For the past three years I have been pounding the table as loud as I can about the future opportunities in digital video. The concise guide is here.
- People in the US watch 5.3 hours of TV per day
- People read for less than 30 minutes
- You will not fundamentally change consumers media consumption habits
- So you tell me what the future of the Internet will be?
Ah, but the CPMs on YouTube are so low! And investing in content companies won’t return money! Right? Wrong.
- Yes, CPMs on YouTube are lower today. But audience size and consumption is massive and growing plus; Study Innovator’s Dilemma (my cheat sheet here)
- Costs of product on YouTube content is literally 99% cheaper than traditional TV and;
- Distribution of content can now go viral and can predictably distributed via social networks. Watch out for an investment announcement from me here soon.
- For the first time in history content producers can build a direct relationship with views through subscribers, email addresses and mobile phone number. For once content is becoming like selling clothes on Gilt Groupe
- It’s the reason I invested in Maker Studios and they’re on a tear. Now the largest network on YouTube according to ComScore.
Come on, Mark. You’re forgetting – you’re locked into the YouTube network and you will be crushed. Crushed, I say!
- You need to produce content for YouTube these days because that’s the lion share of online video consumption. It’s like selling candy bars and not wanting to be at Walmart
- You need to segment your audience and find a way to get your highest quality customers over to O&O (owned & operated) inventory where you can get higher CPMs, sell merchandise and capture more customer information
- Eventually other networks will emerge. They have to. Hello, Yahoo!?! (I talked to an ex Yahoo! senior exec about this more than a year ago. Interview here). Microsoft? Amazon? Apple? AOL? You know you want to. Must do. It’s the future, guys.
- Over time if you produce compelling content you can package it up and repurpose it to distribute through other channels. If you don’t know that you don’t know anything about the TV & film industry
But here’s what Silicon Valley doesn’t get about Hollywood
- No matter how much it bothers you, people do like to entertain themselves with a “lean back” experience. As humans we like story telling. And we like to be entertained.
- This requires more than technology. It requires writers, actors, film crews, lighting, costume & set designs, make-up artists, post production, sound, editors and so on. You can’t replace this stuff with Java
- It is no longer a “hits driven business” and I don’t know why VCs haven’t gotten that memo. Hits driven businesses come when production costs or distribution costs are so high that you need a home run to cover the huge costs of development. At Maker Studios we can produce content at $200-$400 / minute. If we get a video wrong our loss is $2,000 at the most. But many of our videos get predictable traffic like this Gates vs. Jobs rap battle at 33 million views (and climbing) or my favorite Mr. T vs. Mr. Rogers at 36 million.
- Ironically in Silicon Valley consumer Internet business have become hits driven businesses. Think about. You now need a star like Jack Dorsey or Dave Morin. You need a huge budget – millions – to shoot for the stars. And you still have no idea if you will accidentally become Pinterest or if your $41 million will produce a Waterworld.
And what Hollywood does’t get about Silicon Valley?
- A very senior executive in this town that everybody knows still privately told me that he saw the Internet as “dumb pipes” and “just the latest last mile like cable.” He said, “in the end great stories and actors are what people want.” Guess what, Hollywood. That’s bullshit. The Internet is “smart pipes.” For the first time in history you can know who is watching your videos. You can A/B test your videos, your copy, your thumbnail images. You can earn the right to ask for customer information and remarket to them. And if you don’t capture the customer relationship – trust me tech companies will. You don’t want another Walmart to dominate your distribution.
- When I asked many traditional producers about YouTube money they got they told me, “I got the talent, the audience will come.” Me, “ok, but who is going to provide your technology? What analytics are you going to use? How are you going to drive social adoption? How will you grab email addresses? How will you get people to download your apps?” Them, “Oh, we’ve hired A,B,C company to do it for us.” Me, “I see. You only wanted the golden egg so you gave them the goose. Well played.”
- Your antiquated systems are necessary for your old-line businesses. We get why windowing mattered in a physical world. It will matter much less in the future. We get why agents run around town brokering deals and making it more complicated to do business. Business managers, lawyers and other red tape. This system can’t hold up in a world of deflationary economicswhere the cost structure of the industry won’t support it.
- Hollywood cringes at the quality of YouTube content. But that’s because they can’t understand The Innovator’s Dilemma that in a world of abundance very few shows can support the cost structure of traditional video. And anyways with every major change in the medium the type of content produced has changed. The Internet video era will not equal the old living room experience. We have second screens, social sharing, social viewing, participation and so much more.
- I think the people who get it the most are creative talent. They like the fact that the time from creation to seeing finished work in front of customers is dramatically reduced. Creative people hate working on projects that take years until an audience gets a look. And I’m guessing creative talent will have more control. If you’re a writer this must be nirvana.
So Who Will Win the Future?
Me? I’m looking for a new breed of entrepreneur. And I’m seeing it emerge all around me in Los Angeles. We now have an entire industry spun up here of next generation content producers. In just 2 years we’ve gone from garage startups to more than 600 people across just 5 companies: Maker Studios, Machinima, FullScreen, BigFrame and Zefr. And video views now produced and managed by these 5 companies totals more than 4 BILLION per month. With a B.
And that’s not including scores of other networks like StyleHaul, The Young Turks and others.
And I’m also funding a new breed of entrepreneurs bringing tool sets to this new Hollywood ecosystem that has developed.
I’m looking for people who understand how to bridge the North / South divide.
If you want to know more you can watch this video interview of Sam Teller interviewing me at the Paley Center. It’s about 40 minutes long. We cover a lot of topics. I think you’ll enjoy it if you’re interested in this topic.