After seeing how disruption in online video is changing the rules of content creation and monetisation, it’s time to examine YouTube’s evolving role, and Facebook’s emerging role, within the context of the continual maturation of the online video world.
YT remains, for MCNs, the most important place online to connect a video “star” with their fan base. YT has almost singlehandedly enabled the rise of short-form video and tapped into audiences’ desire for authentic experiences, with a more direct engagement in both talent and the content experience. Today, it is also the most scalable way to reach the 10-22 age demographic.
YT’s scale means it is now a viable option for TV brand dollars. With $3bn in revenue in 2013, it is up from 1/120 of the US TV advertising industry in 2011 to 1/22. It’s no surprise that the MCN I chaired whilst at MTG (Splay Networks) is actually the largest AVOD service in Sweden, i.e. larger than traditional TV´s own channels online. It is the traditional role of TV companies, as stewards of brands, to make it seamless for brands to reach their target demographic, and along the way help them protect their brands. YT, however, has effectively validated itself as an alternative advertiser-friendly route.
Now YT is evolving as a platform for a new kind entertainment business. There’s an age-old truth in TV that getting the consumer to pay is key to financial sustainability. And that is now driving the clamour for established YT stars to branch off YT onto dedicated AVOD platforms with higher performing CPMs, and avoid paying YT a 45% “tax”. The emergence of next-generation 360-degree talent agencies for online stars is one of the major industry trends. Examples include BigFrame, and Splay in the Nordics is transitioning from being just an MCN to working as a 360-degree online talent agency.
Books, films and merchandising are all e-commerce revenue streams that talent agencies are helping their stars achieve. With 27m subscribers on YouTube, it’s no surprise that video gamer PewDiePie has more non-advertising based revenue potential than his current approximate $4m in video advertising revenue delivered from his MCN (Maker Studios).
High-touch talent agencies are of course not scalable online business propositions, but a core asset for the MCNs doing this well is that they understand how to engage, manage and monetise talent. In marketing-speak, they know how to grow and commercialize “influencer networks”. This opportunity is effectively equivalent to “native advertising” or “content marketing” packaged up within new content formats (Speakr, Famebit, Viralspiral, Gosnap.se). Indeed, these are scalable business models that don’t rely just on high-touch service.
Obviously, influencer networks may have started on YT, but today they exist across a number of other social network platforms, such as Twitter, Tumbler, Pinterest, Instagram and Facebook. With this in mind, next-generation MCNs should not be constrained to thinking video-only in maximising audience engagement and monetisation.
There is a lot of debate around the sustainability of YT’s 45% “tax”. Indeed, branded content marketing deals, like the Stylehaul MCN/Maybelline partnership, are devised to avoid the “tax”, and highly-funded Vessel’s approach seems to be to throw money at stars to see if they jump ship to join Vessel, hoping Vessel’s higher CPMs will pay this back. But with about 40% of online video consumed on YT and the next player at just 2%, it seems clear that the “tax” will stay – and stay high.
That’s nice for Google, but it’s not healthy for any ecosystem. It’s safe to say that a dominating player always has a dampening effect overall. YT does a lot to deliver value, ranging from platform, traffic and audience engagement, through analytics, recommendations and advertising sales, but there are very few MCN businesses that can build a sustainable business model while losing 45% of their top line across the board. The ones that can are doing it thanks to global scale and developing other revenue streams, such as becoming a platform play for other MCNs (e.g. Maker Studios).
Despite this “tax”, new MCNs continue to appear, and veteran MCNs fine tune their positioning to cater for niches – such as country-specific MCNs with local stars, Spanish audience targeting (MiTu), top global talent MCN (Endemol Beyond), viral video focus (JukinVideo). The key for them is not to have a dependency on YT, and to develop a focused and passionate audience.
Vice is clearly the stand-out success, focused purely on the millennial demographic, with its recent $500m funding from cable company A&E and others. It has, from its Canadian underground magazine roots, become one of the most highly valued (and funded) media companies. Vice News on YT could rival CNN, with 160m views in 9 months, and Vice is also launching Films, Music and Sports channels.
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Facebook’s video potential is clear: Facebook has a strategic focus on video. The platform has made it easier for brands to post and share videos using an auto-play feature to leverage Facebook’s reach, enabling brands to “increase engagement and exposure”. Socialbakers released a study in October 2014 showing that YT’s share of the number of brand videos posted to Facebook was diminishing, as was its share of interactions on video posts. It’s important to note, however, that auto-play views are considered engagements on Facebook, a somewhat questionable metric, even though YT has now adopted auto-play as well. Also, YT still generated engagement from other social networks not included in this analysis.
There are other, more telling aspects of Facebook’s video potential – Facebook signing video talent (watch this space), enabling content format engines (their “thank you video”) and most crucially the acquisition of Atlas, one of the most popular ad-servers. This enables ad-tech platforms to operate without dependencies on cookie targeting, but instead use rich, relevant social data in targeting audiences. Innovid's collaboration with Atlas also helps brands target audiences across multiple devices with relevant video advertisements: Facebook is able to track logged-in users as they move around the web. Innovid claims 20-25% of monthly video impressions in the US already.
Together, these players will also enable the customisation of individual advertisements, which can dynamically personalise content for relevant audiences, while providing a holistic view of those audiences. This promises an interesting video battle between YT and Facebook, but at least for now, search and behavioural targeting still seem far more indicative of purchase intent than authenticated demographics and Facebook Likes. Facebook also needs to tread a fine line with continued algorithmic changes – one recent switch lead to a 50% decrease in organic post impressions and a 5% increase in paid impressions. Without engaged fans, the business opportunity is limited, at least on their main site - facebook.com.
This world of TV online, with its format engines, mobile adoption, link-baiting distribution, big-data-based content recommendations and programmatic, social distribution, is just as much a technology business as it is a media/creative business. And traditional TV companies are struggling to keep up. Many don’t even have a Facebook strategy other than a fan page. Traditional TV companies must become much more tech-savvy; responses such as “content is king,” or “we do advertising sales and that’s the key,” won’t cut it anymore. Unfortunately, most of the traditional TV companies can’t gain this digital mojo organically, usually for reasons of skills or cash flows.
Digital M&A and a dedicated and systematic corporate investment programme into digital are both key, and companies such as Disney in the US, or Pro7 and Sky in Europe, have been good role models. MTG has followed suit by setting up the digital focused subsidiary MTGx. In fact, Digital M&A has driven convergence within the TV landscape, which is the subject of the next and final blog post.