Value Chain Dynamics Working Group Meeting

Value Chain Dynamics Working Group Meeting

April 17, 2015

Natalie Klym, MIT

The Rise of Innovative Content

Most of today’s leading online video distributors (OVDs), e.g., Netflix, Amazon, and Hulu distribute content that strives to compete directly with the traditional premium programming that has up until recently been the exclusive domain of the incumbent MVPDs; conventional format, live or first-release television shows and theatrical films with high production values.

Meanwhile,another set of online services including YouTube, Vessel, Twitch TV, Twitter, Vine, SnapChat, Perioscope, etc. are home to radically new content forms and formats whose attributes derive from the properties of their Internet-based distribution platforms (including properties related to technology, economics, regulation, user behaviors).

Most of these “innovative” services lack clear definitions, and, as social media platforms, many of them stand at the intersection of storytelling (content distribution) and interpersonal communications in terms of their functionality and business models, both current and potential. They typically distribute content that is considered perplexing to advertisers, producers, and mainstream audiences alike, or not considered at all. Although a small but emerging market space, these services reflect new industrial processes and cultural practices.

Given the CFP themes presented this morning—the meaning of innovation (Dave Clark) and social disruptions (Andy Lippman)—I would like to take this opportunity to explore these services. One analyst has described them as “so vast and nuanced and incomprehensible it’s like the blind man feeling the elephant—a giant merry-go-round of teens chasing someone who’s famous for making six-second videos.” And with regards to YouTube in particular, Susan Wojckicki recently pointed out that YouTube is “different” in its purpose. The point of the discussion is thus to try to give some shape and weight to this uncertain space andspeculate on the role of such services play in the larger media ecosystem and their potential economic impact.

On the one hand, those playing in this space emphasize the desire to create something different besides new ways to access and interact with traditional content; a view that tends to come from the younger generation of creators whose media experiences are rooted in Internet culture vs television culture. On the other, the more traditional firms, as well as the mainstream press do not share this view, and although there is more and more activity in and recognition of this space, the most profitable content remains by far conventional programming. Part of this discussion will thus tie the creative potential with economic/monetization potential of these newer services.

It’s important to emphasize that the paper explores other key trends related to content, specifically concerning the rise of quality content in the online ecosystem and the role of regulation related to program access and traffic management. Furthermore, content is only one of several sources of competitive differentiation.

The main questions our panelists will address today include:

§  What exactly is “innovative” content? What kind of services are we talking about exactly?

§  How is demand evolving?

§  What’s its strategic value? What are the opportunities for monetization/business models?

§  How are incumbents responding? Are there new internal processes orcapabilities required of incumbent firms?

§  What do these services mean to advertisers?

§  What are the network implications?

Ana Serrano, Canadian Film Centre Media Lab

What exactly is “innovative” content? How can we define it?

I see 4 defining characteristics of new content attributes that derive from the technical properties of the new distribution platforms:

§  Fluid, flexible boundaries: Video content—as a cultural and economic object—has traditionally taken the form of a fixed, bounded object, e.g., a film, a TV show, an episode, etc., with a focus on monetizing the finished, produced piece, by way of paying for the whole process. The boundaries of content are becoming fluid and flexible. It can now start at the point of ideation all the way through to production, post-production and distribution with audiences along the way, with each point of audience engagement providing an opportunity for monetization.

§  Content as a distributed, fragmented experience: Platforms like Snapchat and Periscope enable the telling of stories in small bits over time. This kind of an experience is new to the cultural industry sector. Studios are experimenting with this form and with monetization models.

§  Content as colonizing space (vs time): virtual reality and augmented reality

§  Content as touch points between live and virtual: bringing real-time content cheaply

§  Discussion

o  Steve Muir, Comcast: is monetization the only thing we care about here?

o  AS: Not at all, but I’m bringing it up because of the framing of this discussion. But as a producer, if I can’t figure out how to pay for it, I can’t make it. And as a cultural agency, we can support talent in terms of their creativity, but if we’re shepherding talent into an industry that doesn’t make money, that’s not good.

o  Lise King, HBO: It sounds like you’re describing a blog version of reality shows like Project Greenlight in video format.

o  AS: The difference has to do with the distribution of the story over time. There are different rules in terms of expectations re when we view those pieces of content, and how we create a narrative out of the fragments. They can be contexualized or not, which is different than the episodic nature of reality TV. The challenge is to shape the fragments into a pleasurable and meaningful way.

o  Cintia Auria, Globo: it’s difficult to understand content as an object separate from the system [medium?]

Kaaren Whitney-Vernon, Shift2

What does innovative content mean to advertisers?

§  We’re a new company formed between a traditional youth marketing agency and a film production company. I work with agencies trying to figure out how to create content for brands. Agencies are telling their clients to put 25-30% of their budgets into digital content, but only 4-5% is going to online video. TV is still getting the bulk of those dollars, and yet people aren’t watching their ads, so the challenge is how to break through the clutter. Viral video is a long shot, so we thought, as storytellers, we would create content in the form of ongoing scripted series based on the values of the brand we are promoting; we would weave the brand value into the story. Many clients did not understand an ongoing story vs a one-off ad spot.

§  The first step was to look find under-served audiences. We found Carmilla, an 1872 novel about a young woman who falls in love with a vampire. There is a huge fan base of young women around the book, fan fiction, art, etc. but no modernized version of the story. We married the brand values of the advertiser (Kotex) with the story. The biggest niche turned out to be the LGBT community. Women felt empowered. The message was, being gay just is; vampires just are. It changed sales. It doesn’t work for every brand.

§  Discussion

o  NK: I understand that much of the YouTube professional content is direct-address and intimate, which lends itself to the brand integration approach

o  KWV: it’s also the ability to test and analyze viewer responses instantly. If someone doesn’t like a character, we kill them off.

Steve Bauer, MIT

What are the network implications of innovative content?

§  Adolph Zukor helped launch the Automatic Vaudeville Company, which showed short films that appealed to the lower classes. He later started Famous Players, referring to famous players from famous plays, by way of drawing the theater’s upper-class audiences to feature-length films. He realized that he could show longer stories in new formats to new audiences. He revolutionized both what was produced and how it was distributed and exhibited. We are currently going through another transformation in what is being produced in conjunction with shifts in distribution and exhibition.

§  At the technical level there are important questions particularly when in groups comprised of individuals working in the different parts of the value chain. Video is being distributed over the Internet but we haven’t worked out all the business models yet, or all the technical issues, and we are still figuring out consumer expectations and regulatory expectations.

§  The interconnection project I worked on was well positioned; we started measuring interconnection links before it made the news. We’re trying to create real time congestion heat maps—heat coming from video content driven over those links, but now we’re moving towards looking at where that video is being viewed and where it’s coming from, looking to develop standards in that space. There’s an interesting debate in the tech community re how all the pieces will work together, i.e., what are the standards for new forms of production, distribution, and exhibition.

§  Discussion

o  AS: are you looking at production, distribution, and exhibition as potentially being one, e.g., if I know from the point of producing/capturing, and I tag a piece of information and can follow it as it moves back and forth between production, distribution, and exhibition, that changes how I make content, as a producer.

o  SB: yes, that comes up in the discussions. We’ve been talking with Glenn Deen from NBCU re what standards need to be developed in this space all the way to the video cameras, so that anyone can play in this ecosystem.

o  AS: I think that innovative content may be constant, live content—like the Truman Show. If it gets to that, what does it mean to craft a story once there’s no difference between capturing and showing?

o  Lise Balk King, HBO: It goes back to your comments about monetizing throughout the process. If there’s no money coming in, you can’t produce. What do you suggest in terms of innovative models in the vein of kickstart?

o  AS: I think microtransactions come into play here, but there’s still the question of how you determine economic value. That’s critical. If VR becomes a pure ad space (vs consumers paying), that’s a scary world.

o  WL: have you thought of mapping it back to XXX you talked about latency

o  AS: Re latency, I look at synchronous and asynchronous vs actual delivery of packets. I think certain types of content lend themselves to synch vs asynch consumption patterns. We try to tie it back to the type of story you’re trying to tell.

o  Marie Jose Montpetit, MIT: there’s sync vs asynch consumption and there’s streaming vs progressive downloads

o  WL: What are the methods we should be looking at here, what’s my bandwidth experience, how do we talk about that in the wireless space

o  Dave Oran, Cisco: There’s production in the sense of what happens in the truck or in the studio. When I talk about production, it’s about data centers, servers, capacity, satellite uplinks, etc. I think what you’re talking about is publishing—from the moment it’s done capturing and available for distribution.

o  SB: Not really. [comment about IoT?] At a previous CFP meeting I looked at an example of a journalist reporting on the Arab Spring. He was running tests to see how good connectivity was so he’d know what he could produce.

o  DO: to me that’s publishing

o  AS: But what if you’re publishing at the point of capture? You’ve collapsed production so that it doesn’t really exist.

o  Dave Clark, MIT: let’s speculate about the data feed. Imagine instead of 25 cameras around the Super Bowl, you had 25 cameras around Tahrir Square

o  LK: There were thousands of cell-phone cameras in the square that captured video that was then turned into content.

o  Daniel Pereira, Deloitte: This is all intuitive to senior exec level producers. It’s good to see there are some working definitions emerging from this discussion.

Guilherme Saraiva and Cintia Auria, Globo

How are incumbents responding? What is the strategic value of new content forms? As an incumbent, do you need new capabilities to product new forms of content?

§  There’s no new money on the table. We have a pay TV industry that’s 40 years old. It only took about 5 years for pay TV in the U.S. to reach 40 million. In Brazil, pay TV only has about 20 million subscribers but we’ve been hit by new technologies. Facebook and Google don’t disclose revenues but they have eaten 5-10% of the ad market. That’s huge. And Netflix, after 2 years has 3 million subscribers. We don’t want to disrupt the market, we want to keep our customers. We have 12 business units, including a new division for “new video,” including Web video and TV Everywhere. There is no new money in online, but we did start a DVD movie division, which represents about 10-12% new revenue. That’s not content innovation, but we have otherwise experimented with short form content. We were not successful, we didn’t do it right. We also started offering supplementary content for our live programming on the Web, e.g., we show the artists arriving to the stadium before the show. You don’t see that on the linear tv. Again, it doesn’t bring in revenues, but it drives viewership. We put it on YouTube as well.

§  We have learned that people use the Web mostly for catching up. We are not disrupting the market, but we are increasing viewership of our channels. The pay TV market is still growing as people move out of poverty. This is different than in the U.S.

§  We do some merchandizing as well on our programs for teenagers. But most of our “innovation” is about second screen experiences for example. We are in the process of undergoing the analog to digital switch.