Media Companies v. 2015: Smartphone-Powered, Digital First

[My post here originally appeared as a guest article in Digiday a few days back; I have updated it to reflect the new $24 million investment in gamer-focused MCN Machinima led by Warner Bros.]

That smartphone in your pocket.  Small form factor.  Massive impact.  That tiny screen is fundamentally transforming (disrupting?) each of our lives, including how we engage with content (movies and television).  That means fundamental transformation of the media and entertainment business right here, right now – with tens of billions of dollars at stake – yet very few media execs “get” this.  This changes in 2015.

A whole new class of mobile-driven digital-first media companies sprouted and blossomed in 2014 – so-called multi-channel networks (MCNs).  MCNs most typically are venture-backed start-ups that aggregate individual YouTube personalities and channels -- frequently for specific niche passionate audiences (think fashion and leading MCN StyleHaul) -- in order to achieve scale, fund video production, and maximize ad dollars.  Sounds benign enough, right, especially when their impact is marginalized by the almost-dismissive and somewhat-faddish acronym “MCN.” 

But, make no mistake, MCNs are media companies with transformative impact.  They simply are a new kind of media company.  Digital-first media companies.  These are media companies by millennials, for millennials.  And, while they do not supplant “traditional” media companies, they most definitely are a necessary extension of them in this new multi-platform media world.  After all, mobile is where the youthful eyeballs that “matter” (at least to marketers) now consume the majority of their video content.

That’s why Disney – the largest traditional media company of them all – slapped down up to nearly $1 billion last year to buy one of the largest MCNs -- Maker Studios.  As vast as its resources are (and the Mouse House certainly has plenty of cheese), Disney had the commendable self-awareness to recognize that it lacked the DNA to play effectively in the smartphone-driven, short-form video, millennial world – a world that demands a very different way of thinking about content development and engagement.  Rather than build it themselves, they bought that expertise and critical mass of short-form content (and the personalities behind them).  They paid up to double down on the MCN world, which was excellent news not only for Maker’s investors, but also for other leading MCNs and the investors behind them. 

Other major studios – and perhaps even technology companies like Apple, Samsung, and Amazon, whose divergent business models increasingly are content-driven – will follow suit in 2015.  This is a classic case where demand for MCNs with scale outstrips supply.  After all, content is increasingly king, and that means big numbers.  Last year, in addition to the near-$1 billion Disney/Maker deal, Otter Media (the joint venture between AT&T and The Chernin Group) paid a rumored $200-$300 million to buy competing MCN Fullscreen, and European-based media company RTL Group recently sewed up fashion-focused MCN StyleHaul for a price that values the company up to $200 million with earn-outs.

These are numbers that make even Northern California VCs – ever-cynical about all things content-driven (especially when they are driven in LA where most leading MCNS are based) – take notice.  They have smartly started to pour tens of millions of dollars into video-driven new media companies.  Case in point, BuzzFeed.  Blue-chipper Andreessen Horowitz invested $50 million to accelerate smartphone-targeted digital-first video production.  And, the accelerating pace of foreign-driven M&A (like RTL with StyleHaul) and investment (like BSKYB and Liberty Global’s recently announced $28 million investment with others in sports-focused MCN Whistle Sports) underscores that this sea change in the media business is not just a U.S. phenomenon.  Digital-first content is borderless and globally shareable.  We live in a new world order of digital media.

Brands too are finally taking notice and fundamentally changing their behavior.  They understand that smartphones – and the millennials who hold them – demand a different and deeper form of engagement.  Pre-roll and pop-up ads simply don’t work anymore.  Millennials demand “authenticity,” a word that is a fundamental part of the new digital-first lexicon.  You hear that word – and the resulting marketing solution of “branded” or “integrated” content -- everywhere.  While that notion certainly is not completely new to marketers as we enter 2015, what is new is that for the first time, they will shift significant marketing dollars away from traditional media to more engaging and measurable digital platforms. 

Yes, there will be blood as digital begins to cannibalize traditional ad spends.  That’s why we have seen an accelerating pace of ad-tech company exits like increasingly video-focused Facebook’s reported $400-$500 million buy of LiveRail and Yahoo!’s recent $640 million acquisition of BrightRoll. 

But it doesn’t end there.  Several brands will go even further and invest big to become millennial-driven, digital-first MCN-like media companies themselves.  Red Bull is the poster child here, aggressively developing and aggregating its own video content for digital consumption whenever, wherever.  GoPro, Marriott, and Pepsi also have proudly announced such ambitions.  Make no mistake.  We are not just talking advertising and marketing here.  We are talking whole new media businesses for brands, bringing them head-on against both studios and other MCNs.  Red Bull, in fact, operates its “Media House” studio as a separate P&L and is measured by its stand-alone success.

Those who listened closely in 2014 heard (and internalized) these smartphone-driven digital-first media transformational winds of change.  So, listen closely now.  Do you hear it?  Yes, that is the “whoosh” of massive mounds of money changing hands all around the video ecosystem.  Just last week, Warner Bros. led an additional $24 million round in gamer-focused Machinima -- and a few weeks before that, BSKYB and Liberty Global formally announced their $28 million Series B round with others in Whistle Sports – a double-barreled MCN big bang to start the year.


In the immortal words of Karen Carpenter (how ‘bout that for a deep reference?), “We’ve only just begun …”.

My Interview - All About YouTube Challengers (Facebook, Snapchat, Vessel ...) (and Snapchat's $19 Billion "Ask")

StreamDaily recently interviewed me about the state of the overall digital video/streaming landscape -- and YouTube challengers in particular (especially Facebook, Snapchat and Vessel) -- including justification for Snapchat's $19 Billion fundraising "ask."  Here it is.

Streaming TV & Movies OUTSIDE the U.S. -- Your Travel Guide -- Guest Post



[The following is a guest post by Rory Donald, who is writing as part of the Manatt Digital Media team.  Rory is smart and passionate about the ever-shifting sands of the media and entertainment business.  He writes based on his personal real-world experiences.]

Until fairly recently, traveling abroad and keeping up with my favorite TV shows while away were mutually exclusive.  In my trip last month to India, I discovered that it’s getting easier and easier to stream U.S. content in foreign countries.  However, availability is inconsistent.  In this post, I explore two things about the state of international expansion of streaming video internationally.  First, I discuss key impediments to streaming video outside the U.S.  Second, I identify where the major U.S. streaming video players (namely Netflix, Amazon Prime, HBO Go, and Hulu) are available internationally (and what their plans are for expansion).  To be clear, I discuss only legitimate access to U.S. content in this post (many people abroad find ways to get U.S. content illegally via a hack that looks like they are streaming content from a U.S. IP address.

IMPEDIMENTS TO INTERNATIONAL EXPANSION

International expansion is a major revenue opportunity for providers of streaming video on demand.  The demand for video-on-demand abroad is significant.  You can see it in the year over year growth in Netflix subscribers internationally.  Netflix’s most recent annual report  indicates that international membership grew 67% in 2014, and 79% in 2013.  

So what are the major hurdles to tapping new subscribers abroad?  In my hotel room in New Delhi, for example, I was wondering, “why can’t they just flip a switch make my show available in this country?”

A recent Variety article identifies the following major hurdles:

1.  Broadband limitations in individual markets.  While 78% of households in developed countries have Internet access, only 31% of households in developing countries are projected to be connected by the end of 2014 (according to the International Telecommunication Union).

2.  Different devices in different countries.  In many countries, mobile phones are the primary access device, and wireless services often include data consumption limits that make streaming video not feasible.

3.  Varying local regulations.  In China, for example, Netflix will need to get a specific state license to offer its service.  In addition, many countries have specific regulations about privacy and how companies bill customers. 

4.  Payment systems in each country are different.  For example, in some countries, customers pay for streaming content with prepaid cards.

5.  Variations in copyright laws.  For example, in France -- where Netflix launched last fall -- a law requires that movies cannot be made available for streaming video on demand until 36 months after theatrical release.

6.  Different cultural content preferences in different countries.  This speaks for itself ... in every language.

CURRENT STATE OF AFFAIRS

Below is a summary of my research regarding the international availability of the major U.S. OTT streaming services.  Note that I do not address downloadable video via iTunes or Amazon, which is much more widely available, but has significant downside problems of their own, including (i) the time delay before the content becomes downloadable (time delays are deadly when your friends are gushing in live tweet about the Red Wedding in Game of Thrones), and (ii) sheer unavailability of certain premium content (e.g., HBO shows, which are never made available for download).

1.  NETFLIX.  According to Variety, Netflix is already the world’s biggest OTT subscription service, operating in 50 countries in Canada, Mexico, Latin America and Europe.  In January, Netflix announced ambitious plans to grow to 200 countries within the next two years.  In March 2015, Netflix expects to launch in Australia and New Zealand.  Netflix is taking a longer and more cautious path to China.   

2.  HBO GO.  Since HBO is a subsidiary of Time Warner, data on HBO Go’s availability outside the U.S. is difficult to find.  For example, Time Warner’s most recent annual report provides data on the availability of HBO, but no separate data for HBO Go.  One site, however -- hbowatch.com -- attempts to keep track of the availability of HBO Go internationally.   From this site, it appears that HBO Go, or HBO Go’s content provided via a local operator pursuant to a licensing agreement, is available in the U.K., Canada, and some countries in Latin America, Scandinavia, and Eastern Europe.

3.  AMAZON PRIME INSTANT VIDEO.  According to a January article syndicated from the Associated Press, Amazon Prime Instant Video is available to Prime members in the U.K., Germany, and Austria.  Non-Prime members can purchase movies and TV shows on an a-la-carte basis in those countries and in Japan.

4.  HULU.  According Hulu's website, Hulu and Hulu Plus are not available outside of the U.S., other than in Japan.  The site further states: "While one of our long-term goals is to make Hulu's growing content lineup available worldwide, we don't have a timetable or any news regarding expansion beyond Hulu Japan at this time.”

Early data -- particularly from Netflix -- demonstrates the voracious appetite for U.S. television content outside the U.S.  The global opportunity for U.S. travelers like me, U.S. expats, and U.S. content enthusiasts alike is right here ... right now.

Time to remove those impediments.


Tear down those walls!  (Now to deal with my international data roaming bill.)

Manatt Digital Media's February Newsletter Is Out -- The Month's Most Important Deals


VR 101 -- Your "Cheat Sheet" of The New Immersive Landscape -- Guest Post

[The following is a Guest Post by Omar Noureldin of Manatt Digital Media.  I work closely with Omar -- he is a rising star in Manatt Digital Media and knows his stuff.  Equally important, he shares the passion of innovation ... and possibilities.]

Beyond Gaming—Understanding the VR Landscape

Virtual reality is not new. The technology has been around for 20+ years, but has lacked widespread distribution and consumption due to limiting factors in technology and content. That is changing now.

Currently the biggest player is Oculus VR—the headset and software developer—made famous by Facebook’s $2 billion acquisition of the Southern California startup. Other hardware companies including, Samsung and Sony, are quickly moving into this space, adding some competition to the mix. At the same time, content developers are rapidly prototyping the impact the technology will have on all sorts of content.

WHAT IS VIRTUAL REALITY?

Virtual reality (or “VR,” as it is often referred to) is a computer-generated interactive environment that simulates 360-degree views in multiple dimensions by wearing special headsets. For many years VR environments were hard to sell because they made users motion sick due to slow computer processing speeds and tunnel vision. However, the Oculus Rift headset is being dubbed the first “affordable” device that overcomes these problems (I am very sensitive to motion sickness and have used the Rift without any problem).

Breakthroughs in rapid computer processing and lens manufacturing now allow devices to simulate multidimensional experiences while keeping the body’s sense of equilibrium. For example, Oculus uses new processes to better conform to the body’s sense of movement, and new magnifying lenses expand the scope of vision.

WHO ARE THE OTHER PLAYERS?

The short answer is there are a lot and many more coming. In terms of hardware there is the Oculus Rift, Sony’s Project Morpheus and Samsung’s Gear VR. Google has been making some strategic investments in addition to its DIY Cardboard headgear set.

On the content side, it’s a free-for-all. There are small VR production companies popping up everywhere, and a high concentration of them in L.A. Digital LA recently held a #VRLA Meet-up to demo some of these products. It was also the first-ever VR live-streamed event.

On the Hollywood side of things, the major studios—not wanting to be left behind—have caught on and are investing in some of these VR production companies. More to that point, at Sundance more than a dozen short VR movies were presented and the Sundance Lounge staged a demo room for some of these devices and developers.

WHERE ARE THINGS GOING?

This is a hard question to answer, but one thing is for sure—it’s beyond gaming. Movies are the first obvious choice, but there is (virtually) no limit. Live music events, medical procedures, investment analysis, defense training and aerospace simulations are a few of the areas that are being primed for VR technology.

Another unknown is the use of mobile. All the current headset devices are large, clunky and expensive. It is and will continue to be hard to sell a $300 headset to consume VR content that is still in its infancy when there is so much standard content available at no or little cost. Thus the advent of mobile VR through devices such as Google’s Cardboard and mobile headset is very interesting. This has the potential to explode because it’s cheap, familiar and readily available.

Many media and technology companies are still adjusting to the brave new world that is digital. The learning curve will be even steeper with VR, so it’s best to understand what is going on early.


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