In This Issue:
In this edition, we reflect upon the key digital media events of the first half of 2015 and present the major deals, developments and trends across video, music, gaming and virtual reality.
Digital Media's Top Deals, Developments—Q1/Q2 2015—Your Cheat Sheet and Our Predictions
By Peter Csathy and Mary Ermitanio
Six months ago, in an article titled "The Future of Digital Media in 2015" TechCrunch posted several of our Predictions for the digital media world in 2015. We later expanded that article. It's now time to look back at the first six months of the year in digital media—look at the top deals, developments and trends (note: VR and off-YouTube video are the big stories/top trends in digital media so far this year—more on those below)—and see how those Predictions stand up. Consider this your cheat sheet of important activity in the digital media ecosystem.
Here are our original Top Predictions below—juxtaposed against where we stand now.
Prediction Part 1—The mobile-driven premium short-form video YouTube economy grows up, and traditional media companies finally take notice on a mass scale. Shell-shocked studio executives internalize that digital-first platforms are where they must be to reach smartphone-obsessed Millennials. MCN acquisitions will quicken as more studios jump into the M&A game rather than try to figure out this new content platform themselves. Some leading MCNs ripe for acquisition include . . . sports-focused Whistle Sports, which is a Manatt Digital Media client.
The Reality for Part 1, Six Months Later
Interestingly, for the first six months of 2015, the pace of MCN-related M&A had slowed—and had been replaced by an accelerated pace of more cautious strategic investment as media companies struggle to develop their digital-first video strategies and are too afraid to go all in. That lull proved to be temporary, punctuated by the recent news of German media giant ProSiebenSat.1 acquiring a majority stake in leading MCN Collective Digital Studio (CDS) (an MCN that had been flying somewhat under the radar). ProSiebenSat.1 had already owned 20% of CDS, so the deal (which values CDS together with its other MCN Studio71 plus significant new cash at $240 million) is logical. Strategic investors frequently try and then later buy if they like what they see.
We have always been bullish on those still independent MCNs that had become market leaders and achieved significant scale. These include:
All of these are ripe for M&A down the road—a road that likely just got shorter because one of their independent brethren (CDS) has just been taken off the table.
So, given all this activity, we think it's safe to conclude that the YouTube economy has grown up significantly in the past six months—so much so that it has outgrown YouTube. For the first time, multiple powerful off-YouTube platforms exist, most notably Facebook (about which I recently blogged in a detailed analysis) and Snapchat (which launched its highly strategic Discover video feature in January and later coyly announced its plans for global advertising domination). That's why most MCNs have shed that moniker (which most never really liked anyway) in favor of MPN—as in multi-platform network. And, in another trend worth watching, major media companies began to incubate their own MCN-like sites (e.g., Discovery Communications' women-focused TLCme).
Here's a list of some of the most interesting related developments:
More general digital video-centric mega-M&A and mega-strategic investments multiplied, with some notable examples including:
Prediction Part 2—International also becomes a major new battleground for these borderless video opportunities.
The Reality for Part 2, Six Months Later
Not surprisingly, international has become a major battleground—and even more intensely perhaps than anticipated only 6 months ago. Here are some key data points (in addition to the ProSiebenSat.1/CDS deal that underscores this global, borderless theme):
2. Prediction—Major consumer brands follow suit and act in earnest. Massive marketing dollars shift from traditional media to more measurable digital platforms in the form of branded content (not just ads), cannibalizing the former for the first time. Major investments are placed on ad-tech companies to maximize and measure those spends. We see a number of significant ad-tech exits, such as Yahoo!'s recent acquisition of BrightRoll for $640 million. Several brands go further and invest big to become digital-first lifestyle media companies themselves à la Red Bull, developing and aggregating content. GoPro, Pepsi and Marriott have proudly announced such ambitions.
The Reality, Six Months Later
Certainly, brand activity has likewise accelerated, as brands begin to fully internalize the digital-focused transformation—and opportunities—of the media and entertainment business. Fewer examples of new Red Bull wannabes in the first half of this year, but certainly a proliferation of branded content studios. And MCNs/MPNs are increasingly cutting out the middleman and playing the role of ad/creative agencies in the digital video ecosystem. Here are some representative examples:
3. Prediction—Seeing all this activity, Silicon Valley investors increasingly make pilgrimages down South to the epicenter of media content—L.A.
Few doubt this one: L.A. is a serious new VC battleground. Hale Boggs, Chairman of MDM and the Manatt Venture Fund (which actively invests in digital media companies), confirmed this trend. "Many principals from major NorCal VCs are spending more time visiting with companies here, and a lot of the larger funding rounds for L.A. companies are now being led by those VCs," Boggs said. Some, such as Rothenberg Ventures (a highly connected and respected NorCal-based VC that also opened the first VR accelerator, River), have opened new offices in L.A.
4. Prediction—YouTube is increasingly under siege by new competing video platforms such as Facebook and former Hulu chief Jason Kilar's Vessel. These off-YouTube platforms lure content creators away with promises of more compelling care, feeding and economics (including the tantalizing prospect of real subscription revenues).
Vessel started the year off with a bang. But the big bang now is Facebook's massive growth (and strategic prioritization) of video—and Snapchat's own accelerating video focus (including its strategically significant Discover feature). Off-YouTube is a mantra chanted increasingly—and with increasing volume—across the globe right now. Many insiders within the industry with whom we have spent significant time believe that the threat is real. I addressed these developments in detail in two separate blog posts: "Facebook v. YouTube - Who Wins? 5 Part Test" and "YouTube v. Facebook, Amazon & Apple - Clash of the Video Titans (& the Role of DNA)." But it also isn't a zero-sum game. All of this activity expands the overall pie.
5. Prediction—Traditional pay TV packages likewise increasingly are under fire in the "Great Unbundling" that began in 2014. What was unthinkable just one year ago (even 6 months ago!) became reality as HBO, CBS, Starz and others announced stand-alone over-the-top (OTT) services. A parade of others follow suit in 2015.
No traditional Pay TV bundle is safe anymore. The Great Unbundling is real and comes in two flavors: So-called "Skinny Bundles," including DISH's Sling TV (which revolutionized the OTT space by giving must-have ESPN as an add-on option) and Verizon's Custom TV), and stand-alone OTT services (too numerous now to mention, but some of which are identified below). And even the kids aren't safe! Nickelodeon anyone? Oh, yeah, it, too, launched its own stand-alone OTT subscription service. In a truly remarkable sign of the times, Cablevision's CEO Kristin Dolan went so far as to speak the previously unspeakable among big traditional Pay TV providers—announcing new "cord cutter" and "cord never" OTT packages. That's why Pay TV operators are increasingly willing to partner with SVODs (e.g., Cablevision offering Hulu and HBO Now). Here are some more important developments and deals:
6. Prediction—Traditional media companies facing these tectonic shifts in long-established business models—and major tech companies (Apple, Google, Amazon, Samsung) for which content is increasingly critical to fuel their own—take M&A seriously, and one pulls the trigger as media and tech converge . . . literally.
No mega-M&A deal has materialized quite yet, but major media moves by the major "tech" players continue unabated. Some examples include (i) Amazon's ever-increasing investment in original programming (it just recently announced that it is doubling down on 2014's $1.3 billion original programming budget) and (ii) Apple's inevitable coming-soon OTT video service (on top of its recently launched Apple Music). It may be only a matter of time before one of these tech behemoths—each of which already cloaks itself with media trappings—tries to make that full transformation real. At a minimum, Netflix—the poster child for new, nontraditional media companies—may be directly in the line of sight.
And, in a significant related trend, telcos have placed themselves directly into the center of this video vortex. Cases in point: AT&T and The Chernin Group's $500 million-$600 million Otter Media joint venture, Verizon's $4.4 billion acquisition of AOL, and Dish Network's rumored merger talks with T-Mobile.
7. Prediction—On the music side, massive moves are made away from stand-alone services. Like Apple buying Beats, numerous potential behemoth buyers exist for the two market leaders—Spotify and Pandora.
Spotify keeps raising massive sums of money, the latest being a $526 million round announced in June at an $8.53 billion valuation. For its part, Pandora has been rumored to be looking to acquire a true on-demand streaming service. And Apple finally launched its long-awaited Apple Music Spotify killer. Apple can do what stand-alone behemoths can't, i.e., lose money in order to drive its over-arching, multifaceted business model. Fast-transforming social/media company Facebook may also be joining the party. Facebook has reportedly been in talks with music labels for a potential new music service. Even Microsoft recently rebranded its Xbox Music, Groove.
With all this action, other behemoths (such as Amazon, Google, Samsung) logically may be eyeing Spotify and Pandora . . . from the sidelines . . . for now.
8. Prediction—Gamers see real action, too, as app developers increasingly focus on storytelling and compelling characters to build multiplatform media companies à la Rovio with Angry Birds. Rather than take traditional media properties and "gamify" them, these companies flip the model with an apps-first approach. Finnish-based Silvermile and Seriously are two companies with Rovio roots to take . . . well . . . seriously. VR also enters the ring with gamers in mass in 2015.
Virtual Reality is one of the two big stories of the first six months in the digital media world. VR is absolutely top of mind of virtually everyone in the industry now on all sides of the house—yes, games—but also movies, education, travel, news, impact. On the games front, storytelling in a more strategic, holistic sense is increasingly the norm with large-scale game developers. As a result of this frenetic activity, which includes continued massive VR-related investment (that noted futurist and VR thought leader Peter Diamandis already pegs at $5 billion of total invested capital), I have increased my VR-focused writing. Here are some recent blog posts about the media world's well-placed VR obsession: "Virtual Reality Update - Latest Developments; VR - Power, Potential, Risks . . . Thoughts of Leading Innovators In This Immersive Space; VR - The Engine of Empathy . . . And Real Social Change;" and "Jaunt, VR & The Future of Media & Entertainment."
9. Prediction—Leads to wearables, where we see an Oculus under every hard-core gamer's tree next year, alongside their parents' new digital health/fitness watch.
Okay, we now won't see an Oculus under every gamer's tree this Xmas season. But we didn't miss it by much. Oculus just recently announced that it will start selling its first mass consumer headset in early 2016. That's when things should really take off—and early-stage market leaders such as Jaunt and Vantage.TV (a Rothenberg Ventures/River portfolio company) are accelerating content initiatives to meet that capacity—as are juggernauts such as GoPro (which is also harnessing the power of drones—another major trend to watch—literally) and Discovery Communications (which recently unveiled Discovery Virtual). After all, technology isn't holding up mass adoption of VR right now. Content is. And that's changing fast.
MCNs Beware: FTC's Just Revised FAQs to Its Endorsement Guidelines May Directly Impact You
By Linda Goldstein
Last month the FTC issued revisions to its FAQs on the Testimonial and Endorsement Guides. In general the Guides require that any material connection between an endorser and an advertiser must be disclosed. Over the course of the last year the FTC has been taking a much more restrictive approach to these Guides and has essentially said that almost any interaction with a brand's product, pinning the product, taking a photo with the product constitutes an endorsement and any incentive no matter how nominal constitutes a material connection.
For MCNs this means that even if you are just receiving a free product or video game, you must make the disclosure, and if you are also being compensated, that has to be disclosed as well. That has been the law for the last few years.
With its newly issued FAQs, however, the FTC has clarified some issues that might directly impact how MCNs attempt to comply with the FTC's Guides and may cause you to revisit some of what you are doing. Some of the highlights that should be particularly relevant to the MCN community are as follows:
1. The FTC says that disclosure of the material connection cannot be made in the "Description" section of a video posted on YouTube. The disclosure has to be on the video itself.
2. The FTC says that for all video endorsements the disclosure has to be at the beginning of the video and if the video is lengthy the disclosure may need to be repeated multiple times.
3. The FTC has a specific question relating to MCNs—the question concerns whether it is sufficient for the influencer to disclose that it has been paid by the MCN. The FTC says no, the disclosure must indicate that the payment is coming from the brand or that the influencer has a material connection to the brand.
4. The FTC also specifically addressed the situation of a playthrough video where an influencer has been asked to play the video game and provide commentary throughout. In that situation the FTC says that the disclosure of the material connection must be made multiple times throughout the video. Once, even at the beginning, is not enough.
5. The fact that a celebrity is well known as being a spokesperson for a brand is no longer an exception to the disclosure requirement. Unless you can show that a significant percentage of the talent's followers know that the celebrity is connected to the brand, a task that the FTC acknowledges is "tricky," disclosure is required.
There are many other issues and requirements addressed in the new FAQs that you can access here. It is clear, though, that the FTC is continuing to very aggressively monitor sponsored social media campaigns, and we can expect more actions in the future. Now would be a good time to review your business practices to make sure you are in compliance.