It Is All About Scaling
The content industry is growing. It is growing pretty fast, and it is growing a lot. In fact, it is suffering from a very strange disease: it is facing a Growth Crisis. The content industry is like a teenager who does not understand his new body and is goofing around trying to break all the rules set by the grown ups.
Netflix has taken over the market, concentrating the demand for — paid — content and creating its own supply to satisfy such a demand. Studios, which did not see this coming, decided to fight fire with fire, and will launch a hundred different streaming platforms in an attempt to find a way of getting a piece of the Business to Consumer (B2C) cake. This situation will make it harder — and more expensive — for consumers to actually access the content they want to watch. Meanwhile, content is flourishing as there are low barriers for creation: anyone with a modern smartphone has a decent video camera and editing facilities in his pocket. Short form and user generated content are thriving on the freemium VOD model — also known as advertising based video on demand. VOD platforms, cable, broadcasters and even social networks are competing for the time that consumers spend in front of their multiple devices. What is the difference between these multiple options? Well… content.
Everybody is fighting the battle for consumer attention with content.
Disney — the world leader in content production — is removing its content from VOD platforms to premiere its own platform. Don’t be surprised if they choose to shoot exclusive Marvel or Star Wars series to attract consumers. DC has announced its own subscription-based VOD platform and is producing three new exclusive series based on its characters. The list goes on and on, with the incumbent players trying to to get — and retain — a portion of the market. Hulu, HBO Go or the sleeping giant Amazon Prime (we will come back to Amazon later) are just a few examples. Social networks are also deploying new services like YouTube Red or Facebook Watch. This new trend is leading to an inconvenient ecosystem which requires multiple subscriptions for accessing a huge catalog of new content.
Innovation came ten years ago with Netflix and now, tremendously late, all the companies that are suffering from Netflix dominance are copying its exact model. There is no disruption either in the business model nor in the tech side. Nowadays, a streaming platform is a commodity as streaming-platforms-as-a-service providers are offering their turnkey services in every content market around the world. Having your own VOD service could take no longer than a week. The subscription model is the diva because it worked well for Netflix and once you have a user paying for a subscription it is easier to keep him engaged. Subscription+Original content, the same model multiplied by 100. The market is going to be cannibalized.
Scaling through content
Is this model sustainable in the long term? Netflix is spending a record $12.6 billion on original content for 2019. Debt markets are happy to lend to Netflix as long as its subscriber base continues to increase. But should that falter, the company could find it difficult to fund future growth. With new OTT platforms producing more and more original content, it could be a real challenge for Netflix to keep growing at the same pace. Netflix ended June 2018 with a market cap of $159.01 billion — compared to $148.59 billion for Disney — but it has amassed a huge debt of $8.5 billion, and added another $2 billions to its red numbers a couple of months ago.
Can DC successfully develop an OTT platform from scratch by spending a couple of hundred million on content and marketing before having a single user? Netflix, at least, has a worldwide base of 120 million users who are already paying an average of $8 a month. DC believes its fans will quickly form a decent user base, but whether that actually happens remains to be seen. Would it be a good deal for Disney to start 2019 with $3 billion in losses for not having renewed the licenses on their content for VOD platforms? Add to the equation a huge production budget for new content, just like the recently announced live-action “Star Wars” series directed by Jon Favreau (Iron Man)
Scaling through Infrastructure
If you want to connect two cities, a huge investment should be done on infrastructure. Depending on the traffic expected, you shall build a highway that can handle that traffic. Even though there would be a concentration on the use of the highway at rush hours and just a few cars using it the rest of the day, the infrastructure shall serve the demand on the peak hours.
That’s exactly the same problem when scaling a video platform. If you expect to grow from 0 to 100 users, you should build — first — an infrastructure for 100 users. HBO Go failed on making sure their demand for Latin America markets would be satisfied, not building the right infrastructure for serving the hundreds of thousand users that came every Sunday for the premiere of the new episode of the latest season of Games of Thrones. That lack of prevision probably came together with a budget decision, as building infrastructure for hosting and distributing video is really expensive. Ask Netflix, which is spending around $2 billion a year on renting servers all around the world for distributing its content. Who owns those servers? Amazon.
Only three companies have built an infrastructure of their own for distributing video at a large scale around the world: Amazon, Google and Facebook. Amazon (AWS) and Google (Google Cloud) have built an humongous business model around their cloud computing services, with Amazon leading — by far — the list. The podium could also include IBM, Akamai — the largest Content Delivery Network in the world — and Microsoft with its cloud computing service, Azure, looking for an opportunity to shine.
Back to Amazon, the sleeping giant, the biggest company in the universe led by the richest man in the world, the company that turned the editorial business upside down… they want to be part of the VOD universe as well. Prime Video, Amazon’s VOD platform is likely to take over the whole business. Data is key for Netflix, and Amazon has a lot of data. Not only related to what their users have watched, but also what they have bought — after or before consuming certain content. Amazon can subsidize Prime Video in order to learn, to acquire fresh data from their consumers. Being one of the pillars of Netflix they already know how to scale a universal streaming service. They are keen on exploring new businesses, as they are the kings of the transactional model and have the credit card numbers of more than 300MM users worldwide. And they own the infrastructure, which they are already using on multiple branches of their business.
A disruptive point of view
How can anyone compete in this perfect storm? By being able to scale on a new manner, both on infrastructure and content.
Flixxo has already deployed a platform that brings solutions and a totally disruptive model to the industry.
Scaling through P2P distribution of content is key, as every new users turns into a new resource for our ecosystem when, on centralized content distribution networks, every user is a consumer of resources. We can have millions of users coming suddenly to watch the very same piece of content and we will be able to deliver. Furthermore, the more users the better we will deliver. And the cost remains stable and predictable in the long term: zero.
Letting content creators keep control on their videos, building tools for letting them reach their audiences on a direct-to-consumer fashion, having peer to peer payments and instant transactions let us scale on content without spending on content. By using a cryptocurrency that has been designed for a video distribution platform and can gain value as it gains traction from the industry and the consumers, the sense of community is being built. Creators leaning on their consumers for the distribution and monetization, no intermediaries. No extra layers of added monetary value nor complexity in the interaction.
Having delivered our first public beta version — and knowing that there is a lot of work to do in the upcoming months and years — we can say for sure that there is no other video platform out there with such technical innovations nor disruptions to the old and deprecated models. We can perceive an imminent smile in the faces of the studio’s executives as they understand how Flixxo works. So we know there is a little something that has a tremendous potential of becoming something really big.