There is a lot of chatter about the future of television these days so I wanted to put some thoughts on paper. For reference, the context here is Netflix original programming, YouTube’s ongoing investment in a slate of original content channels, and more recent announcements like Vevo’s live music channel (MTV is back!) or Time Warner Cable’s Roku streaming app.
Here are my predictions:
- Subscription services continue to invest heavily in original content to avoid becoming commoditized. Debundling by ultra-premium channels (HBO & equivalents) is a reality within 2 years.
- New web video formats scale economically as fragmented audiences coalesce around new vertical leaders. Innovation in brand / advertiser / platform / producer relationships deliver attractive returns.
- Existing media silos break down as audience leaders adapt to changing consumer behavior.
- Multimedia properties that engage audiences across touchpoints in context-appropriate ways become increasingly common. Greater experimentation with participatory media.
It’s on the Netflix channel
Subscription services continue to invest heavily in original content to avoid becoming commoditized services. Debundling by ultra-premium channels (HBO & equivalents) is a reality within 2 years.
Netflix and Amazon are building premium subscription-based models that share strong similarities to the existing cable television offering. With the growth of on-demand usage via ‘traditional’ cable boxes (ignore Roku, Apple TV, etc.) they are effectively competing for subscription dollars as one of many on-demand programming options. Of course, it is one of your only real options if you are a cord-cutter like myself but we’re a tiny slice of the pie. For now.
Netflix believe very strongly that consumer demand is for increased granularity of choice, better value, and accessibility across devices. They’re banking that users will increasingly shift dollars away from bloated one-size-fits-all cable packages to more selectively gain access to the content they really value. The risk is that deep back-catalogues of mainstream content become a commodity available through Netflix, Amazon, and any number of media behemoth JVs that emerge over the coming years.
It’s not TV, it’s HBO.
Why does HBO stands alone from the buffet aisle on your cable bill? And why does that matter to Netflix?
Home Box Office made its name in the 70s by broadcasting exclusive high-profile content such as sporting events (notably boxing) and original serialized content beginning in the 80s. They eventually built their success on Emmy-award winning programming that became part of the cultural zeitgeist (starting with The Larry Sanders Show and eventually there was The Sopranos). This high-quality ad-free programming supported the extra cost of HBO as a standalone subscription. Of course, they aren’t standing still in the face of changing consumer habits and have invested in the HBO Go service for off-TV viewing. Notably, this service does require a cable subscription.
Netflix chief content officer Ted Sarandos famously said that “the goal is to become HBO faster than HBO can become us.” They expect those networks that have built sufficiently strong brand recognition and exclusive IP to experiment with truly debundled service soon. As a consumer, I just want to send HBO my money so I can get all their shows without a cable package. I think Netflix are correct in believing I’m going to get my wish.
House of Cards
So, was House of Cards a success for Netflix? I haven’t seen any numbers linking the show to subs increases or increased retention. Yet. But the chatter around the show has certainly been huge. They capitalized on their first-mover advantage (admittedly they had already released the less buzzy ‘Lilyhammer’) for media attention and supported this with a healthy dose of advertising. Unless you’ve been under a rock you now know that Netflix produces content and doesn’t just ship DVDs. After all, unless you’re a cord cutter you could be forgiven for only associating them with those little red envelopes. That’s a major victory.
Amazon, of course, is competing with Netflix head-on and similarly investing in original content. Interestingly, Amazon is going the route of crowdsourcing elements of its pipeline with user-reviews of storyboards affecting which pilots get the green light. They call this Amazon Studio. Once pilots are created and aired user feedback will determine which get complete series. Fast Company recently interviewed Roy Price who runs Amazon Studio if you want to learn more.
The point is that both companies view proprietary creative IP as a necessary competitive advantage moving forward.
New web video formats scale economically as fragmented audiences coalesce around new vertical leaders. Innovation in brand / advertiser / platform / producer relationships deliver attractive returns.
“MTV was born at the start of a revolution, the cable revolution [ … ] Quarter after quarter more homes got cable TV, and we were kind of carried on that wave. And now it’s happening again with digital-enabled television. In five years 50% of homes will have Web-enabled TVs, and you can bet in the Vice demographic it’ll be even higher than that.”
-MTV pioneer and Vice investor Tom Freston for Forbes
Google’s channel investment is going to accelerate the adoption of quality vertical segment leaders on the YouTube platform. These audiences may be too small to support a cable channel’s cost structure but they are potentially very profitable. This is sometimes called ‘torso content’ because of its place between the head (costly shows for a large audience) and tail (endless supply of UGC) on a consumption curve. Read LA-based VC Mark Suster’s overview of this and don’t forget to read The Long Tail. Don’t worry, that’s the 2004 Wired article.
YouTube has built a huge audience by owning the long tail of video and establishing themselves with users as a go-to destination for online video. In simple terms, the value of video content is highly correlated with the length of the content and the audience size for that content. Ashkan Karbasfrooshan, founder of WatchMojo, wrote a nice overview of online video content economics for TechCrunch back in 2010 that I won’t regurgitate. As a platform, YouTube can profit from the long tail but this so-called torso content will drive greater engagement and CPMs. If you take a look at Ashkan’s chart, YouTube are trying to move up that pyramid.
If you’ve read The Innovator’s Dilemma a light bulb should be going off in your head: new entrant offers inferior product at lower cost – those Hollywood jerks are totally screwed! It turns out cable television has been adapting and it’s called reality TV. It’s cheap and good enough for most of us even though we’d like to pretend otherwise. Snookie is what you get for pretending to watch The West Wing.
On the other hand, trying the reverse approach is obviously not workable. Parachuting online video formats and audiences into a cable television cost structure does not work. Current TV was bound to fail as a cable channel for that reason.
Who clicks on banners anyway?
Vice is the prototypical new-media content company capitalizing on fragmentation. They own an audience of international hipsters that would have been financially inconsequential a decade ago. Vice also spotted a gap in the availability of quality video content online and were smart to invest in this very early on.
Vice has its hands in many pots, from its physical magazine roots to a new series beginning on HBO. However, the jewel(s) in the Vice crown are the video-focused verticals it creates for sponsorship by companies like Intel, Dell, and more recently Grolsh. If the recent Forbes profile is to be believed these account for “the majority” of Vice’s $100m + revenue in 2011 (expected to have doubled in 2012) at a healthy 20% margin.
Who are the other content producers YouTube is investing in? Check out the original slate. It’s a mix of experienced online hitmakers, leaders in emerging verticals like Machinima, and newly established production companies like Maker Studios, Bedrocket, and Electus. Oh, there are even content-creating brands like Red Bull.
What I’m getting at is we’re about to see a big push into what could be referred to as branded entertainment. Case in point, WPP are now an investor in Vice and they are not a media company. A quick look at Machinima’s advertiser documentation reveals they are likewise eager to offer higher-margin brand collaborations. Bedrocket is backed by the same guys who brought us ‘native advertising’ pioneer BuzzFeed. Electus is a production company with branded entertainment at its core… these are people who think beyond the banner.
Expect producers to grow revenue outside existing banner ad formats and CPM economics. This innovation will be driven by demand for above-the-line brand spend to follow audiences online. A great 2009 IAB study identified the following roadblocks to increased online brand spend: 1: “Ad formats and creative are not innovating with the medium” and 2: “We are awash in undifferentiated, low-cost inventory”
Solving these issues is a lucrative opportunity. 25% of ad budgets are still stuck in print where consumers only spend 7% of their time…
“Here we are now, entertain us”
Existing media silos break down as audience leaders adapt to changing consumer behavior.
TV still rules. There is no doubt about it. But time-shifting and streaming services are going to increasingly erode our very understanding of the term.
My NYC flat had an AppleTV (iTunes, Netflix), cables for connecting computers (Hulu plus, YouTube, Amazon on demand…) and, most exotically, a broadcast antenna. Switching between these different sources isn’t really harder than navigating your average DVR remote and as far I’m concerned they are all ‘TV’. While this made us one of only about 5 million US households to truly ‘cut the cord’ – that’s less than 5% back at the turn of 2012 – it doesn’t make us too dissimilar to the 33% of consumers who used a streaming service. I just don’t believe it matters to the consumer whether they are watching time-shifted cable, Netflix, or a live show.
This does matter for distributors (ie, ‘channels’) and gets back to the very point of Netflix and Amazon investing in original content in anticipation of eventual debundling. Comedy Central needs me to know and care that ‘Workaholics’ is one of their shows. I don’t. I engage with @UncleBlazer @ADAMDEVINE @ders808 directly. If only they would start one of those YouTube channels…
Tablets, laptops, and social feeds are media agnostic and used in varying ways depending on circumstances. Sound isn’t always available. Sometimes we’re multitasking. Sometimes we only have a minute while others we’ll binge on Game of Thrones for an entire weekend. Like any advertiser, media properties are going to need to reach consumers on their terms at their convenience. The most successful media brands of tomorrow will create content in every form suited to informing and entertaining their audience.
Let’s return to Vice as an example of a modern content company. Their video programming is of variable length (though longer stories are typically broken down into sections) and exist alongside long-form text, comics, music, and events. They are defined by their audience rather than the type of content they produce.
Should the New York Times produce feature-length documentaries? What about interactive features? Maybe that’s a use of their editorial staff their audience would value. EDIT: Conde Nast just announced they are building out video content channels for their flagship publications. Their print content isn’t worth nearly as much in digital as in magazine form so they’re chasing higher RPMs with video content. It’s a smart move. Quality video content isn’t always available for a vertical so now is the time for land grabs.
Licensing will be a growing opportunity for specialized producers as established print-media companies and brands seek out video content that resonates with their audience.
If entertainment habits increasingly span media from print to video to games… then why would a ‘show’ be limited to one format?
We are all trekkies
Multimedia properties that engage audiences across touchpoints in context-appropriate ways become increasingly common. Participatory media becomes more common.
Is your teenager growing increasingly aloof? Prone to moodswings? Not getting laid?
They could be binge viewing.
Turns out, plenty of people are completely willing to immerse themselves in a specific franchise for days at a time. This amusing ‘binge viewing’ trend has been democratized by streaming services but it has always existed.
Most of us bothered watching shows we only sort-of-liked because we desperately wanted to be entertained (who remembers channel surfing? “God, there is never anything on.”) Broadcast television shows were watched by huge portions of the population and were meant to be broadly palatable. Cable was a huge deal and drove increased TV consumption because differentiated channels could be consumed exclusively by their respective audiences.
In a fragmented market with abundant supply the audience of any given property will increasingly skew towards the trekkie.
It turns out, many people exhibit trekkie behavior over limited timespans. That’s what leads to binging. Trekkies exhibit another interesting trait. They are obsessed with everything Star Trek – from the shows to the toys. If you are creating IP that an audience loves why limit yourself to a specific video format?
Celebrity gossip has always been a primary spinoff business of entertainment properties but it isn’t typically owned by the producers. One notable exception comes to mind. The Kardashians have proven that celebrity itself can be turned into a valuable multichannel media property very quickly in the age of social media and reality TV. A common refrain is that they shouldn’t even be famous. Well, they wouldn’t have been 20 years ago but Kim is riding media disruption to become one of our first torso stars.
Obviously, completely fictional characters also have a life beyond the show. If Charmin Toilet Paper manages to say something on twitter shouldn’t your writers? Just as Kim is one unfolding narrative across media, TV shows won’t be limited to video anymore. If you’re creating a successful show then your audience are going to be rabid social outcasts hungry for every bit of information, discussion, and participation they can get. At least for an hour.
And that’s all it took some participants to produce their scene for the fan-sourced Star Wars Uncut.
Now, why wouldn’t you be able to profit from that increased engagement across channels?
Which brings us to audience participation and where user-generated-content could meet scripted experiences. Mark Suster (again… does anyone else write about this?) recently wrote a great post with his vision of where audience participation could take television.
He proposes two broad concepts that I think are spot on: series that evolve based on audience participation and loose-form MMOV where people choose their own outcome. I certainly agree that Minecraft, in the video game realm, showed that certain audiences would accept low-fidelity for greater control which is fascinating.
Circling back to my earlier arguments I strongly believe that IP doesn’t need to be tied to any specific medium. I googled “maps of game of thrones” after watching the entire first season in a weekend. I was a total trekkie that day. That’s basic derivative content that can be selectively engaged with by an audience and could be fantastic fodder for crowd contributions.
An alternative is owning the content creation but varying distribution in innovative ways to catalyze new event-driven experiences. A few years ago the agency Droga5 created an experience that allowed the public to discover snippets of Jay-Z’s upcoming book Decoded across the locations in which its narrative unfolds. The discoveries came together through the Bing search engine.
What if the narrative elements and themes of a narrative unfolded across small towns? Each episode could be a geographically bound physical event as much as a point in time that needs to be lived to gain a truly complete understanding. It’s like the experience of seeing the play Sleep No More where the action is distributed across rooms and only the collective experience can approach the complete narrative. 3rd party accounts – either retold or captured – would be required for a complete understanding. These could be valuable currency for social status, influence, and real web traffic.