This is the first in a series of briefings made internally by our staff researcher Dakota Sky Bloom and released on our blog.
Theme: A few of the major platforms are making money. Everyone else? Not so much.
Like it or not, advertising is crucial to both linear and digital entertainment. Given the inherent problems of scale with digital subscription based properties (content is insanely expensive to license and/or produce, the sheer number of SVOD options for consumers, the need for a large library AND originals/exclusives to lure subscribers, etc.), advertising will continue to be important. The advertising industry (- Facebook and Google) as a whole had a rough 2016, however, and that leaves a raft of publishers, networks, and adtech companies wondering where they go from here.
Advertising as a percentage of GDP slows, with broadcast, print, and cable declining in importance. Broadcast has been flat since 2011, and cable, which was at 12% per year growth from 1990 to 2010, and has been at 3% since 2011. Newspaper advertising has fallen by 10% each year. Conventional advertising never recovered after the Great Recession. All of this points to more online advertising, which leads into…
Duopoly cemented online- Facebook and Google had 99% of the growth in digital advertising revenue from 2015-2016. Ad tech has fallen by the wayside, and investment has fallen apart over the last year in adtech companies. It is unclear if players like Snap (which is hunting for 9 figure upfronts) would have any noticeable impact on the 2016-2017 numbers.
How much are blue-chip publishers making from social media distribution? Not that much. Interestingly, YouTube is the largest individual source of income, followed by Facebook, Twitter, and Snapchat (in that order). The mean premium publisher in the study made only $7.7 million by distributing content on third-party platforms in the first half of 2016, with the largest chunk on average $773K) coming from YouTube.
Europe may force websites to tell consumers that they must opt-in for the website to use tracking. Currently, it is often opt-out (try using Privacy Badger and see the sheer number of cookies on major publishers), and advertisers are worried about being “victimized” (their word, not mine) and losing even more ground. It could be another major hit to adtech.
Music industry is still having trouble actually making money- revenue-biting deals with labels mean that most services that are solely streaming are having a difficult time. Spotify, for instance, is still not profitable, and a handful of others (Pandora, Tidal, and Soundcloud) have had difficulty figuring out a workable paradigm. Ad-supported companies also struggle.
– Revenue in the US music industry is one-third of what it was in 2000, nearly half of 2016 revenue came from streaming services (both sub and ad-supported).
– 100 million streaming music subscribers worldwide, but growth year over year is flat (16.5 every six months for the last 18 months).
Networks will work with any IP- World Star Hip Hop is getting a show on MTV2. World Star is most famous for the street fight videos it publishes, but is otherwise an aggregator for “R-rated” urban video content . It is a testament to the desire for recognizable IP that World Star, which would likely be considered too risky by many brands for its sexual and violent content, is being turned into a linear show.
Facebook isn’t renewing its live video deals. There isn’t a viable business model in play yet to continue having live video be profitable on the platform, but the mid-roll ads to come out this year may help. It is utterly predictable that Facebook did this- pump a new feature, recruit desperate publishers, and hang them out to dry when Facebook’s market share for that feature is established.
Steem as an alternative model for paying for content online, using Cryptocurrency. It is essentially Reddit bound up around a blockchain; whenever a user posts content, other users can “upvote” content to show their approval. Said approval both a) shows the content off to more people so that it can potentially accrue more upvotes, and b) every time a user upvotes a piece of content, they give the person who posted that content a micro-transactional amount of the Steem cryptocurrency. With a sufficiently popular and upvoted piece of content, this can result in a significant sum.
All three Chinese stacks (Tencent, Alibaba, and Baidu) all have in-house banks and are integrating them into their products- it makes buying nearly frictionless. A study found that 1-in-3 consumers globally would use Google and Amazon for banking and insurance services. One can imagine an e-commerce company being forced to deal with Google, for instance, at every step of the funnel from search advertising to payment to analytics for each customer. This further consolidation of control of the customer would further leave publishers and independent e-commerce sites out in the cold. Alternatively, it might lead to a world of easier micro-transactions across the internet.
Turkey wants to follow Russia and China in having locally controllable versions or replacements for Gmail and Google. This may help them break up the power of the big tech companies, but the primary use of the companies is to be able to enforce local laws, including ones that Western companies might object to.