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The Business Model Is The Message

2016 February 17
by Greg
Streaming TV Business Model Is The Message

The media business used to be fairly simple. It operated on linear model, consisting of content, distribution and audience, with a small priesthood of publishers, producers and programing executives making editorial decisions for the rest of us. Stars were created by the choices they made.

The Internet blew that model apart. Today it is obvious—even trite—to say that anyone, anywhere can get their voice heard. Platforms like YouTube, Flipboard and Pandora offer a cacophony of voices—from major media companies to journeyman professionals and hopeful amateurs.

For the most part, the removal of the distribution choke-point has been a good thing, but it also comes with a built-in problem. Increase the supply of anything and prices will fall, which makes it harder for creators to finance their work. Now, a number of new business models are rising up to fill the void and it’s changing what we read, watch and listen to.

The Content And Distribution Value Chain

In the film The Shipping News, a crusty old editor points to dark clouds over the ocean and tells Kevin Spacey’s character, a rookie reporter, that the headline should be “Imminent Storm Threatens Village.” And what if the storm never comes? “Village Spared From Deadly Storm.”

That’s what the media business used to be like. Distributors of information had an enormous amount of power to decide not only what we saw and heard, but how it was presented to us. And, as TV legend Norman Lear explained in his autobiography, even the most powerful creators often had to kowtow to the whims of network executives and local station owners.

They had this power because the media universe was very small. Even large local markets in the US had only a handful of broadcast outlets and a maybe newspaper or two. National magazines were dominated by big players like Time Inc. and Hearst. In Europe, where markets are smaller and public media more dominant, the choice was even more scarce.

The distributors, for their part, were largely driven by market forces. Because they were marketing themselves to large audiences, programming and editorial needed to have broad appeal. Also, media was largely ad supported—at best magazines and newspapers could break even on print and distribution—so they had to be conscious of marketer’s demands.

That’s how the media business operated for decades and many people thought it would work that way forever. They were wrong.

The Platform Explosion

In the 1980’s, the rise of cable TV began to alter the landscape. Ted Turner was the first to notice the opportunity. He transformed his Atlanta based station, WTBS, into an effectively national cable channel. Then he created niche networks, like CNN and Cartoon Network, to appeal to narrow audiences that were underserved by the big broadcast networks.

Another important development was the rise of Pay TV networks such as HBO and Showtime, which offered movies and live sporting events. Before long, they began investing in original content that was free from the restrictions broadcast networks had to follow. Passionate audiences, rather than broad appeal, became the coin of the realm.

The Internet accelerated these trends. New websites like The Drudge Report gained influence and the advent of blogging software allowed anyone who wanted to publish with a click of a button. Later, YouTube did the same for video and, before you knew it, the gatekeepers were quickly losing their power over the media industry.

Today, rather than local monopolies and regulated broadcast spectrums, we have nearly universal platforms. WordPress, a free open-source platform, runs more than 20% of the sites on the Web, including major media outlets like Forbes and CNN. On YouTube, major marketers and production studios can be found next to teenagers goofing off.

The latest development is the unraveling of the cable business model. Platforms like Netflix have shown that you can reach large audiences—and keep 100% of your subscription revenues—independently. Increasingly, traditional broadcasters are also choosing to go “over the top” on streaming devices like Apple TV and Roku.

Grinding Out A Living In The New Media Ecosystem

The explosion of new platforms has been great for audiences, but its effects have been more uneven for creators. Many of the people who create blogs and YouTube channels do it to support another business activity, like a consulting or personal training practice, but for those who want to make a living on their creative output, the going can be rough.

While it is true that a few lucky YouTube stars pull down multimillion dollar salaries, most have to grind it out. A typical creator earns only $2 per thousand views from YouTube ads, so unless you’re producing numbers in the stratosphere, it’s hard to make a living. They are finding, much like more traditional media businesses, making money selling ads is getting tougher all the time.

New studios that cater to the YouTube crowd, such as Maker Studios (recently bought by Disney) and Fullscreen, provide production and marketing support as well as new revenue streams from corporate sponsorship and custom videos. Here, the money is better, with marketers willing to pay thousands of dollars for even a middling performer.

Now, much like what happened in the cable business in an earlier era, a subscription model is emerging in the form of a new platform called VHX, which allows anybody who wants to create their own branded video apps for IOS, Android, Apple TV and Roku.

VHX CEO Jamie Wilkinson says, “We saw an opportunity to allow creators to increase their incomes. Many of our creators make more in a month than they do on YouTube in a year.” Over the past three years, VHX has helped its creators earn over $8 million in subscription fees.

McLuhan’s Village

Marshall McLuhan, in his classic work Understanding Media described media as “extensions of man” and predicted that electronic media would lead to a global village in which our lives would intertwine without limitations of time and space. He also declared that the medium is the message and predicted that as media distribution evolved, so would its content.

Clearly, he was right. But what is just as clear is that business models drive the medium and greatly effect what is created and for whom. When you are developing programing for large audiences that will be supported by advertisers, you will make different decisions than when you are developing for niche audiences who pay you directly.

We’ve already seen how binge watching has lead to programming with greater complexity, backstory and character development, just as the blogosphere has created a much more vibrant (and some would say cacophonous) discussion on every topic under the sun. As technology transforms the media business, content adapts to its new environment.

VHX’s Wilkinson has also noticed this effect when creators move from YouTube to subscription revenues. “On YouTube, creators are paid for getting people to click and stay long enough to watch a pre-roll ad,” he says, “but with a subscription model, you get paid when you develop a strong following, so our creators put a lot more effort into building passionate engagement.”

So, as the media business continues to evolve, we can expect new business models to emerge and that, in turn, will continue to shape how creators inform, entertain and excite us.

– Greg

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