Today is about the latest in this series of disruptive trends, online-only content. While such video used to be dismissed as low-premium “YouTube-type content”, consider a few recent developments by premium brands:
- WWE, the leading American professional wrestling promoter, offers its own streaming video network, with access to live events that could previously be purchased only as add-ons to cable TV.
- Apple TV added a Beatles channel to celebrate the 50th anniversary of the band’s American debut.
- GoPro, an action sports camera maker, has launched an Xbox channel.
- In the US, the PBS mobile application for Apple TV is getting rave reviews for mixing a deep archive of content with new episodes of shows like Downton Abbey, Sherlock and News Hour.
All sorts of other companies, from sports leagues to film studios, are in a position to form their own channels and sell content more directly, or use third parties such as Eversport.tv (for long-tail sports video content)—if their licensing agreements allow it.
Online video is no longer the domain of “Dogs on skateboards” videos. And the answer to the question “What exactly is premium content, anyway?” is changing. First, celebrities and brands are taking a more active role in associating themselves with online content. Content marketing is reaching new heights, such as AOL BeOn, or Maker Studios signing five toy company YouTube channels with 300m views. Second, 2014 saw premium content going direct to online at scale. To name just a few examples, other than the huge Kevin Spacey/Netflix story: Yahoo bought Community Season 6, Amazon renewed Alpha House, Verizon partnered with Awesomeness, Netflix started production in Europe, Vimeo acquired films, TV shows.
But every premium content creation player, whether traditional or online, needs to balance the equation of subscription cash to fund content creation. Traditional providers can negotiate content deals across multiple distribution outlets, and still hold scale advantages. But online operators have their own unique advantage that helps reduce costs: data mining.
TECHNOLOGY MAKES PILOTS SUPERFLUOUS
Netflix knew from viewing data that House of Cards would be successful; no pilot was required for a two-season commitment. Amazon is crowdsourcing real viewer preferences from real census data in real time for mini pilots. Crowdfunding is emerging as a way to pay for content creation on Kickstarter and Indiegogo (such as Rooster Teeth’s $2.4m for their first feature length movie Lazer Teeth). Scale content format engines are coming into their own, with companies like Showbox’s cloud-based studio. On a more mass-market level, there’s Facebook’s “thank you” video engine, which helps content creators reach the 90% passive audience to monetise its traffic and advertising inventory.
If House of Cards, with its $3.9m per hour of TV, was a huge improvement on traditional Hollywood content creation economics, then the YouTube MCNs with their $60k per hour pricing are revolutionary. These premium vertical online content aggregators/creators are themselves now increasingly exploring pay models, further diverting dollars away from the subscription revenue models of TV. These pay models might be SVOD services delivering a niche but deep and targeted vertical experience into a fragmented audience base, such as We Are Colony, Mubi or Crunchyroll. Or they might be online video-driven subscription e-commerce models, such as YouTube starlet Michelle Phan and her $84m p.a. IPSY business.
LOCAL ADVERTISING SALES HOUSE EXPERTISE - THE SAVIOR FOR TRADITIONAL TV COMPANIES?
Just as the world of online content creation is becoming dependent on technology, the skills required for online video advertising sales are also more to do with technology than with good old-fashioned media planning. At first glance, selling and bundling TV sales with digital sales would appear to be a key competitive advantage for traditional TV companies in launching their own digital content services. That’s especially true given the relative sizes of TV advertising budgets vs. online. As a case in point, many MCNs actually start by thinking they need to partner with TV companies to scale their advertising sales.
Unfortunately questions remain how effective this strategy is; in traditional TV, media buying and selling is designed for a predominantly premium-content-only world, and done in a non-targeted way. The workflow, measurement and incentives are all completely different from how a digital media planner works. Although a traditional TV advertising sale is superbly well positioned to deliver brand safety and market reach, the industry still needs to respond to increasing advertiser demand and advertising dollar allocation for digital, and needs to skill-up digitally. In the TV world, the marginal GRP, the last bit of the audience, is the most expensive to reach, and with increasing fragmentation it’s only getting harder.
Instead of just charging more and more for this last bit of reach, the end game must be the combination of traditional linear and digital TV. That would bring together the targeting, efficiencies and low-cost content creation of the digital world with the brand relationships, quality content and institutionalised big dollar advertising spend of the linear world.
ALTERING THE MIX
Luma Partners recently asked an important question: What would happen if advertisers cut 7.5% from the typical linear advertising TV spend – i.e. the part that’s most inefficient for advertisers – and redirected it instead to digital targeting? The answer, according to eMarketers data, is that it would actually double the size of spend on digital to $12bn, and deliver infinitely better targeting to reach this last bit of the audience. This insight still eludes many TV companies.
IPOs of online video ad-network companies like YuMe, Tubemogul and Tremor, and the growth of AOL’s Adap.tv, signalled the first wave of the trend of providing a dedicated sales house for digital. They targeted the longer tail of online content that traditional TV sales houses ignored. But increasing reach, particularly from YouTube, and the increasing quality of online content to advertise against, with Hulu Plus already generating most of its revenue from advertising, meant long-tail CPMs began to suffer. And so did the performance of the ad networks that built their business models on long-tail CPMs – witness YuMe and Tremor’s share price trend since float.
The only long-term optimal way to fill this huge supply of long-tail inventory is with an automated/programmatic technology approach. This is a pure technology competency, and becomes doubly so when combined with personalisation and targeting techniques.
In 2015, TV executives are facing two major advertising-based strategic discussions. The first is programmatic: when, where, impact on CPMs, protecting premium content, and so on. The second is what to do with the new kid on the block, the one that might be the next aggregator of video audiences alongside YouTube: Facebook. The social network’s current experiments on roughly 1.2bn users means it is the one obvious wildcard that can upset YouTube’s
dominance online. It can also add a new socially driven ingredient into the mix for the creation, sharing, discovery, distribution and monetisation of video.
Today the consumer can get just about whatever content package he or she wants online, unlike traditional delivery mechanisms. The cost base and cost insights of content are being transformed downwards compared with traditional TV, while the marketing and viewer reach techniques can be data driven, measured and perfected efficiently, unlike with traditional TV. What makes this situation even worse for traditional TV companies going forward, is that the online world continues to evolve. Rapidly. It is no longer just about creating alternatives to what we used to have on traditional TV. Internet-TV has now enabled completely new business concepts within video entertainment. Take Twitch, the "YouTube of online gaming e-sports”, for example, valued at almost $1 bn.
This phenomenal (r)evolution demands a closer, more granular look at YouTube and Facebook in the next blog post.