Ally Bank Won’t Return Funds to Creators

When MCN company, Defy Media went defunct in November of 2018, Ally Bank took possession of Defy’s funds. Defy’s funds rightfully belong to the creators that were signed under them. However, Ally will not give up the money so easily.

Background: Defy Media

Defy Media is one MCN (Multi-Channel Network) of many. An MCN can help a creator get brand deals, collaborations, and various opportunities. To learn more about that, check out my article on brand deals.

MCN’s Are Like Talent Agencies

Defy Media owned several big channels on YouTube. The rest were under contract with the company. But for all the deal was that YouTube would send the ad revenue checks to Defy, Defy would take their portion, then distribute the rest of the money to the creator. In this video, Matthew Patrick of Game and Film Theory, states that Defy didn’t do much to merit taking their cut. As an actress in LA myself, I see different talent agencies. Some agencies anyone can get into and there’s hardly any cap on how many people can join. Others are more exclusive and only take on a certain number of people who are good at what they do and ambitious. Agencies that take anyone don’t get great reviews because they just don’t have the time and employees to book everyone on their roster. MCNs and Defy are like the overcrowded agency. Anyone could get in essentially and you wouldn’t get much if anything in return.

The Payment Flaw

In the video, Mathew explains the importance of having your check sent to you instead of a service you use. He described it as if your boss sent out your check to the water company, electric company, and fast food places you go to, and any other service you plan to use. Then you get whatever is left of a tiny check. Defy used this to make themselves look bigger. $10s of thousands of checks come into them and they may keep about 10% (industry standard) may be a tad more. But all the money that shows up, looks like it belongs to the company on paper. But it doesn’t.

The Investors Got Screwed Too

Defy used the big numbers on their paperwork to impress investors. The investors didn’t know the money wasn’t Defy’s. So Defy tells the investors that if they invest together, everyone can make a big return and lots of cash. But that was a lie. Defy knew this wasn’t going to end well when the investors found out. The solution is to sell this gift-wrapped empty box topped with a bow, to any big company that will give them a lot of money. Several MCNs did this. But when Maker Studios sold to Disney for $675 million, Disney unwrapped that shiny gift-wrapped box to find… nothing. The money in the bank does not belong to the company and there are little but crumbs of profit.

“Every all-hands meeting was led off with the number of views we were doing — 10 billion views, 11 billion views, 12 billion views — that was the outward-facing success story. But the reason the views were growing was because the network kept growing and we were just adding more and more channels.”

–Former Maker Studios Employee

Why Would You Need An MCN?

Glad you asked. There are a few reasons an MCN can be beneficial if done properly and without corruption. An MCN done properly can help you get equipment, supplies, and employees to help your channel with your projects. They can help you get collaborations with other creators, and they can secure great opportunities for you online and in the film industry. I go over some of that in my article about brand deals that I linked at the top.

But there is another reason that is more pressing that Matthew Patrick brought up. MCN’s are required for copyright protection.

“If creators want to have copyright protection for their videos to prevent wrongful reuploads or false claims from movie studios, music labels, what have you; then you have to be a part of an MCN.”

MCN’s have the tools to protect your channel’s videos and protect you from false copyright claims when you don’t. We all know the mess everyone has been having with false copyright claims lately. YouTubers should be able to choose if they want to be in an MCN. But they should also be able to choose to protect their channel independently.

Last tweet about getting claimed, hope this gives more context. pic.twitter.com/cHJDCa75i0

— MrBeast (@MrBeast) February 11, 2019

The Downfall

Defy laid off 8% of employees in March of 2018.  Then on November 6th, they closed operations without warning. One day employees had a job and creators had an MCN and the next day, it was gone. The evening of that day Defy released a statement that said this:

“Regretfully, Defy Media has ceased operations today. We are extremely proud of what we accomplished here at Defy and in particular, want to thank all the employees who worked here. We deeply regret the impact that this has had on them today. These are some of the best people in the world in creating digital programming and building audiences around it. Without them, brands like Clevver, Smosh, and AweMe could not have built up over 75 million YouTube subscribers and 120mm social media followers. Unfortunately, market conditions got in the way of us completing our mission. Our main focus right now is to find homes for these great brands and people so that they can continue to thrill and delight their millions of viewers with as little interruption as possible.”

–Defy Media

The Heist

Defy Media took $1.7 million from 50 creators, Mathew Patrick states, which he claims is a lowball. Let’s not forget they also kept the money from investors, including $77 million from Wellington Management Company. They had enough money to impress several investors to give them more. Not to mention, they took a large loan from Ally Bank as well. The corporate employees of this company had an insane amount of money in their hands, and then closed doors. What they did with most of the money, who knows. Probably in some offshore bank for their enjoyment. But of what was left was taken control of by Ally bank.

Ally Bank

Mathew Patrick made a call for people to reach out to Ally Bank and have them return the money to the creators who rightfully own it. This is their response.

Ally made a loan to Defy Media that it was unable to pay back after experiencing excessive losses and the owners refused to continue to support the company. (1/2)

— Ally (@Ally) January 25, 2019

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. (2/2)

— Ally (@Ally) January 25, 2019

Who Should Get the Leftovers?

Investors

Wellington Management is a company that manages the investments of many clients. It was through this company that Defy received $77 million. As high of a number that is, the funds available should not be returned. I assume Wellington Management knows this as well. There are many risks involved with investing money in a company. Wellington lists many on their site. If you know anything about investing, you’d know that there’s a chance you may get more money than you put in. There’s also a chance you won’t get anything back. Investing in a company is a gamble.

Ally Bank

Bank loans are a lot like investments. But these investments are a lot more careful, usually. If you, reader were to come up to me and ask to borrow $100, I would probably tell you to screw off. I don’t know you or how likely you are to pay me back. For all I know, you may have no job and do drugs in your mom’s basement. But if someone I knew well and trusted asked, I might be more willing to loan that money. If I know them and know that they pay back loans on time and that they have a source of income, I’ll lend to them.

How Banks Work

Banks make a lot of their money from interest on loans. I loan you $100, and you give me back $115. But banks have to be careful when loaning money. The money in the bank is not their money, it’s their customer’s. They are loaning out their customers money to make a return investment of that $15, or whatever the interest is. This makes it imperative that the bank make sure they are loaning to a person or business that will pay it back. Ally Bank was not careful this time. They should have seen that that money was coming into the company but leaving at the end of the month. Ally should have known that that money did not belong to Defy. Ally Bank loaned the money anyway, and they experienced a loss. But this is like an investment because they had the choice to reject the loan. They should not get the money.

YouTubers

Let me tell you why the money belongs to the YouTubers. Those checks that the creators received, were not from Defy Media, they were from YouTube. YouTube sent them to Defy, who took a portion and sent the rest to the creator. Say you just moved out of your mom’s basement and your checks from McDonald’s are still being sent to your parent’s place. You mom puts your check in an envelope with a lipstick kiss and mails it to you. Your mom didn’t pay you, McDonald’s did. Your mother can’t decide she wants to keep your check to get her nails done and never return the money. That’s not how this works. The YouTubers never invested in anything or loaned their money anywhere. For Ally Bank to keep it or send it somewhere else is theft.

Board of Directors

An Explanation

Ally Bank announced that its board of directors hired a man to prioritize Defy Media’s assets. This guy they hired gets to decide who gets the dough. There are two types of people on a company’s board of directors: People from inside the company such as the CEO and founder, and the other being people from outside the company who specialize in an area that could benefit the decision making of the business. Also in that category is people from companies that make large loans. If I was going to loan you $2k (a lot for me), I might ask to be kept in the loop to make sure you’re paying your student loans and not buying a video game. The same goes with a company who loans another a substantial amount. They may demand a spot on the board of directors to ensure the proper use of the loan and return. Now the board of directors can do whatever they want. They can even fire the CEO if they please.

It’s Just a Theory, a Business Theory

Mathew brought up a theory that I thought was interesting. Note that this is not confirmed as far as I am aware. He speculates that someone from Ally Bank may have taken at least one spot on the board of directors of Defy Media. This would make sense that Ally would have a seat and it would make sense they would prioritize themselves in this decision. What doesn’t make sense is why they would let things get to this point where they lose some of their money, if they did have a spot of the board.

We won’t know much more about the decision until May. I’ll keep you all updated when the decision is made.

UPDATE: Smosh Deal Closed

In an article, I mentioned that Good Mythical Morning may buy Smosh under Mythical Entertainment. To read about why what this means, check out Good Mythical Morning Buying Smosh?

Smosh uploaded this video confirming that Mythical Entertainment has gone through with purchasing Smosh from Defy. This is the best possible outcome for Smosh and the YouTube community. I’m excited about this and it looks like Smosh is too.

“Which we are so excited about because they are creators helping creators.”