Who Will Win Big with Digital Video?

So far, 2015 is shaping up to be the year of digital video. This month alone, we’ve seen a number of important developments:

Images have replaced words: ESPN’s site in 2000 vs. 2015.

Why is it all happening now? The truth is that the shift to digital video has been a long time coming. Since its very inception, the web has slowly but inexorably transformed from a written medium into a visual medium. And now with cloud computing, ubiquitous internet and smart phones, the technological barriers preventing a great video experience have been surmounted.

The LUMAscape shows just how complicated the landscape is.

Yet even as digital video becomes more prevalent, the industry remains complex and fragmented. Over the next several years, as the industry matures, you can expect to see greater consolidation with fewer players doing more things. While there will be winners at every stage of the value chain, there will be three large groups of winners in the shift to digital video: (1) the top 1% of talent (2) a handful of innovative publishers and (3) the new distributors.

Talent
Talent will win big for the same reason that it has since the rise of televised sports and the collapse of the studio system. Simply put, there is a huge market for the biggest stars like Lebron James and Jennifer Lawrence, giving them enormous leverage when negotiating contracts.

Michelle Phan’s makeup videos reach millions of girls interested in beauty products.

Digital video will also open doors to new talent like Michelle Phan, Jerome Jarre and Casey Neistat that don’t come directly from central casting. These savvy and enterprising stars will have more leverage than they do today as new distributors compete with YouTube to put their content in front of consumers.

What’s more, talent, more than ever, has the ability to utilize its star power and fan base to launch and market other businesses or products that it owns. There’s no better example to illustrate this point than the mobile game, Kim Kardashian: Hollywood, which pulled in $74 million last year. Beauty maven Michelle Phan is a more serious case in point. Her company, Ipsy, which is like a Birchbox for cosmetics, raked in $84 million in sales last year. Products and companies like these could only become what they are today because of talents’ ability to run cross-promotions using their own distribution channels.

Publishers
Producing good digital video is completely different than producing high-quality television or feature films. Publishers that are able to throw off industry conventions and pioneer new genres of video designed for mobile consumption will win big. These will not be the large studios or broadcasters that don’t understand the new economics of the business.

Instead, they will be publishers like those listed below that value experimentation and risk-taking:

VICE

VICE News reaches an ideal demographic for advertisers and consumers, giving it both economic and political clout.

Vice has been producing amazing content for years and has set the standard for experimentation in documentary storytelling and hipster news. It uses producers/shooters for its production, which keeps costs low and projects tight.

Buzzfeed

Many of Buzzfeed’s videos play on the theme of identity in an attempt to encourage sharing within a particular group.

BuzzFeed Motion Pictures is another example of a publisher that is pushing boundaries with its short-form videos. It’s also one of the first big publishers to use Facebook’s native video player to distribute some of its content.

Vox

For its first scripted series, Vox partnered with comedy duo SRSLY.

Vox Media has recently entered the space opening Vox Entertainment and launching its scripted comedy series called “Try Hards” on its Racked media property.

Publishers probably face the largest challenges of all the players in the video ecosystem. First and foremost is the challenge of navigating the symbiotic relationship with powerful distributors who increasingly demand exclusive content as they compete to make their platforms more attractive to users. Even just a few months ago, it was possible for a publisher to upload a video to YouTube, share it on Facebook, use targeted ad dollars to amplify it, and watch it go viral and spread across any number of social networks. But that practice will likely come to an end as Facebook builds a native video product that keeps viewers within its own ecosystem. These publishers might find themselves resorting to an old industry tactic to reach viewers and monetize content: windowing, the practice of selling and re-selling content over time through various distribution platforms.

As viewers consume more and more publisher content off a company’s homepage, publishers will find it more difficult to build strong, identifiable brands. This is a problem that studios currently face. Nobody outside of a few industry insiders in Hollywood and New York really cares if a movie is 20th Century Fox or Paramount Pictures. By developing and consistently applying a visual style, voice and tone, the best publishers will be able to develop recognizable brands even if their content is consumed off domain.

Distributors
Further down the value chain, the distributors will win big because they control what all talent and content need: large audiences. They also stand to win because they have vast troves of data to serve targeted ads and identify lucrative talent and content. Finally, they all have strong financial positions either because of cash on their balance sheets or high stock prices, which will fuel strategic acquisitions, organic growth and content partnerships. These companies include the big social networks like Facebook, YouTube, Twitter and Snapchat. They also include the over the top platforms like Netflix, Amazon Instant Video, Apple TV, Google Play, Hulu, Vimeo and Vessel.

What’s Next?
The landscape is changing incredibly fast, as companies jockey for talent, content rights, customers, and ad dollars. Over the next several posts, I’m going to take a closer look at how enterprising talent and new distributors are trying to win big in this rapidly-evolving market.