• by Ross Fadner , May 22, 2012

This time, the rumors turned out to be true.

Google on Monday made its first-ever investment in a YouTube content creator in leading a $35 million funding round in Machinima, an online entertainment company that creates video game-focused content and is the largest channel on YouTube.

Google’s portion of the investment was not disclosed. Also participating in the round were Machinima’s existing investors, Redpoint Ventures and MK Capital.

In a blog post, David Lawee, Google’s head of mergers and acquisitions, explained the company’s reasons for investing in Machinima:

“Online video is at a very exciting phase. First, the audience is larger and more engaged than ever; YouTube has over 800M monthly viewers. Second, new advertising formats are succeeding, and these are proving to be positive for both viewers and advertisers. Finally, the number of connected devices -- including mobile phones, tablets and TVs -- is skyrocketing. This is a big business opportunity and we are very bullish on the potential financial returns.”

Last year, Google acquired Next New Networks, which was formerly the No. 1 channel on YouTube. The new division, called YouTube Next, now manages relationships with other YouTube content creators. The Machinima deal marks the first time Google has made a direct investment in a YouTube channel partner.

Machinima said it would use the funds to invest in content, sales, international expansion, distribution, and new product and technology initiatives.

“With this latest round of funding, Machinima is well-positioned to make the next evolutionary step in the world of multichannel video programming and distribution by expanding into original content, international territories, and new platforms and devices,” Allen DeBevoise,  Machinima CEO, said.

Machinima has 168 million monthly users who watch more than 1.6 billion videos per month.