Future of TV

In my last post I pointed out that many of the media commentators who have criticized the YouTube video network companies as not having strong businesses were mistaken.

The main thrust of the post is that with YouTube taking a 45% of revenue and talent taking 70% of the remaining revenue, YouTube Networks didn’t have sustainable businesses unless they invested heavily in technology as a tool to increase margin and provide defensibility.

This post looks at how the best in industry are moving well beyond the 16.5% margin range to more sustainable 50-60% margin businesses.

The best “MCNs” are in fact building strong technology businesses with rapid growth and strong, defensible assets.

[To be clear before I start (since people now starting to misquote me) ... I DO believe in building most of your business on YouTube. I hope that was clear in my previous post and this one. I don't believe you can simply migrate audiences en masse. My point is that if you don't start to build online video assets in multiple locations you have platform dependence, which is never smart. Nor is it smart to have talent dependence.]

So why is online video such an attractive market to build a startup?

As I point out frequently, people want to consume video. As humans we are storytellers and our preferred form of story is visual. We like sight, sound & motion.

When I tell audiences that Americans consume 6 hours of video per day people seldom believe me (thus I publish the data). Europe is roughly the same as the US.

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For much of 2013 I  watched the press write articles about how the YouTube “MCNs” (multi-channel networks) were doomed and tried to square that with the data I was watching at the one I invested in, Maker Studios, who has had one hell of a year.

Maker announced it has raised $62 million this year, acquired an amazing off-YouTube distribution network and grown its business in monetary terms by almost 300% year-over-year off of an already large base.

Along with Greycroft Partners we were the first investors in Maker Studios 3 years ago when the company had no revenue and limited infrastructure. With so much misinformation about YouTube networks in the press over the past 6 months I thought I’d use this opportunity to tell you about what my belief was about that market 3 years ago, how that has evolved and why I believe online video is set to continue to revolutionize the video industry at a more rapid pace than even the past three years.

So can you successfully build a YouTube network?

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Anyone who reads this blog frequently will know that I am a big believer in low-cost video content and specifically the power of YouTube as a content creation & distribution platform.

Our industry just took one big step towards legitimacy with the hiring of renowned media exec Ynon Kreiz to run Maker Studios. The industry finally has one of their own at the helm of the largest YouTube network.

This followed an investment late last year by Time Warner in the company in a round totaling $36 million, led by Rachel Lam, head of their investment group. This has been a very welcome addition.

And this month we announced that Maker Studios, where I am an investor and board member, crossed 3 billion views.

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This article originally appeared on TechCrunch.

By now many of you know the Harlem Shake but what you may not appreciate is the broader trend behind the video and it has mirrored my general views on how TV will work in the future

Harlem Shake is a YouTube phenomenon that in just 2 weeks has gone from nothing to on air on both Jon Stewart & Stephen Colbert and collectively the Harlem Shake has been viewed around 200 million times. Two weeks. 200 million views. Suck it traditional TV.

Summary Version
Global audiences of prosumer video producers will create content that is viewed by global audiences in numbers far in excess of traditional TV. TV will enter the era of “participation” which is a much more important trend than “social video” even if it seems less sexy or less fundable.

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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.

My narrative has stayed pretty simple:

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.

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This article originally ran on TechCrunch.

Chris Anderson wrote a really influential book some years ago called “The Long Tail” that shaped how many people think about emerging Internet markets. If you haven’t read it you should consider adding it to you library.

It was especially influential in my mind in thinking about media.

At the simplest level you can think about markets in terms of the number of times media is consumed and/or purchased by people plotted against the total number of content of that media type that is available.

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