New Television Seeking Mobile Viewers

Last August 7, American producer Jeffrey Katzenberg—famous for his work on Shrek and his association with director Steven Spielberg to create Dreamworks—announced that he had raised the funds needed to launch a new company named NewTV.

This announcement, by virtue of which the producer will join forces with businesswoman and Republican politician Meg Whitman, involves the implementation of a streaming platform for high production value content of short duration, i.e., formats lasting 10 minutes or less.

The initiative raised more than US$1 billion, and that sum was used to offer through the platform original content that is specifically designed for smartphones and tablets. A variety of genres—sitcoms, dramas, reality TV, documentaries, etc.—and formats are proposed.

The project arises in a particularly uncertain media context that is characterized by an increasing level of fragmentation among linear content distribution sources, types and models.

The mobile content market

The project put forward by Whitman and Katzenberg aims to seize the huge opportunity opened up by the distribution of content designed specifically for mobile devices. NewTV is betting that content created specifically for smaller screens will capture and captivate mass audiences more skillfully, more effectively and with a higher perception of value than content developed for larger fixed screens.

Today, the content developed by platforms such as Hulu, HBO and Netflix is viewed on mobile devices in a proportion of 10%. Meanwhile, platforms that host third-party content such as YouTube and Facebook, on which more of the content is created to be viewed on mobile devices, take up anywhere between 50% and 70% according to Ooyala’s most recent figures.

The report also indicates a significant increase in the length of content viewed on mobile devices. From 2016 to 2017, the proportion of videos lasting more than 5 minutes increased from 23% to 48%, whereas 30% of all videos viewed were of a duration of more than 20 minutes.

The evolution of uses, the increase in the average size of mobile screens (according to IDC, “phablet” sales will exceed those of smaller smartphones as early as 2019) and, especially, a clear improvement in cellular networks and data packages are all factors that explain this new reality. In other words, there exists today a niche for average duration mobile content that is experiencing strong growth, and NewTV is among the first players to cater exclusively to this niche.

Beyond distribution, the content offer developed by Katzenberg and Whitman is also unique from a quality standpoint, the content costing anywhere from $100,000 to $125,000 per minute to produce. By comparison, several sources including the New York Times evaluate that producing professional-grade mobile content costs between $5,000 and $10,000 per minute.

Each 10-minute episode could therefore cost in excess of US$1 million, which represents a cost that is comparable to—or exceeds—what it costs to produce an hour of fictional content in Quebec. It’s an investment of the same order of magnitude as a Game of Thrones (between $6 and $15 million per 50-80-minute episode), but designed for screens measuring anywhere from 3 to 5 inches.

An autodisruption strategy

The announcement made on August 7 is also surprising from a strictly financial standpoint. One billion dollars to do what exactly? As we are reminded by the New York Times, during their initial rounds of funding, Facebook raised $1 million, Uber raised $1.25 million, and Netflix netted $2.2 million. These initial rounds, from 500 to 1,000 times lower, served to support existing initiatives and operational platforms.

Raising one billion dollars for an idea, with no platform and for which a narrative universe still needs to be imagined, therefore represents a rather exceptional feat. However, it must be specified that, contrary to the aforementioned companies, NewTV shall hold the intellectual property. The platform is accessory to the distribution of content and, therefore, cannot be compared to those of mainly tech companies. (Netflix’s evolution from a distributor to a producer occurred after its initial fundraisers.)

The strategy is somewhat reminiscent of the declared intention of Reflector Entertainment, the Montreal-based multiplatform company founded by Guy Laliberté and Alexandre Amancio in May 2017. Its first content pieces should be available soon.

It is also surprising to note that, in terms of investors, many major media players are present, including Disney, 21st Century Fox, NBC Universal, Sony Pictures, Viacom, AT&T WarnerMedia, Lionsgate, MGM, ITV and Entertainment One. The commitment made by these American heavyweights suggests a certain apprehension of mobile’s disruptive potential for these major players’ business models and contents.

This autodisruption strategy recalls Clayton Christensen’s “innovator’s dilemma” and is testimony to a certain level of anticipation among the majors. They are confined to cumbersome cost and infrastructure structures and therefore poorly equipped to deal with this evolution.

In some sorts, it’s an attempt at prospective diversification. If the initiative put forward by Katzenberg and Whitman pays off, they will be well positioned to take advantage of it. Moreover, it would not be surprising if several of these investors end up anticipating the integration of NewTV’s operations in their media asset portfolios.

Contained content

Mobile viewers certainly have reason to celebrate the arrival of NewTV. The arrival of a dedicated player in this market will create a vacuum that risks sucking in many others, namely in the higher added-value portion. (There is no shortage of homegrown mobile content today, to the contrary…)

However, that raises the question of how to monetize this new offer. Almost all of the digital players (Netflix, HBO Go, Hulu, etc.) currently resort to an entirely subscription-based model. The announcement made by Katzenberg and Whitman instead suggests a mixed model that is both ad- and subscription-based, somewhat reminiscent of the strategy used by YouTube when it launched its YouTube Red service, renamed YouTube Premium last June.

It must be admitted, however, that this results in the addition of (yet) another new pay distribution channel among a myriad of existing channels and, therefore, in the increased balkanization of digital content. Whereas consumers are becoming more and more agnostic when it comes to platforms (and rather faithful to brand universes) and increasingly hostile to advertising breaks, the emergence of a new player creates of a “minimum basket” that is relatively costly for users.

Many consumers will need to accept paying $15 a month for Netflix, HBO, Showcase and TOU.TV’s Extra service, $80 a year for Amazon Prime, and $12 for YouTube and NewTV. In the end, they end up having access to a limited quantity of web content. Given the end of net neutrality decreed by the United States in 2017 and the countless limits imposed on global distribution resulting from archaic legal regimes, the future of content does not seem to have been thought of such as to favour the mobile viewer and spontaneous discoverability.

Would NewTV be ready to serve as a content aggregator? Its competitors are not likely to make things easier for it. As demonstrated by the Netflix vs. Disney saga, the opposite is rather likely, the consequence being the demultiplication of platforms closed in on themselves representing the new norm.

In this regard, it will be interesting to observe how the GAFAs react to this announcement seeing as none have yet to have contributed to the initial funding of NewTV. To go against the giants, Katzenberg is well advised to keep in mind that the relative importance of a billion dollars depends on context. For example, Apple today has over US$250 billion in liquid reserves and Google’s parent company, Alphabet, generates weekly profits of close to one billion dollars.

According to Katzenberg, NewTV will be fully operational “near the end of 2019”. This 18-month horizon is ambitious seeing as the success of such a platform quickly risks depending on the momentum spontaneously generated by the proposed miniseries’ fan communities. A lot of varied content will need to be released rapidly. In the meantime, Disney will also be finalizing the launch of its own digital platform that is aimed at rivalling Netflix.

These major investments are based on the assumption that mobile viewers are willing to open their wallets in order to gain access to these platforms and avoid the advertising. It’s a risky bet.

 

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