There’s never a dull moment in the race for dominance of the streaming video market, and we’re closing in on the point where the FANG stocks start swinging at one another.
Alphabet’s YouTube is trying to stand out as a platform for premium subscribers, the market that Netflix dominates at the moment.
This comes just as Facebook is gunning for YouTube’s market leadership among free clip-streaming hubs — just as the always-dangerous Amazon.com is reportedly readying a push for the same market.
You don’t have to pick sides — at least not yet. However, with so many subtle and not-so-subtle things going on, it’s time to remember that sometimes a Chewbacca mask is more than just a Chewbacca mask.
Google’s YouTube has stumbled badly in previous efforts to get its growing user base to pay up for a premium platform, but that may be changing since last October’s rollout of YouTube Red.
Getting folks to pay $9.99 a month for a service that most continue to enjoy for free seemed like a stretch, but stripping ads, including a free digital music component, and the promise of exclusive content likely sealed the deal for many skeptics. It made a premium subscriber out of me, for starters.
Then in February it took out the big guns. YouTube rolled out original shows starring some of its most popular personalities. It put those videos behind the YouTube Red paywall. Feature-length films starring Lilly Singh, AwesomenessTV, and Rooster Teeth as well as a reality-adventure series starring gaming icon PewDiePie appealed to the tens of millions of subscribers that many of those channels were attracting.
Arming the rock stars of clip culture with the tools and crew to crank out higher-quality productions appears to be working, even if YouTube conveniently leaves out the video view counts for YouTube Red videos. Either way, if YouTube Red is gaining traction at $9.99 a month — the same price point as Netflix — it might eat into the seemingly insurmountable lead that Netflix has amassed over the years.
YouTube is also in the crosshairs
One hub’s predator can be another hub’s prey, and we’re seeing that with Facebook’s success through video. It’s worth noting that the Chewbacca mask video that went viral a few days ago — the one with Candace Payne laughing hysterically after trying on a mask of the famous Star Wars wookiee — was posted to Facebook. It was a week ago today that Payne used Facebook’s live-streaming feature to broadcast the clip that has gone on to be viewed more than 148 million times.
Remember when YouTube was where clips went viral? It’s not always that way anymore. The only thing missing for Facebook is monetization for the content creator. Payne’s clip on YouTube would’ve made her a decent chunk of change through that platform’s YouTube Partner program. However, with Facebook amassing so many users, it’s awfully tempting to use it to live-stream to any friends and eventually fans that may be online.
It’s not just Facebook challenging YouTube’s dominance. Amazon introduced Amazon Video Direct earlier this month, a platform that lets creators upload their content to Amazon’s Prime Video catalog. Folks uploading the videos will generate royalties based on the time spent streaming. It’s too early to tell if it will be successful or pay as well as YouTube, but with tens of millions of Amazon Prime subscribers, there’s already a substantial built-in audience with access to the videos.
YouTube is aiming at Netflix. Facebook and Amazon are aiming at YouTube. It wouldn’t be a surprise if Netflix is hard at work, wondering how it can aim at Facebook and Amazon to keep the hungry stock-eat-stock circle of FANG stocks going.
While more than 75% of Netflix subscribers believe that it will replace traditional TV, the company’s competitor Hulu, is planning to launch a live TV streaming service, according to recent reports. Hulu is planning to roll out the new service in 2017 where Walt Disney and 21st Century Fox, its co-owners, will add their networks such as ABC, ESPN, Fox News and various national and local sports channels of the Fox network. Hulu’s subscriber base of 9 million users is much lower compared to the nearly 50 million subscribers of Netflix in the U.S. The new live streaming service offered by Hulu will be open to all and not only to existing Hulu subscribers. We believe that Hulu’s new offering is less of a threat to Netflix than it is to other players, with which it will more directly compete. These include other players such as Dish Network’s Sling TV. In contrast, Netflix has its strong consumer base of video-on-demand viewers preferring its high quality content. It thus should not be impacted by this new offering from Hulu.
Netflix management has time and again reiterated that it does not have much interest in bringing live TV to its users. The company’s focus remains high quality video on demand and most of its audience is loyal to the service due to the popularity of its original shows. In a recent Morgan Stanley survey Netflix was voted as the ‘best’ original content media company compared to any other premium TV or internet-video subscription service, beating HBO which had occupied this position for several years. A survey by investment bank Cowen revealed that 58% of subscribers pay for Netflix for its original shows. This number is up from 37% in December 2014, indicating the popularity of its shows. Given the popularity of both Netflix’s original content and its video on demand service, we believe it should be able to retain and grow its subscribers in the long run.
Given its lack of interest in live TV, Netflix might not be able to provide live sports streaming to its users, where players such as Hulu can benefit by starting a live streaming service. As an increasing number of users move towards alternative streaming media instead of traditional pay-tv, they will miss out on live sports if they opt only for Netflix’s video on demand content. While most of Netflix’s subscribers also subscribe to other services, if players such as Hulu can offer a combination of high quality video on demand along with live streaming of popular sports and other events, they could attract more users in future. Amazon is also reportedly increasing focus on sports programming for its streaming service, which it now offers as a standalone subscription and not as a part of an offering to its Prime Members.
Netflix’s strength is in the quality of its content and popularity of its original shows. However, as the company reaches a saturation point in the U.S. with domestic subscriber growth slowing down, it might have to think of innovative ways to attract more consumers. Live streaming of popular events and sports could potentially attract users and might benefit Netflix in the long term, as the alternative streaming media continues to evolve and competitors offer innovative content to viewers.
To date, the battle between YouTube and Facebook has centered on winning the hearts and minds of advertisers, online video publishers and creators. If the last few weeks are any indication, there’s another category of content creator YouTube should be concerned about losing some of its value to: TV networks.
On June 15, Amazon (along with Netflix and Hulu, a new breed of TV network) made the first episode of its comedy series “Catastrophe” available for free on Facebook. A week later, HBO did the same with two of its newest series, “Ballers” and “The Brink.”
On the surface, this might not seem like anything special. Online sampling of new programming is not new to TV networks, which are trying everything under the sun to reach audiences who are increasingly watching TV and other video content on digital platforms. What makes it interesting, though, is that YouTube used to be the only place on the Web that guaranteed the biggest video audience possible. Now, not so much.
Declining viewership drives marketing pivot.
“Right now, the world of video content distribution is right on the edge of total chaos,” said James Nail, a principal analyst at Forrester Research. Previously, if a network had a new show to promote, it would use a couple minutes of commercial time during the nightly broadcast. That’s not enough anymore.
And yet, it’s not as if people aren’t watching TV. Cord-cutting is a real phenomenon, according to Erik Brannon, a senior researcher and analyst for IHS Technology. They’re just not electing to pay for television in the traditional manner.
This is why HBO launched HBO Now and other networks like Showtime are following suit — to reach the 10 million broadband households in the U.S. that don’t pay for cable or satellite TV.
By allowing them to sample shows on social platforms, networks can also convince users in these households to pay for their new digital video services.
“Networks need to evolve at a pace that will find consumers as quickly as their behaviors change,” said Jim Marsh, vp of digital and social media for HBO. “Digital sampling is an effective way for us to introduce our programming to our current and potential subscribers. Ultimately we’re trying to create new fans.”
“It’s part of an overall strategy to include households that are excluded,” said Brannon. “Get people hooked and get people subscribing. I don’t think it’s going to result in a heck of a lot of pay-TV adoption. It’s a vehicle for OTT adoption.”
What once made YouTube unique now can also be done by Facebook.
The sampling trend has been good for YouTube. HBO, for instance, has previously released pilots of shows such as “Girls” and “The Newsroom” for free on the video site. But as Facebook makes incredible strides in video, another area that was once YouTube’s exclusive domain no longer is.
“We are always looking for innovative ways to work with our partners, and in this case, we had a new opportunity to work with Facebook to leverage the massive reach of their platform,” said Marsh. “Facebook has made some significant changes to their video capabilities in recent months, which made it possible for us to do this.”
As a platform, Facebook is arguably better at driving viewers to individual pieces of content. “The thing that [Facebook] offers that YouTube doesn’t is an [algorithmic] feed that people check in on multiple times a day,” said Nail. “YouTube, it’s still, ‘Gee, I’ve got to go to YouTube and search for stuff and maybe I’ll stumble on to something new.”
HBO’s Marsh is a bit more diplomatic: “The digital video ecosystem is so interconnected that there is no single best way to get exposure. It’s important that we work closely with all of our partners to reach people on multiple fronts.”
That said, the numbers suggest it’s been a good experiment for HBO so far. “Ballers,” which was uploaded to Dwayne “The Rock” Johnson’s Facebook page on June 24, has accumulated more than 5.5 million views. The first episode of “Brink,” which does not have the benefit of The Rock’s 50 million Facebook fans, netted more than 855,000 views in the same time frame.
The episodes will remain on Facebook for a few more weeks. “Facebook is an incredibly important strategic partner of ours, and we have a history of collaborating in innovative ways, including the ‘Game of Thrones’ red carpet live stream earlier this year,” said Marsh.
Asked if there are any plans to bring the episodes to other social video platforms, Marsh said no, not “at this time.”
The Hollywood Reporter 5/4/2015 by Rhonda Richford
Netflix chief content officer Ted Sarandos will take center stage during the Cannes Film Festival, addressing the NEXT program of the festival’s film market.
In what is sure to be one of the most buzzed-about moments of the festival, the man credited with helping to change the ecosystem of the entertainment business will address new distribution models, financing and the future of film production.
Sarandos will be introduced by film festival head Thierry Fremaux. The conversation will be moderated by Le Film Francais editor Laurent Cotillon.
Introduced last year, the NEXT program aims to address the future of cinema with a wide range of speakers who discuss new economic models and the changing face of the industry through workshops, roundtables, networking events, special presentations and a digital cinema forum.
“We are delighted to welcome Ted Sarandos to Cannes,” said Marche du Film executive director Jerome Paillard. “Netflix is a key player among the new wave of companies using innovative approaches and enhancing technology to create new models driving the industry forward. Ted is a huge addition to our lineup and extraordinarily well positioned to address some of the key themes that we will be exploring at NEXT.”
Said Sarandos: “We are delighted to be at Cannes at such a dynamic time and look forward to an open and entertaining discussion about our industry.”
LOS GATOS, Calif. — It is April 9 just before midnight in the war room of Netflix’s headquarters here, where the smell of popcorn fills the air and a team of engineers, social media experts and other specialists starts counting down the seconds until the new “Daredevil” superhero series goes live on the streaming service.
At the stroke of 12, applause breaks out in the room. Flutes of Champagne are passed around as the Netflix team checks that the series is available for binge watching across devices in more than 50 countries around the world.
“Daredevil” is the 17th Netflix original series to make its debut this year, representing a bold bet by the company to significantly increase its investment in exclusive programming. Just three years after Netflix started streaming its first original series, “Lilyhammer,” the company is planning 320 hours of original programming in 2015. That is about three times what it offered last year.
Reed Hastings, Netflix’s chief executive, is a connoisseur of them all, though he admits some run more to his tastes than others. During an interview the next afternoon, he said that he had watched the first episode of “Daredevil,” but called it “too violent” for him.
“I can barely handle ‘House of Cards,’ ” he said, referring to the political drama starring Kevin Spacey that put Netflix on the map in 2013 as an outlet for innovative programming with high production quality. “When someone dies, I’m like ‘Wooooow turn it off.’ ”
Mr. Hastings called himself a fan of “Unbreakable Kimmy Schmidt,” the new Tina Fey comedy starring Ellie Kemper about the life of a Pollyanna-like woman after her escape from a cult after 15 years. He said that he intermixes the series with the dark family drama “Bloodline.”
“It’s the tension of ‘Bloodline’ versus the mirth of ‘Unbreakable,’ ” he said.
That expanding range of original programming available on Netflix signals how Mr. Hastings wants to position the company as the entertainment world undergoes a digital revolution.
Traditionally, television networks needed to stand for something to carve out an audience, he said, whereas the Internet allows brands to mean different things to different people because the service can be personalized for individual viewers.
That means that for a conservative Christian family, Netflix should stand for wholesome entertainment, and, for a 20-year-old New York college student, it should be much more on the edge, he said.
“We want the original content to be as broad as human experience,” he said.
The emphasis on original content is an extension of Netflix’s long-term view that the Internet is replacing television, that apps are replacing channels and that screens are proliferating, Mr. Hastings said.
“We’ve had 80 years of linear TV, and it’s been amazing, and in its day the fax machine was amazing,” he said. “The next 20 years will be this transformation from linear TV to Internet TV.”
Netflix shares soared about 25 percent last week on news that it had added a record 4.9 million subscribers in the first quarter of 2015, bringing its total number of paid streaming subscribers to 59.6 million. The company beat expectations for growth and gave investors reason to believe that it still has much more room to grow.
“Think about the simplistic equation: More good content equals more viewing, more viewing means more subscribers, more subscribers means money to spend on more programming, which means more subscribers,” said Rich Greenfield, an analyst with BTIG Research. “It is a virtuous cycle.”
But some analysts have expressed concern about the company’s long-term prospects for more growth in the United States, where it is profitable. Another big concern is the increase in costs from paying for content, especially if Netflix cannot sustain the same hit level as its early efforts.
Global expansion, which is more costly and drags on profits, is also a concern. Netflix has said it would complete its international efforts in the next two years.
Netflix also faces a new wave of intense competition in the United States as a number of tech and media companies introduce streaming services. That includes HBO, which recently started HBO Now, which does not require a cable or satellite subscription.
Mr. Hastings said that he welcomed the new streaming entrants. Rather than a competitive threat, they represent the realization of the benefits of on-demand streaming television that allows people to watch shows on their own schedule and on the devices of their choosing, he said.
Mr. Hastings joked that people would know HBO is serious about streaming when it reverses the way it refers to its offerings and rebrands HBO Now as HBO. “They will take HBO linear and call it HBO Linear,” he said. “That is HBO if you really want to watch it on somebody else’s schedule.”
He added that people are likely to subscribe to more than one service because services offer different programs and that the rivalry will not only increase creativity but also provide a stronger alternative to traditional television.
“It will be like the Yankees and the Red Sox,” Mr. Hastings said. “I predict HBO will do the best creative work of their lives in the next 10 years because they are on war footing. They haven’t really had a challenge for a long time, and now they do. It’s going to spur us both on to incredible work.”
Richard Plepler, the chief executive of HBO, said in a recent interview that the increasing competition was forcing the network to focus even more intently on programming.
“People are going to take gibes,” he said. Pausing after each word for effect, he added; “Play our game. That is what we focus on. I can’t emphasize this enough: We cannot get distracted.”
Some television executives have started to worry that the rise in Netflix viewing — its members streamed 10 billion hours in the first quarter — is cutting into the time that people spend watching traditional, ad-supported television.
The fear is that advertisers will start cutting their spending on television, which captures about $70 billion in the United States each year, and shift to digital outlets. That has led to questions about whether television networks would reduce the amount of programming they sell to Netflix.
Mr. Hastings said that he does not view Netflix as a threat to ad spending because the service is commercial free. If the television networks stop selling shows, he said, the company has a game plan. “We just do more originals,” he said.
A version of this article appears in print on April 20, 2015, on page B1 of the New York edition with the headline: Netflix Bets Its Future on Shows All Its Own. http://www.nytimes.com/2015/04/20/business/media/netflix-is-betting-its-future-on-exclusive-programming.html?smprod=nytcore-iphone&smid=nytcore-iphone-share
When Amazon.com reported its fourth quarter earnings last month, the announcement came with an interesting note from CEO Jeff Bezos. He wrote in the earnings release that Amazon “paid billions of dollars for Prime shipping and invested $1.3 billion in Prime Instant Video.”
That amount includes funding for its original productions like Transparent and licensing for other popular content. It might fall short of the $3.2 billion Netflix (NASDAQ: NFLX ) spent on content in 2014, but Amazon is expected to further increase its Prime video investments this year.
But why is the company willing to spend so much on programming for a service that started out as a flat-fee shipping program?
Because content is key to retaining Prime members
The determining factor as to whether or not Prime subscribers renew their membership is not how much they shop on Amazon but whether or not they watch video.
On the third quarter conference call, CFO Tom Szkutak told investors, “Those customers who are streaming are renewing at considerably higher rates … When customers come in for … free trials and they engage from a video content standpoint, we see the conversion being higher.”
Therefore, it is important for Amazon to maintain a compelling library of content — and that does not come cheap.
As mentioned, Netflix spent approximately $3.2 billion on programming last year. Hulu spent approximately $750 million on licensing and millions more on originals. With both companies competing with Amazon for exclusive rights to the hottest titles, the prices will only continue to climb.
At some point it becomes unprofitable
There must be a breaking point for the three players, where the price is simply too high. But I would venture to guess that Amazon is ultimately willing to pay more than both stand-alone streaming services, as the retail king continues to make money from Prime members shopping on the site.
While Amazon has to foot the bill for two-day shipping as well as video content, we know that it would rather sell something to Prime members than nothing at all. In fact, Prime members spend more than non-members. Mr. Szkutak noted “Prime members are buying more.” While he did not give details on how much more, a survey by RBC Capital last summer puts the number as high as 68%. With a gross margin of 29.5% in 2014, Amazon has plenty of room to maneuver.
With the initial subscription price approximately matching the yearly rate of both Netflix and Hulu, it is safe to say Prime subscriptions ultimately produce more cash flow than Netflix and Hulu subscriptions. That puts Amazon in a strong position to outbid its competitors for new content, while still making money from Prime.
Do not underestimate the power of cash
Amazon ended 2014 with $17.4 billion in cash and investments. Comparatively, Netflix had just $1.6 billion.
In a fourth quarter letter to shareholders, Netflix CEO Reed Hastings told investors that the company will look to raise at least $1 billion in debt this year to help fund its content purchases as the rest of cash flow goes toward building out its service around the world. While interest rates remain low, the fact that Netflix must borrow to fund content acquisition will significantly impact the amount it is willing to bid, and the company has noted that it will have to factor interest expenses into its content budget.
That leaves Amazon in a position to buy more content at an effectively lower price than Netflix, while producing more revenue per subscriber through Prime.
Video is the key to making Amazon Prime work. Even if Amazon does not offer the best prices on the Internet, most Prime subscribers will choose Amazon anyway because of convenience and the psychological impact of already having paid the subscription fee. For Amazon, this “moat” around Prime explains Amazon is willing to spend billions on new Prime Instant Video content.
In what we hope will become a Digiday holiday tradition, Wolff revisited his predictions, weighed in on some of the bigger media stories of the year (including one he himself played a role in) and sounded off on what to expect in 2015. Don’t touch that dial:
A year ago you said the state of digital media was “pretty damn bleak.” What’s your assessment at the end of 2014?
It still looks bleak. The interesting thing is there is a sort of coming-to-terms with it. Many people are starting to say, “What actually does this add up to?” The New Republic thing was an interesting tipping point of suddenly people saying, “This is not necessarily logical or necessarily the future.”
The hand-wringing over the New Republic seemed completely out of proportion with the event itself.
I was surprised, but that’s an indication that suddenly this is a big question. This seemed existential. What actually are we talking about here? The underlying implication is that these digital people are kind of fools. This digital ambition is wackadoo. The conclusion we’re coming to is that digital media is entirely, only, solely, completely a traffic game. There is no other model. If that’s true, there is a whole set of other implications, essentially lowest-common-denominator implications.
Who’s doing it right? Who is not a lowest-common denominator?
Probably Netflix. Yeah, “It’s disruptive; it’s this; it’s that.” But the curious thing about Netflix, if you look at it, you think, “Wait, that’s television.” The only thing that’s different from television is the means of distribution. Netflix really doesn’t have anything to do with digital media — there’s no social, no community, no commenting, none of the digital media conventions or forms.
But TV is historically a lowest-common-denominator medium. TV was the wasteland. Now digital media is the wasteland. There’s nothing there. A deluge of crap. TV has gone in the other direction and produced these things everybody watches and talks about and become important signposts of the culture. So TV is upscale, and digital is downscale media.
Netflix isn’t a news or information outlet, though. It’s strictly entertainment.
That’s an odd thing about digital media. Essentially it gets invented on the basis of news and information. In truth, media itself is always about entertainment. At the least, news and information are the tail. The creators of digital media are not news people. It ultimately is going to handicap you when you’re building a media business.
One thing we saw a lot of was traditional media companies trying to recast themselves as technology companies. There’s this conceit that technology is the future. Tech companies are valued at a higher rate, and all the other shibboleths we could go through as to why you’d want to describe yourself like that. But technology doesn’t do anything other than make processes more efficient. Which can be transformative. But it can’t create media. People don’t ultimately develop a passionate relationship with efficiency. The media business is necessarily a non-digital experience. Digital is about reproducing something so it’s exact. Media is about making something original.
So what happens in 2015?
There’s going to be a dawning understanding that that’s what digital media is: You’re in the direct-response business. The native content business is basically responding to that. How do we get out of this? There’s only one media model that works, and that’s television. Digital media has managed to kill music, kill newspapers. It’s only television that exists now.
Everybody in digital media will be trying to get into the television business. The only word you hear now is “video.” There are actually two words you hear: “premium video.” It seems to me a very clear step back to television. I also hear about licensing video. You’re going to start to see re-reruns. Netflix, Amazon and Yahoo have already gotten to the point of original video.
We’ve been seeing a lot of journalists become entrepreneurs and launch their own outlets. What do you make of that trend?
Who wouldn’t do it if someone was offering you the opportunity to do it? But there are no success models here. What could the success be? There is no other model but traffic. All of these somewhat-focused vertical high-end journalists going into a business where they have to produce a mass-market product? I’m a little befuddled by that. I suppose it’s because BuzzFeed does it, and they have some actual journalists. But BuzzFeed is a tech company. One which is wholly focused on aggregrating a mass audience. It has no other value beyond that.
BuzzFeed claims to aspire to real journalism.
BuzzFeed is not about journalism. It’s about 150 million uniques. These other guys are going into a business in which you have to compete with BuzzFeed.
That’s what Nick Denton seemed to be getting at in his recent memo to Gawker staff. He essentially copped to trying to out-BuzzFeed BuzzFeed.
Exactly. There’s only one pole there. Whoever is rushing to the bottom is where everybody has to go.
So journalism suffers here.
The best journalism functions with discrete audiences. There’s no such thing as a discrete audience anymore. If you are fundamentally a tech company à la BuzzFeed, journalism is going to suffer. I think journalism has always had to carve a difficult path. But the idea that journalism somehow has a right to exist just because of its virtue is a Guardian point of view that I don’t subscribe to.
What about Vice? In the past, you’ve held them up as a media company that’s getting it right.
Their entire effort is to literally get themselves a cable channel. They’ve played an interesting game: They created a brand. They’re not a tech company. They’re a real, traditional media company. What they’ve artfully gotten around is that they don’t really have an audience. In conventional terms, it’s a brand and if they do that well enough, somebody will give them a cable channel. And it seems to be happening.
Were you surprised to find yourself at the center of the Uber-BuzzFeed flap last month?
Of course I was surprised. [BuzzFeed editor-in-chief] Ben Smith has one speed: find a quote that’s going to gain traction and that becomes a highly trafficked story. It is fundamentally the blogger’s game. In a way I shouldn’t be surprised he got that quote and he ran with it. I like and respect Ben, so it was a little surprising that he essentially misrepresented entirely what happened.
Have you guys spoken since?
No. Would I? Of course.
“Our digital group is on fire!” declared Jeremy Zimmer, CEO of United Talent Agency, discussing the impact of new media on Hollywood and his talent agency during a Q&A at The Hollywood Reporter’s Power Business Managers breakfast in Beverly Hills on Wednesday.
“The agencies have been at the forefront of reaching out and trying to create and enhance the relationships between Hollywood and Silicon Valley,” said Zimmer in reply to a question from THR executive editor Matthew Belloni.
“We have made multiple trips up there,” continued Zimmer. “We sit and talk with all kinds of entrepreneurs from the most senior guys to the most senior companies, whether it is Sheryl Sandberg [at Yahoo!] or Mark Zuckerberg [at Facebook] or Dick Costolo [at Twitter]; or brand new start-ups that are being funded by our friends at [venture capital firm] Andreessen Horowitz or other companies.”
“We have a constant flow,” added Zimmer. “We have an early investment fund at the agency. We’re trying to be deeply embedded in that community.”
Zimmer was interviewed before most of the top 25 Power Business Managers selected to be on the annual list published in The Hollywood Reporter magazine on Wednesday. These business managers handle the financial affairs and provide tax and other advice about how to handle money for Hollywood’s biggest stars and creative talent.
Zimmer said the expansion of platforms that exhibit programming opens the door to new players. He cited the show Transparent on Amazon Prime as an example of something that is well done and doing well.
“What’s happening is the thirst for product has created an expansionist view toward working with new artists,” said Zimmer. “The idea, ‘Oh we only let showrunners run television shows’ [is over]. So we now have all these new showrunners coming in and they are creating some really exciting great new products. As long as the product continues to be great, I think you’re going to see continued growth.”
At the same time, Zimmer believes that the biggest studios often suffer from an aversion to change. He cited as an example movie distributors and theater owners refusing to play films day and date with an electronic release, as has happened recently with Weinstein Co.’s sequel to Crouching Tiger, Hidden Dragon.
“The traditional media business has suffered from the lack of innovation,” said Zimmer, adding most of the great innovation has been done “by total outsiders, technology companies, who are not enslaved to ‘we’ve always done it this way and we’re going to keep doing it this way.'”
That opens the door to new players, adds Zimmer: “There will be an opportunity for smaller studios and distribution platforms to emerge who are more nimble and adept at using social media and web based products to market their movies and to reach a more targeted affinity group on behalf of movies.”
Zimmer touted his own agency’s growth through the acquisition earlier this year of N.S. Bienstock, which specializes in representing broadcast talents including Anderson Cooper, Robin Roberts and Bill O’Reilly.
“They felt there was an opportunity out there they weren’t able to capture,” said Zimmer, “and similarly for us that was an area we were very interested in expanding into. So it was a really great fit.”
The annual event held at Cut in the Beverly Wilshire Hotel began with a welcome from Lynne Segall, group publisher of The Hollywood Reporter and Billboard. She introduced Ranjan Goswami, staff vp western region sales for Delta Airlines, one of the sponsors of the event.
Steven Shapiro, senior vp entertainment division for City National Bank, another sponsor, introduced Belloni and Zimmer.
Other sponsors for the breakfast were CAPS and Travaasa Experiential Resorts.
CULVER CITY, Calif. — The film set was professional, even if the actors kept messing up the scene by laughing at the star, who was flailing in front of a green screen, pretending to be eaten alive.
“We need it clean,” the sound man shouted. They shot it yet again, the actors holding back their hysterics until the cameras were off.
The scene, an episode of a sketch comedy show called “AsKassem,” was destined not for theaters or TV, but for YouTube. But with the green screen, film crew, actors and expensive cameras and lights, it went far beyond the typical one-man YouTube videos filmed in a basement with a webcam.
It was produced by Maker Studios, one of several production houses that have sprung up to help create and distribute videos for the Web. Financed by venture capitalists and grants from Google’s YouTube, these studios are trying to play the same role for the online video service that United Artists did almost a century ago for movies or MTV did for television in the 1980s.
“These are new-generation studios, folks that are growing up from the basement who are choosing to collaborate and form these networks,” said Hunter Walk, head of product management at YouTube. “In many ways they are like the first cable stations 30 years ago.”
Maker Studios’ videos, for instance, have almost as many daily viewers as Nickelodeon.
It is a major shift in Google’s strategy for YouTube. Google is taking a much greater role in aiding the creation of original content for the site by nurturing these studios because betting on professional content from established movie and TV studios has not panned out.
YouTube sorely needs more high-quality content to compete with video-streaming services like Netflix and Hulu for both viewers and advertisers.
“YouTube counts for the largest share of people’s home video-watching, but once people start watching that professional content on Hulu or Netflix, it quickly expands to become the predominant viewing and takes time away from YouTube,” said James L. McQuivey, a digital media analyst at Forrester Research.
Some YouTube video creators have been making money, in some cases lots of it, for a couple years. But as the site has exploded — 35 hours of video are now uploaded every minute, according to YouTube — it can be hard for video creators to build regularly viewed channels, not just one-hit viral wonders.
The start-up production companies — including Maker, Machinima, Mahalo, Vuguru and Next New Networks, which YouTube recently bought — try to help them. The studios tend to be near but still outside the boundaries of Hollywood, both geographically and in the work they do.
They generally pluck talented video creators and help them make videos by providing the costumes, cameras and paychecks needed to make a more professional-looking video. They help build viewership with strategies like linking to their videos from other popular ones in the same network. YouTube sells ads and shares the revenue with the companies and creators.
Kassem Gharaibeh, the creator of “AsKassem,” was working at a Best Buy and doing stand-up on the weekends to crowds of 15 people at Chinese restaurants when he met the founders of Maker Studios. They paid him $1,000 a month, enough to pay his rent so he could quit his job and devote his time to posting videos more than once every three weeks.
Two of Maker’s founders and well-known actors, Lisa Donovan and Shay Butler, known on YouTube as LisaNova and ShayCarl, appeared in his videos, introducing him to their audience. He gained access to editors and a camera crew, a house to shoot in (or sleep in), and closets overflowing with turquoise wigs and fake diamond crowns.
In a year, his YouTube audience ballooned from 50,000 to 1.3 million. “I honestly don’t think I would have been able to reach those numbers myself,” said Mr. Gharaibeh, who goes by KassemG on YouTube.
The videos these studios produce are mainly sketch comedy, how-to lessons and video-game tutorials. But it is only a matter of time before long-form videos and episodic dramas appear online, video producers say. If Google TV takes off and people watch YouTube on their television screens, they could attract a much larger audience.
“I think you’re going to see it happening any minute,” said Allen DeBevoise, chief executive of Machinima, a network of video-game videos. “That stuff’s expensive, but we’re getting there because advertisers are moving to online video.”
Machinima is negotiating with a Hollywood TV studio to buy “Bite Me,” a series about a zombie outbreak in Los Angeles that Machinima developed last year.
Last month, Shangri-La Entertainment uploaded a feature film made for the Web, “Girl Walks Into a Bar,” starring Danny DeVito and Rosario Dawson and sponsored by Lexus. The studio likes to point out that if the number of views it received in the first two days were movie tickets, the show would have made $2.6 million at the box office.
“We’ve gotten more and more sure over time that there are good economic reasons that the content distributed through cable is going to continue getting distributed that way,” said Salar Kamangar, senior vice president of YouTube. “But we have more and more reason to see the new kind of content for the Web is increasingly attracting viewers’ minutes, so we’re focusing on those.”
YouTube is nurturing them with ad revenue, coaching on copyright laws, and grants, like the $100,000 it gave Maker. It has hired people it calls strategic partner managers, whose job is to be on call for the studios, offering advice on things like uploading problems.
By developing such tight-knit relationships with the studios, YouTube is treading in risky territory. “The second they go into the content business, their very valuable franchise of advertising, their ad network and their YouTube platform will come under attack, because why would anybody support somebody who competes with them?” said Jason Calacanis, founder of Mahalo, which makes videos teaching subjects from math to guitar playing and cooking.
Mr. Walk said YouTube is hands-off in the creation of videos, and considers itself “not a media company but a media catalyst.” But when YouTube acquired Next New Networks, it overnight became a smalltime video creator.
“It’s not at all a stretch to say they’ll get into production — not owning the producers, but investing,” Mr. McQuivey said of Google. “If Google does that, it gives these guys a shot at something they could never get in Hollywood, and it’s the new model for producers.”
The studios are already a welcome home for the masses of struggling actors, writers and directors who show up in Hollywood hoping for work. But though their videos often catch Hollywood’s attention, most of them, like Mr. Gharaibeh, say that’s no longer what they want.