Manatt Digital and Technology

In this month's newsletter we highlight some of the latest activities in the digital video space. Social media, mobile and over-the-top (OTT) viewing continue to make waves in the media landscape, creating new opportunities for content production, distribution and monetization. (See highlights below.)

Digital Video News Roundup

In the last three months the online video space has seen new entrants, new offerings and further experimentation. Showtime's OTT service finally went live in July. Other newly launched OTT services include A+E's Lifetime Movie Club app, PGA Tour's mobile offering, and Canada's SVOD service Shomi. Mobile and pay-TV operator Comcast is also joining the fray with its YouTube competitor Watchables. Among the major online video players, competition heated up when Amazon Prime Video announced offline viewing for all its subscribers, something Netflix said they would never allow. Around the same time, Hulu unveiled an ad-free version to its users for $4 more per month.

Reinforcing social media as a new video distribution platform, Snapchat announced that it has reached 4 billion daily views. With its reach, combined with original content made for its platform (such as the original series announced by Comedy Central), Snapchat is establishing itself as an online video platform. Facebook, which also garners 4 billion daily views, announced in July that it will begin sharing ad revenue with publishers, has been testing new ad formats, and is also looking to build its own Content ID, which could provide another monetization vehicle for content creators.

In two of the biggest deals this period, NBCU invested $200 million each in BuzzFeed and Vox, both of which have billion-dollar valuations. As in previous acquisitions and investments in the space, established media companies see value in the direct relationship with, and deep insights on, teens and Millennials that these digital-first services capture.

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MDM in the Press

Below is a selection of commentary provided by MDM leaders around significant deals, players and activities in the OTT space.

  • BuzzFeed Motion Picture's Winning Strategy. "It's not making decisions on the value of someone's 'gut' instincts, which was often the way to describe the way studio titles were green-lit," said Eunice Shin, who leads MDM's consulting arm. "With BuzzFeed and other savvy digital-first companies, it's making decisions based on data and science and applying that to an intimate understanding of its audience." (LA Times)
  • "The Cult of Vice." "Vice has been very smart and strategic in how they position themselves and how they are reflected in the media," said Eunice Shin. Vice knows how to speak in a language that appeals to its audience. "It's just being able to tell stories in a voice that Millennials can hear," said Shin. (Columbia Journalism Review)
  • Snapchat's Push Into Video. "Snapchat has certainly proven itself to be a major player in video distribution in a very short period of time," said MDM's CEO Peter Csathy. "The question now is how do they monetize it." (LA Times)
  • Facebook's Advantages Over YouTube in Video Advertising. "It has much deeper and more precise information about its base (than YouTube), which in turn logically leads to higher CPMs," Csathy explained. "Also the DNA of the platforms is fundamentally different," he pointed out. "YouTube is primarily about personal entertainment and engagement, while Facebook is all about sharing, and that bodes well for the potential to build scale on the latter platform." (VideoInk)
  • Vox and BuzzFeed's Billion-Dollar Valuations. Eunice Shin discusses the moves larger traditional media companies are making (such as NBCU's investment in Vox and BuzzFeed), as smart, strategic moves that reach the vast Millennial audience immediately, and in a meaningful, relevant way. It is about better understanding the end consumer behavior and digital distribution and positioning for the future. (MediaShift podcast)
  • Apple Expanding Into Original Content. While Csathy recognizes that Apple has some challenges—the tech company is a bit late to the video game, and facing far more competition there than when it essentially took over the digital music industry—he also sees a major advantage in the fact that Apple owns a good majority of the hardware audiences use to consume content. "Netflix has to monetize and be a viable business just on content. But Apple makes its money on hardware," Csathy said. "The services themselves can ultimately be seen as a marketing expense." (Forbes)
  • The Revamped Apple TV. "The most important thing about the Apple TV announcement is it becomes a broader utility box," said Csathy. "Then it can ultimately become the Trojan horse for all kinds of services in the home that, in turn, let Apple sell more hardware." (New York Times)

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It's OK to Stay Bullish on MCNs

Multichannel networks have been getting a bad rap this past week as a result of a Recode report that Maker Studios' earn-out from its M&A megadeal with Disney might be less than half the maximum $450 million, which would still give Maker execs and investors a nice little $700 million-plus win. Not bad.

The nonbelievers, however, are using this news as the central exhibit in their case slamming the value of MCNs—more accurately known as MPNs these days—and what they say are inappropriately lofty valuations to date for relevant acquisitions. That includes Otter Media's acquisition of Fullscreen for up to $300 million, RTL Group's acquisition of StyleHaul, which valued the company at up to $200 million, and ProSieben.Sat1's recent acquisition of Collective Digital Studio, which valued the overall package at about $240 million.

But as someone immersed in the overall video ecosystem (yet hasn't been involved in any of these deals), I strongly disagree. They are completely missing the fundamental point and justification for those deals. I remain bullish. Very.

This article was originally published as a guest column in Variety. To read the rest, click here.

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Apple's TV Vision—"The Future of TV Is Apps" (Tim Cook)—Highlights From Apple's Press Event

Here are the highlights from this month's Apple press event:

I. AppleTV

  • Headline story: "The Future of TV Is Apps" (Tim Cook).
  • Apple TV is heavily voice-reliant with powerful (and highly specific) voice navigation via a Siri button. Navigation is enabled across apps (such as Netflix, Hulu, Showtime and iTunes) and displays all matches on one screen. This enhances content discovery and will become even more valuable as Apple opens up the platform to other OTT content providers. Voice navigation also enables easy and extremely powerful viewing control (e.g., "skip ahead 7 minutes into the show"). If this works as advertised, this indeed will be evolutionary and revolutionary in our TV viewing experiences.
  • New remote has a touch screen surface.
  • Animated screen savers turn your TV into a living, breathing work of art (rather than dead screen).
  • The Apple Music app is available and will likely be featured.
  • New OS, called tvOS. Eddy Cue calls out Hulu specifically as being an initial tvOS consumer "tinkering" with it.
  • Games, as expected, are a headline, including multiplayer gaming with the new remote, plus another using their iPhone.
  • Shopping features the Gilt app. Why ever leave your couch anymore? "Apple TV is the new shopping mall" (so says TechCrunch in its live coverage).
  • Pricing: $149-$199 (32GB v. 64GB).
  • Available October.
  • No Netflix "killer" yet (as expected this time), but something to look out for in the months ahead.

II. iPad

  • iPad PRO was the big news—an entirely new version (and all of the features below are related to the new PRO, which was the entire focus of the iPad show).
  • Microsoft took the stage to demo the new Office for the PRO.
  • The biggest iPad screen by far at 12.9″.
  • Performance is 22x faster than the original iPad's CPU performance.
  • 4-speaker audio.
  • Stylus, called the "Apple Pencil."
  • Demo of health-focused app 3D4Medical, which shows human anatomy at a whole new level of accuracy.
  • iPad PRO ranges from $799 (32GB) to $1,079 (128GB)—"Apple Pencil" not included ($100 extra); the high-end version is both Wi-Fi and cellular.

III. Apple Watch

  • Two of the most intriguing apps demonstrated were (a) GoPro app—uses the watch as a viewfinder; and (b) Airstrip, a new healthcare app that enables reading of patient vital signs (including baby monitoring).
  • New styles/bands with a focus on fashion. Apple showcased its new Hermès line.

IV. iPhone

  • Updates mostly on hardware for the new 6S and 6S Plus—custom aluminum alloy build, new glass displays, and new A9 chip, which is 70% faster in CPU tasks than the previous chip.
  • Now comes with Force Touch to detect how hard you are pressing.
  • Rear camera can shoot 4K video.

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