The pace of change in the media industry is accelerating with actors, artists, and content creators able to take far greater control of their franchises than ever before. Technology is knocking down barriers to entry with distribution platforms proliferating. New web-based platforms offer content creators the ability to build their brands outside the traditional content gatekeepers with greater creative freedom and the potential for generating more wealth in the long-term (albeit, likely means sacrificing near-term rewards).
Recent examples have been limited, but they provide a sneak peak of a trend we expect to become far more common in the near-intermediate future:
Money Has Been the Key Barrier to Entry.
Historically, broadcast networks were the only ones capable of investing the significant dollars necessary to finance television shows and to market content in an increasingly fragmented media world (usually at a steep loss upfront, in hopes of significant syndication profits on the back-end). The continued growth of multichannel television has enabled Pay TV networks to finance an increasing array of original programming (HBO, Showtime and now Starz), with basic cable networks leveraging their sub fee base to enter the original programming arena (from TNT to Discovery to MTV to Food Network to even the History Channel).
Web-Based Content and Programming Has Failed-to-date.
Marshall Herskovitz tried to enter original programming online in 2007, distributing Quarterlife on both Myspace and YouTube. 60Frames.com (now defunct) launched several web-only series such as WhoWhatWearDaily distributed across a host of online video sites in 2008. Even American Idol’s Simon Fuller has taken a shot at online video with ICanDream distributed via Hulu last year. There are probably two core reasons why online video original programming has failed to-date:
Technology’s Perfect Storm Enables the Rise of Internet Content.
New distribution platforms are proliferating (YouTube, Netflix, Hulu and XBox Live); the rapid rise of social networks (led by Facebook and Twitter, which are platforms as well) have rapidly decreased the cost to market to consumers and increased the speed at which you can reach them (content essentially finds you, versus needing to search for it); broadband pipes are becoming far more robust (both wired and wireless) improving the consumer experience of online video; and the IP-enabled home is allowing us to view content in our living room on a big screen HDTV (via IP-enabled TV’s, Blu ray players, video gaming systems, AppleTV/Airplay, Roku, Boxee Box, etc.). These same trends are playing out globally with platforms such as Youtube and Facebook global themselves, enabling content creators to reach a global audience without the vast array of “middlemen” that currently control content distribution around the world.
Against this backdrop, new platforms are increasingly interested in investing serious dollars in original online content/programming – going well beyond an ad revenue share model:
What Happens Now?
Consumer recognizable content that begins its life on the web and where ownership does not ultimately reside within a content gatekeeper company controlled by Bewkes, Iger, Malone, Murdoch, Redstone, Roberts, or Stringer is coming…
It may still be a bit too early for any of the above to concepts to occur and/or be successful. However, we sense they are all becoming increasingly realistic by the day and that none of these concepts are years away. The result will be more competition for talent/content – driving up costs for the established media industry players with traditional media viewership negatively impacted (lower ratings) over time.
From a consumer standpoint, the disruption of the historic media ecosystem should be a positive. Consumers have already benefited from a wider array of content choices (such as when cable networks launched original programming to compete with broadcast). Now the prospect of competition from web-based platforms should only help to further increase content choice for consumers.
Appendix: Analyst Certification and Other Important Disclosures
I, Richard Greenfield, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
I, Brandon Ross, hereby certify that the views about the companies and securities discussed in this report are accurately expressed and that I have not received and will not receive direct or indirect compensation in exchange for expressing specific recommendations or views in this report.
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