The Next Billion Viewers
Smartphones, Online Video & Global Entertainment
Benedict Evans of a16z gave a presentation (full version here) in October 2014 that highlighted this stat:
Another billion people will be coming online in the next 5 years (fig.1).
What are the underlying factors responsible for this rapid increase in global connectivity?
- Increasingly available/affordable smartphones.
- Increasing 3G/internet coverage in less developed countries (fig.2):
Both Google and Facebook are seeking to accelerate this trend with Project Link and satellite initiatives respectively. This is no surprise. The next big growth avenue for both of these tech giants are these currently unconnected, potential users about to pick up their very first smartphone.
Simply put, another billion humans will soon be able to use YouTube, Facebook and Snapchat (2) for the first time. Why isolate these three products in particular?
Video.
Online/Mobile Video As It Stands
Out of YouTube, Facebook Video and Snapchat, so far YouTube is the only product which has successfully monetized video content at scale (estimates place 2015 YouTube revenue at $6–7 billion). Earnings aside, YouTube also has personality focused channels; destinations for recurring, mostly original content. Facebook Video has influencer/celebrity profiles and will likely achieve original, episodic video content someday soon, but is currently a, news feed enabled, link dump for one-off viral content. It should be noted however that this is rather obviously a growth strategy for Facebook Video, not a mis-step.
What about Snapchat? Snapchat has the personality-focused, recurring, original content, in the form of “Stories”, that function similarly to subscriptions on YouTube. However Snapchat has not yet monetized video content at scale. This does not mean they won’t soon.
So here’s a simple summary of these three companies’ current online video offerings and revenue positioning:
(NB: I don’t use the word “Channels” in the same sense as “TV Channels”, instead I mean on-demand, personality-orientated destinations for original content, e.g YouTube Subscriptions/Channels or Snapchat Stories)
YouTube:
- Monetization At Scale — YES.
- Quality Channels with Recurring Original Content — YES (YouTubers + Subscriptions).
Snapchat:
- Monetization At Scale— NO (likely soon). Snapchat is monetizing in interesting ways (sponsored lenses + ads on live stories) but if you consider that it racks up 4 billion video views per day, it will surely be doing more soon.
- Quality Channels with Recurring Original Content — YES (Snapchatters + Stories).
Facebook Video:
- Monetization At Scale — NO (soon).
- Quality Channels with Recurring Original Content — NO (likely soon) Pages/channels like “The Lad Bible” are somewhat of an exception to this, but the content is not original or homegrown, it is merely curated & then distributed on Facebook along with every other platform.
Facebook and Snapchat do both have something YouTube doesn’t (and something it very much wants): enormously popular social + messaging apps. WhatsApp is too separate from Facebook to provide new-user on-boarding value to Facebook Video. However both Facebook Messenger (more tangled with the core Facebook product) and Snapchat have an opportunity to on-board the next billion smartphone users, with messaging as an operational layer. (Fig.3).
Once Facebook Video matures somewhat, Facebook will also have the social strength of their platform to augment their users video experience: a ready-made ability for creators to carry their conversations/viewer-relationships on to their social platform. Facebook, like YouTube, is a walled-garden when it comes to viewer/creator relationships, but its social/messaging tools are significantly better and more interactive than YouTube comments. Social/messaging + video will be very important, but won’t become obviously so until Facebook have their own homegrown, original, video celebrities. Their own version of YouTubers or Snapchatters.
“Global, Day-To-Day Entertainment, Where Everybody Wins”
Why are homegrown, original channels and personalities so important for these products? Two reasons:
- (Less importantly) Because these digital celebrities rival movie and TV stars for influence (data here).
- (More importantly) Because these channels/stars are universally accessible: unbound by geographic content restrictions/licensing.
It’s No.2 which represents not only a gigantic revenue/growth potential for one or more of these companies, but also a real and imminent industry threat to the lower end of Hollywood.
A recent a16z podcast featured Marc Andreessen interviewing Brian Grazer, the Hollywood super producer. It was entitled: “The Future Of Entertainment”. In it, Grazer notes that he’d like Hollywood to be able to Silicone Valley-ize its industry by achieving, at scale:
“Gobal day-to-day entertainment where everybody wins”.
Andreessen clarify’s:
“For movie/TV releases to work economically these days there is staging, different people/countries see the content over a period of months.
Instead, he notes:
There could be a single cultural moment (when experiencing a show/movie) that’s literally not possible today.”
Currently “A single cultural moment” for conventional TV and Movie releases is nigh-on impossible to achieve. The principles of today’s entertainment industry prohibit this in order to protect/maximise revenue. But while a bunch of executives in Hollywood sit around and bitch about distribution rights for their shows/movies, the online video stars of today and tomorrow are already seasoned pro’s at making and distributing this coveted “global day-to-day entertainment”.
With YouTube and Snapchat (and soon Facebook too) you have truly international entertainment with a nearly non-existent regional consumption barrier (exceptions do exist, e.g. China): kids/young-adults in Pakistan/Vietnam/Egypt/India will soon be able to watch their favorite online shows/content at exactly the same time as their wealthier peers from the U.S, U.K etc. This is a huge-scale unlocking of popular entertainment, which the restrictive and “medieval” (as Grazer puts it) Hollywood may not experience for quite some time.
Not only is this a significant leveller, the likes of which Silicon Valley specializes in, but entertainment which can be enjoyed by the whole connected world at once has a culturally amplifying effect on the content. Consider the potential social media network effects of a show being released in a handful of countries. Now consider the scale of those network effects when a show is released worldwide, at once. Instead of thousands of tweets/posts/conversations about a show/movie/video, you suddenly have millions. The power of this more globally connected entertainment dynamic should not be underestimated. As more commerce moves onto mobile, and shows/movies/videos get smarter about letting viewers buy/interact through their screens, the more important global “single cultural moments” become. The larger and more synchronised an audience is, the greater its monetization potential.
A Case Study For First Time Internet Users And Online Video
In the Philippines we have a convenient microcosmic example of a what can happen when a nation experiences extremely rapid smartphone/internet adoption. Together with Vietnam, India and Indonesia, the Philippines smartphone ownership has increased 545% since 2013 (fig.4).
In this 2 year period, the Philippines has experienced the rise of a YouTube and Facebook obsession. In 2014 out of 39.8 million internet users in the Philippines, 30m had a Facebook account and 25 million had a YouTube account (data here). As of yet, it’s hard to find data around 2015 numbers for YouTube and Facebook usage in the Philippines, but it’s not unreasonable to assume the 30m and 25m figures have grown significantly in proportion with the connected population.
In 2015 more than 200,000 people tweeted #BringYouTubersToManila resulting in a sold-out fan event and in-person meet-and-greets in Manila, with much of the top, global talent on YouTube. Can you think of a time that a significant portion of a nations’ population banded together and lobbied for a conventional movie/TV star to come to their country?
No.
It’s a genuinely obsessive hysteria, the kind of hysteria that’s been created seemingly overnight, alongside the sudden emergence of affordable, internet connected smartphones, in various regions around the world. If you were one of the many who were surprised about Google’s, and specifically YouTube’s, positive recent growth and MAU/DAU stats (data here and here), consider the increasingly worldwide access to internet, and the subsequent obsession newly connected users have with online video.
Unlike past generations, Philippine online video viewers don’t have to wait months or years longer than the West to watch their favourite form of entertainment. They watch the same shows as developed nations, at the same time, and they also get to meet their heroes just like Americans attending Vidcon in the US. A single cultural moment is happening. Everybody is winning.
David (The Creator) vs Goliath (Hollywood)
There is a trickle-up effect for Hollywood where the more stars are produced from online video, the more deals they will ink with traditional forms of entertainment. Hollywood sees YouTube and digital media stars as a new source of talent, an overflowing well of demographically defined future stars. But the more powerful online-video technology and stars get, the less they’ll need Hollywood. YouTubers Joe Sugg and Caspar Lee (along with a startup UK production studio) recently shot and released a movie with the highest number of pre-orders on it’s first day ever on Amazon UK. This may seem like a small milestone against the might of Hollywood and the billion dollar success of movies like Fast and Furious 7. But it’s significant when you think of the future potential for smaller players to successfully make and distribute TV Shows and Movies, and control most, if not all, of the process end-to-end. Outside TV and Movies, YouTubers’ books have outsold JK Rowling and YouTubers’ iOS games have risen straight to the top of the App Store’s paid charts. Both successes relying mostly on the influencers’ own channels, with global reach, rather than traditional marketing machines. Those who think these emerging trends won’t hurt the less blockbuster properties in Hollywood, consider these potential scenarios over the next 10 years (20 if you’re pessimistic):
- Virtual Reality (VR) becomes mainstream.(1)
- Cinema (as we know it) dies.
- Cable TV bundle dies.
- YouTube Red (YouTube’s new subscription video service) globally and successfully distributes homegrown movies and TV Shows from their homegrown stable of stars. RoosterTeeth (Lazerteam Movie), Lily Singh, PewdiePie, Toby Turner and others are already starting to release content this way.
When/if any one of these scenarios are realized, the delivery models for entertainment will have changed on a fundamental level. Would you bet on those leveraging technology or those resisting it, when it comes to capitalising on this evolution of distribution?
Maybe you don’t think licensing/restriction road-blocks, for products like YouTube Red, will go away overnight. I agree. Red itself is scheduled for a staggered release, first in the US on the 28th October, and then in early 2016 for most of Europe. However thinking longer-term, YouTube Red original content shouldn't have anywhere near the same volume of licensing/distribution issues that conventional TV and Movies do. Netflix, an another example of a worldwide distribution platform, is increasingly acquiring global distribution rights for its TV shows. And once Red, as a service, is available in as many countries as YouTube currently is, global synchronised releases of entertainment should be more normal due to four factors:
- This is YouTube/Google’s strategy. Their new partner agreement (that 99% of partners have signed) enables YouTube to cast a broad licensing/distribution net over all the content on their platform. If you’re a publisher/creator that posts videos that are available on a region specific basis? YouTube does not want your content (just ask ESPN!). It’s intentionally building a future of globally and simultaneously-available entertainment.
- Foreign distribution rights and schedules become less important when you have one or a handful of global, online-video distribution platforms e.g. YouTube. Foreign rights are/were very important for cinemas and material copies of media property, not so much for digital-first content, produced and delivered by a single, global company.
- As piracy becomes increasingly difficult to combat; single, global releases may be favoured over multi destination releases.
- Marketing for online video content is very different than conventional TV/Movie marketing. Online video stars market themselves through their own numerous, mostly unpaid channels. At the top level these channels are truly global in terms of fan-bases, meaning there is less need for region-specific marketing. Traditional TV and Movies on the other hand tend to rely heavily on advertising and press junkets requiring much more man-power and travel. This necessitates staggered releases to ensure a movie/TV show does well in multiple regions.
Roadblocks like GEMA in Germany (although mostly focused on music video protection) and China’s internet censorship may also staunch some of the global availability mentioned above. Please tweet at me with other examples of licensing/distribution complications that may hinder the simultaneous global availability of products like YouTube Red.
Real World Effects
So, what are likely real world effects of globally unrestricted (no/less licensing/distribution restrictions) + fast growth (billion coming online) for YouTube, Snapchat and Facebook Video?
- Viewership of online video continues to grow rapidly.
- Revenue from online video continues to grow rapidly due to bump in viewership, especially for those that have worked out monetizing video at scale. Facebook and Snapchat do have a timer on working this out if they want to take full advantage, YouTube has a large head-start.
- Revenue models change. We’ll see an early manifestation of this with the YouTube Red experiment. If it works, Google and independent creators win big. If not, more experimentation to follow.
And finally, what effect will this have on Hollywood? The top end of the Movie and TV industries is very secure in 2015, with home-run, billion dollar movies (Fast & Furious 7) and big-budget TV (Game Of Thrones) as popular as ever. However the following trends should worry the studios that produce/support less blockbuster, more everyday entertainment, the “singles and the doubles” as Grazer put it:
- The creation of entertainment has been democratized by software and hardware development over the previous 10 years. There is no sign of this slowing down. Hollywood’s equipment and money-pile becomes less and less of an advantage as technology further levels the playing field.
- Experimental end-to-end solutions for the global creation and distribution of entertainment are poking their heads into the mainstream. And unfortunately for Hollywood, if one experiment doesn’t work? Creators/startups/tech-giants will just try, try again.
Notes:
- Facebook’s ownership of Oculus looks like a potential advantage over YouTube/Google and Snapchat with regard to capitalising-on/controlling the future of entertainment. As with most new technologies, the user interfaces (UI) of VR, specifically the creator UI’s, will determine content creation and adoption rates, and it would seem that Oculus is the closest to getting this in the hands of mainstream consumers/creators. That said, Google has also been funding VR development since at least 2013/14, and is likely ramping this department up if you take in to account their recent job postings for Google X.
- You probably noticed Twitter and Vine were omitted from this essay. This was intentional. Twitter justify’s its own dedicated essay about video strategy and where it can/will capture value in the future. Twitter Video is more about circulating existing and, more often than not, licensed content, and therefore doesn’t fit the model of discussion above as well as YouTube, Snapchat and Facebook Video. Vine however, similarly to Snapchat, does have a place in the discussion, but I use and think about it less, than YT, FB Video and SC.
If you found this interesting or you have any questions, hit me up on Twitter: https://twitter.com/mattsappsTV or email me: businessmattsapps@gmail.com
I also wrote about starting and growing a YouTube channel here: https://medium.com/@mattsappstv/the-first-million-ae8489cac4d7#.2xkzo2519
Which post would you like to see next? Tweet me with your choice:
- YouTube Red. How it Wins and Loses.
- Snapchat: YouTube 2.0.
- The Personalization of Entertainment
