,” the statement reads. “Defy is being liquidated by a professional hired by their Board of Directors, and Ally stands to lose most of its loan. We are sympathetic to everyone caught up in this mess, and unfortunately, Ally is also experiencing a substantial loss as a result.”
According to another statement given to Julia Alexander of The Verge, Ally has suggested these YouTubers are unlikely to see their paychecks anytime soon after the process is complete. This is all incredibly shady since in 2016, according to a report from The Wrap, Defy had upwards of $100 million in investments and assets (mysteriously unaccounted for) while representing YouTube’s highest channels such as conspiracy theorist Shane Dawson and the comedy channel Smosh. Now Defy is facing multiple lawsuits from both those creators and direct employees who were denied their rightful paychecks and notices of dismissal, among other labor rights Defy violated.
“[Defy Media] notified their employees that they no longer had jobs, and called us a few days later to be like, ‘By the way, not only are we no longer a company,’ but they held our checks,” said Ryland Adams, a business and romantic partner of Dawson, who also posted a video on their channel, speaking to The Verge last year. “They literally stole my money. I should have gotten my check three days before they folded as a company, but instead, they chose to not pay us out and then flop.”
Defy has refused to comment on the scandal.
“After trying other methods of solving the situation, nothing has worked, so at this point, we have no choice but to make our fight public,” Patrick concluded. “Steph [Patrick’s wife and business partner] and I have personally been going out of pocket to try and get everyone’s money back. This is my story of what happened. And this is what we all can do to help ensure no other creator, large or small, has their money stolen from them ever again.”