Our podcast series “The Future of Content” is where we probe into the future and try to make sense of how the media landscape could evolve, with some of the leading minds of this space.
For our sixth episode, we invited Sameer Pitalwalla, founder of Culture Machine to share with us some of his insights on how the content industry is evolving.
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Listen to each individual episode on our blog:
Ep#1 — Advait Gupt, Supari Studios
Ep#2 — Karl Katgara, Butter Media
Ep#3 — Devarsh Thaker, OML
Ep#4 — Sefer Soylemez, Phillips Lighting
Ep#5 — Shobhit Singhal, Hotstar
Episode references:
Soulskill website
Edited transcripts —
Hatim: For the last few years leading and running Culture Machine, you’ve tried a couple of different models, from getting into Technology and content production, to owning your own channels, how would you describe what Culture Machine is today?
Sameer: That’s a good question. I think as of today we are purely a Content company. Our two divisions are the short form Division and the long-form division. The short-form division is supported by advertising. The long-form division is primarily a production business, which is built on commissioning work that we do with OTTs.
We started as an MCN and quickly became India’s largest in 2014–15. The remnants of that business continue — and we get about a billion views yearly. The business is doing well and is profitable but isn’t our strategic focus. Out of the five channels we have, three of them have surpassed 1 million subscribers on YouTube and also a couple of million followers on Facebook and Instagram. What we have now added about a year and a half ago was the long-form division, which is now growing — and this is the primary growth driver for the business as of today. In terms of the technology part of the business, we had two platforms previously, Intelligence Machine and Video Machine, which today are the only parts of the business that are not continuing.
Hatim: So it’s interesting that you said that the MCN business was the foundation on which the other businesses were built, but that’s not your strategic focus anymore?
Sameer: For about four years now it hasn’t been the focus, but it’s a profitable business, so that’s worked out well for us and has been a good revenue driver. What we’re doing is attempting to figure out what it would look like going forward, keeping all the market changes in mind.
Hatim: MCN’s are of course globally quite popular and have been through a boom phase. I’m trying to understand how would an MCN business evolve because I think on one hand you have creators that you need to work with, and on the other hand you have brands you need to service. As somebody who describes themselves as a pure MCN, what is more crucial for them? Is it the relationships with Brands and knowledge of the content or is it more the relationships with the creators?
Sameer: It’s both, as you said. One side is the talent and the other side is the brand. That essentially leaves one spot, which is in the middle and being there you have to service both sides. If you look at the boom-bust phase you’ve got to look at two things, the rhetoric and the business aspect. If you look at the rhetoric, essentially the boom was when Disney acquired Maker and the bust was when they wrote off Maker. If you look at the business aspect, a lot of MCN’s, the few that ended up doing quite well did so because they recognized the business as what it was — which is that of a talent agency. If you look at traditional agencies like Endeavor or CAA etc. they’ve performed well and grown. In fact, Endeavor has just gone for an IPO. These talent agencies, especially in the US, have done well, in the sense that even with the changing rhetoric in the investor community they have managed to keep their costs low and added value to both sides of the table.
Hatim: Right. So when you say talent agency, that also tells me that it’s crucial to build a deep relationship, potentially even exclusivity with the creators?
Sameer: I think that’s true. But inherently the bigger the creator gets, the more pressure it puts on the relationship. I think that’s because you have to add more value and hence give more time. I don’t have a very clear view of this, but one thing is certain, going after people specific to a vertical category allows you to add more value and focus. The more horizontal you get in this industry, it gets more difficult to add value, because it’s difficult to simultaneously add value to a food category influencer, along side someone from beauty or technology; they’re all very varied fields. But if you go deep into one, it allows you to add much more value.
Hatim: So using the analogy of Gartner’s hype cycle — there’s a peak of inflated expectations, then a trough of disillusionment and then a plateau of productivity — so how far do you think are MCNs from this plateau today?
Sameer: I think the plateau of productivity is where a lot of the MCNs are today. There are players in India who are probably doing well now because of the fact that they found a particular vertical or found their niche and have hit a stride.
This plateau of productivity with linear growth, is what’s expected as opposed to say a hockey stick kind of growth which a lot of venture companies and funds expected of it. When the funding was given, it was a new world where people couldn’t predict it correctly — growth was very good then, and a lot of people thought that this is how it is going to be; but eventually these businesses settled into the linear growth cycles that most media companies end up in.
Hatim: And the individual creators also go through their own cycles? I think right now most of them are going through a trough of disillusionment maybe? Especially newer creators?
Sameer: Yes, everybody does. The fact is that it’s a perfectly efficient market due to which eventually you will always have a new competing creator, unless you belong to certain select categories. There is infinite supply and a growing demand. The ability to protect yourself from the next person will come in terms of a popularity wave, which is limited.
The largest YouTuber in world lost to a music publisher. A lot of publishers are losing to influencers. It’s hard to retain leadership and at the end of the day no matter which vertical you are in money gets attracted to the leader in that vertical. Eventually the one who is the biggest will get the largest deals.
Hatim: Don’t you think it’s a little shallow to measure this based on views? Shouldn’t it be based on depth of engagement?
Sameer: It should. I think most people in the industry already know it and they reward that.
Though, if you are in the general broad category of say Hindi Entertainment or Hindi Vlogging then you should be measured on the back of views. Your engagement might be great, but views is where it starts. Reach comes first and then comes the frequency of engagement.
On the other hand, if you have verticalized within say Technology Reviews the quality of your engagement matters more. But again, even in that case reach is the first parameter. After that you look at engagement ratios and other metrics. No amount of engagement will matter if you don’t have the reach.
Hatim: What we also find right now is that there are all these different platforms — social media & OTTs & others. Then there are people trying to build your own platforms on top, while others that are happy to just be platform agnostic. I believe right now you are platform agnostic?
Sameer: Yes. I mean, what other option does one have? I have never believed that building an OTT would have been the right approach for us. We were always focused on creating content, not distributing it.
We had already read the writing on the wall at that point, that if you’re going to build out a platform business either you going to compete with the larger OTTs — which at that time Netflix wasn’t in India but clearly, you knew they were coming.
I feel today it is far worse. There are too many competing platforms and competing with your own is very difficult. The only Company which has made an impact over the past 2–3 years and has really changed the game is Tik-Tok. However, for us, if you’re not in the platform building business, then you have to be in the platform agnostic business, which means essentially you are a supplier. We are a supplier today. To be honest, we’ve been one for many years. We never attempted to try and build out a platform. Good or bad — I don’t know.
Hatim: I agree with you that somebody who’s trying to just build just a general video streaming entertainment focused platform in India, will have immense competition not only from Netflix, but also from the likes of Jio, Airtel TV, etc.But what about a more niche focused platform? For example, you have Bebeautiful.in which is owned by Unilever, you have Fancode which is owned Dream11?
Sameer: I wouldn’t call these platforms. I think these are also publishers. Bebeautiful is on YouTube, Facebook, Instagram and has its own website on top.
So, inherently it was the platform agnostic approach even for them. A platform is either you have an advertising-based platform or a subscription-based platform. If you are verticalizing within that then typically the more vertical you get the more important it is for you to go to a subscription.
Hatim: What about direct to consumer platforms that are monetizing with commerce or events or similar? Could you also call these platforms?
Sameer: Can do that. There are models around that already today. Internationally, they have been models where people do all three.
The thing is, you need time to do that. These things aren’t built overnight. Those business models already exist today. Economic times is an excellent example. Times of India is an excellent example, and, in their case, they have built a brand over a hundred years. I’m just saying in terms of a broad stroke. It’s true for Femina also. There are awards, there’s a magazine, there is web and there will be variations around it. They are also regionalizing. They’ll have it in a Tamil version, etc.
Same is the case with Filmfare. The core magazine business may not do very well. But a brand is the brand, and it’s true for all Publishers. But it takes time.
In a digital first brand, to begin with you have to build an audience. I think today the problem in the business of publishing is that the landscape changes dramatically very quickly. A lot of businesses were built on the back of traffic came which came from Facebook. Facebook’s one algorithmic change has changed the fate of so many publishers.
Before that Google was the main thing. There was a rise of demand media and others who built a business on the back of traffic which came from them. But all you did was you shifted the top of the funnel. Google changed and they shifted plans to Facebook and now its Instagram. For the regional publishers in India, off late its been the likes of Dailyhunt, Helo & ShareChat. Now that’s the “new” new . Because that’s vernacular and none of the big platforms, really have a big say in being top of the funnel. But you know, if you look at patterns in history, it is more of the same. Inherently all those dollars, will eventually go to the aggregator. They don’t go to the publisher or the creator of the content.
So it’s actually more of the same. The new con job in the market is the Vernacular Market. It’s shifted because Google/ Facebook currently, don’t have a dominant say in that. Eventually, they will also get there or the Chinese will own it like The Daily Hunts, the Helos and the Bytedances.
Inherently, the future of content, according to me, is a tough one. It’s a boutique one. It is a low-cost one. It’s a high margin one. It is one in which you will have to have a very efficient shop that you run. That shop will have inherent advantages to a certain extent or of a certain carrying capacity; and beyond that it will become harder for it to scale and maintain quality and the only way out is to aggregate a bunch of these boutique shop. Which by itself brings its own challenges. I think you currently going through all that phase right now in media.
Hatim: So we are in a “Trough of Disillusionment” in the Media Industry”?
Sameer: I think right no the only way to get to the plateau of productivity — where you make money — is to consolidate. There is no other way. Also right now in this industry, capital is hard to come by from the venture funds. So you’ll need to get capital from other sources, private equity won’t be attracted because these are not mature businesses. Inherently, they have a lot of disruption around them because of the fact that they are platform dependent no matter what you say today.
While currently digital spends India is supposed to grow over 30% CAGR (Compound Annual Growth Rate) as a digital ad industry, 85–90 percent of the growth is captured by Google and Facebook. Now if you remove those guys out. then you have a whole bunch of other people clamoring at the dough. These are Tik-Toks, Helos, the Bytedance Universe etc. Then you have ShareChat, Dailyhunt. Then you have your OTTs. With all these platforms which are around the hundred million MAU (Monthly Active Users) range, the other eight to ten percent growth will get captured there.
So five or six percent is what’s really left for the non-platform programmatic business. Yeah and by that, I mean, you know people who can get to maybe 10 to 20 million MAUs on the back of sheer content and this platform agnostic distribution. And life’s hard for them because you really need to work to establish this ad supported business.
Hatim: I don’t doubt at all that these ad-supported businesses are under threat just because of the dominance of the large platforms. The way I see the world right now is that it has to move to commerce or similar, and the brands of the future will be either be commerce supported or subscription supported; and that they’re going to build their own direct relationships with consumers.
Sameer: I think that’s just a fancy way of passing the buck on. We’ve done Commerce previously with Being Indian. We used to do double-digit lakhs worth of commerce sales every month. But then you look at the gross margins on the business — It’s abysmal! I know a very large American publisher — Triple-digit million dollars in revenue — and I was assessing their merchandising business. They claim sales which are very high. But if you look at the actual margins you get on that, it’s nothing. Maybe 5–6%. And then, if you’re looking to bring in double-digit million dollars in revenues and if you want to make it the focus of your business, then you’re going up against a very efficient industry in the form of e-commerce companies, who are already doing it very well. And whose cost of acquisition is going to be much lower because they’re not focused on creating content.
Hatim: But that is precisely it — we talked briefly about NykaaTV once; and that it’s a commerce company, which does content. Don’t you feel that’s where the world is moving?
Sameer: Yeah fair enough — then I mean essentially you’re building really good systems, which will eventually be in a vertical where you are hoping for an e-commerce company to come and acquire you. But I think it always be much easier and cheaper for them just to use the open marketplace to commission content directly.
If that wasn’t the case, a lot of companies in the US, which were focused on women or focused on beauty would have been acquired by E-commerce companies already. E-commerce companies find it far cheaper to just go and efficiently get content created.
Hatim: Or source through somebody like Soulskill…
Sameer: Yeah. Or source through somebody like Soulskill. I’m sure that you will have a play as being a sort of the aggregator within verticals for these companies.
It’s like I said, I don’t have a clear view of where all of this will end up going. But one thing for sure is that I think content in general is going to be is going to be in the best of times and the worst of times. Best of times — because a lot of money being spent on it. Worst of times — because people spending money are going to start squeezing on the suppliers.
Hatim: So, I’m sure that the old school idea of just having a media property has changed for good. Now there are very few successful media properties, only media aggregators. There’s Google, there’s Facebook, and all these other guys who aggregate different kinds of media. Standalone media properties like the old school websites where you just come and read the news are no more.
Sameer: I think all publishers will have to become producers eventually, and the more you become producers, the more you are going to own an IP business. Generally, I am a little bearish on the long-term potential of media. I’m still in it. But yeah, I’m a little bearish also because of the way the economy currently is in India, and I think advertising will reflect that in the coming months — specially with the festive season coming up. It doesn’t seem like it’s going to be smooth sailing for the next 3–4 years so hold on to your seat belts and tighten them as well.
Hatim: On a related note, I’m curious to understand why so much video inventory online goes unsold on a lot of these platforms? Is it because attitude has not changed? Brands are not yet comfortable with these platforms? Is it because the quality is low?
Sameer: It’s partly that. Also, it’s not like TV is dead. The migration of money from TV to digital hasn’t fully completed. The time of digital media in India, has come only in the last two to three years. So you can’t even blame the ad industry in taking the time, because of the fact that they have a model that generally works on TV. If they had a model that works on digital the same way, then they would allocate the same kind of spends on it.
Consumer habits have changed very dramatically recently, especially with the launch of Jio. And the Internet has just about started to get to the mass of India. It reached half a billion people I think about it 8–10 months back. Now again, you will come through a plateau — because a lot of people don’t necessarily have smartphones beyond this.
Growth beyond this will depend on a whole bunch of things, is consumer spending on smartphones going to grow for example? Jio still continues to grow really well with the feature phone part of it — but that’s on the back of free voice; not really necessarily free data. Only now do you get the mass of India really coming on, and people thinking digital is truly mainstream. The likes of TikTok are the first ones which have truly penetrated the consumer market within the tier 2 and tier 3 cities, and the villages.
Hatim: Or maybe it’s WhatsApp on which I’m watching Tik-Tok videos right.
Sameer: Sure. I’m just saying as a consumer product. YouTube has always been around and continues to do really well there. So, I think now over the next four-five years, a lot more money will migrate to digital. But who’s it going to go back to ? It goes back to my same comment earlier — it’s going to go back to the big platforms.
Indirectly it comes to the creators — because brands spend with them and they share the revenue back. At least on YouTube. On Tick-Tock & others, I am not quite sure if it has had a material impact on anybody’s bottom line.
Hatim: So from what I understand with most of the Chinese platforms, they buy the content directly. They have certain flagpole or tentpole influencers and for each of them they pay INR 20–30K a month just to keep putting out content, and typically they’ll fall under demographic of young / good-looking / able to create engagement over a digital medium. From what I understand, in China they have done exactly the same thing and they have taken it further to a point where they completely control all the commerce as well. It’s all sitting within their own ecosystem. So, any brand wanting to sell a product will go to the Tik-Tok equivalent, and Tik-Tok will pretty much own the logistics for that sale also. What I’m very impressed about is they have cracked it before any Indian person has cracked it, or even before any American person has cracked it.
Sameer: To be honest, the first person who cracked it was actually Vine. In many ways it was the predecessor to what happened with Tik Tok — vertical video which are short form and not more than six seconds. Vine then went through its own crises and challenges, but the fact is that the model had been proven already.
If you look at India’s largest Youtuber, he still carries the name “BB Ke Vines”. A whole new creator segment emerged, and it was validated by Vine. So, in a manner the Americans got it first. The Chinese just perfected it.
Hatim: Yeah, which have done with so many other things…
Sameer: They cracked the other part of it, which is the consumer discovery part and the polish of the experience. Once they had that they pretty much have been rolling away. In fact, I think it’s not really as much a social network to the extent that you don’t really go and connect with people there- you go to Tik Tok to watch things.
Hatim: I agree, it is a content-driven network. Facebook is trying to become more of that now than a social network itself, I believe. There’s so much more focus on videos now.
Sameer: It is hard to predict, given the headwinds that are all these social media brands face today. They are actually going to go more towards the idea of spending less time on the platform, and spending it with higher quality content, whatever “quality” in this case may be. Things which are not divisible but cohesive.
That also plays a big role in my gentle bearishness on the future — I think it’s the people in the content business which are undervalued by the platforms. During the worst of times in Facebook, the profitability still grew for the quarter, and so did the revenue.
They didn’t really take a dip on that, they took a dip on the sentiment of potential regulation coming on board. If you actually look at the business, it continued to grow really well. It further concretizes the fact that they don’t really need content publishers.
Hatim: Yeah. They can live without most publishers. I’m sure there will be some regulation, but we don’t know when it will come or how it will come.
Sameer: Take five of India’s biggest digital video publishers on Youtube, and you tell them to die tomorrow. There will be no impact on the business of YouTube. There may be a marginal 1% hiccup, but beyond that the next day they’ll be back. Because it’s not like your gap won’t be filled up with other sources of programming.
And that’s true even for a big hit show right now. I think tomorrow even if a big ass hit show was to be delayed by six more months you will not die of boredom. There will be six other platforms releasing one show a week to fill in that gap.
Hatim: Fair enough. I would like to think a little further away from the doom and gloom now. I think the market will turn when there is more money coming in, getting percolated out to the end content creator at some level. For that to happen, what structural changes, what things need to accelerate for that reality to transpire?
Sameer: I think there is no going back. What you can say is that organized players which are there in the industry should get preferred treatment, but that is the most anti-capitalistic thing to say. Because that is not how it is going to happen. No platform worth its brain or salt will want that, because nobody wants to concentrate supply. In the past because of the modes of distribution being so hard supply was concentrated in the hands of the few, who cornered the market and the money between them.
Hatim : So you cannot aggregate supply, but only demand?
Sameer : Correct. As a publisher you cannot aggregate supply, but as a platform you can aggregate demand. The consumer has a direct relation with the platform, meaning that any person in the middle does not have any role to play. The only way out for media, I think is consolidation. I feel that the publishers will have to find a way. You will have to roll them up, combine them, and you’ll have to find a way that you can cobble together inventory, cobble together solutions, and cobble together media CEO egos and put them together.
Hatim: I am not even worried about the media CEOs; I am more worried about the actual content creators at the end.
Sameer: Actual content creators are only two types. One is the organized and the other is the unorganized. Now the unorganized is also in a manner a boutique. Today, in Dombivali (a suburb of Mumbai) there’s a creator who is making a million / million and a half dollars a year annually, in terms of actual revenue. That guy in a manner is an organized content creator, to the extent that he is paying salaries every month, has people on payroll, he has probably got some capex invested in equipment and runs a channel as creative CEO/entrepreneur and everybody else is a variant of that.
Essentially if you are doing around $2 million in annual revenue, you are an organized content creator, because you can’t account for that revenue unless you are putting out product every week, you have a community etc. So, that’s really it. You have to cobble together 15 / 20 of these and then you have a $40 million business in advertising. Then you can have some sort of supply level pressures that you can exert on the advertising business. If you do that, you will probably take it to $60-$70 million level.
Hatim: Or just consolidate the entire supply chain perhaps? If you have a direct relationship with the consumer and you can build an audience around a specific topic, you could then monetise by multiple means around that topic?
Sameer: I think so — the only way out perhaps is to do that — to own that as a segment and take it from there.
Hatim: Like a carwale.com owning the entire auto content supply chain?
Sameer: Yes, something of that sort. I think they have tried it too.
Hatim: Sure — so some variant of that may come about soon. Like what what NykaaTV is doing, backward integrating into media.
Sameer: Yes. That is probably the way to go. Certain times it is the commerce companies that will do it. Certain times it will be the publishers flush with cash. Certain times it will be good old entrepreneurs who will raise capital and consolidate. But I think that is probably the best way out.
Hatim: Because as long as I am depending on somebody else on doing my distribution, I will always be disadvantaged.
Sameer: But that is true even if you aggregate supply, you are dependent on someone else to do the distribution.
Hatim: Because if somebody comes to my own platform, I can find ways to keep that guy there. I don’t have to worry about all my traffic being intermediated by someone else.
Sameer: As far as I think, some sort of variant of that will probably emerge now. We are in the zone where consolidation will be key for survival and growth. When you have 5 people competing for the same pie, you can’t grow, and the pie is going to get harder and smaller to come by. It won’t vanish completely, because there are just so many options today. In terms of audience, the ability to get cheap audiences or audiences who are cheap is very easy because of the sheer number of platform available to advertisers.
Hatim: And platforms including the big ones are anyway getting more competitive between each other.
Sameer: Yes. So, in the content space there has to be some sort of consolidation!
Hatim: Got it. Thanks a lot Sameer it was awesome talking to you.
Sameer: It was a pleasure. Thank you. All the best to you guys.
