Manatt Digital and Technology

January 2015’s strategic movement in the digital media business already seems like a full year squeezed into one month. In this edition of our MDM newsletter, we walk you through some of those major developments that set the stage for ever-bigger and transformative changes in the coming months. Let’s start with a scorecard/recap of our Top 10 Digital Media Predictions for the Year matched against relevant significant developments in January—and then drill down more deeply from there.

Top 10 Digital Media Predictions for 2015—30-Day Scorecard (or, “One Year in One Month!”)

By Peter Csathy

One month ago, TechCrunch posted several of my predictions for the digital media world in 2015 in an article titled The Future of Digital Media in 2015. I then expanded upon that article here to give my very own Top 10 Digital Media Predictions for 2015. Although we are officially only one month into this brave new year of digital media, many of the predictions are already coming true . . . and in a very big way.

Below are those actual top 10 predictions—juxtaposed against where we stand on each as we enter only the second month of 2015.

PREDICTION 1—this one was really a two-parter:

Part 1The 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 (in which Manatt Venture Fund is invested).  

THE REALITY FOR PART 1, 30 DAYS LATERWhistle Sports in early January announced a major $28 million investment from “traditional” media companies BSKYB and Liberty Global. Not M&A, but certainly strategic. Very.

Part 2International also becomes a major new battleground for these borderless video opportunities.

THE REALITY FOR PART 2, 30 DAYS LATER—Whistle Sports again— both BSKYB and Liberty Global are major international media companies based across the pond. In addition, a deal was announced in late January by mega-media companies Warner Bros., Sony Pictures Television and SingTel to essentially take over the OTT world in Asia. That qualifies in my book.

PREDICTION 2Major 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 like 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, 30 DAYS LATER—No major developments here . . . yet! But, keep reading . . .

PREDICTION 3Seeing all this activity, Silicon Valley investors increasingly make pilgrimages down South to the epicenter of media content – Los Angeles.

THE REALITY, 30 DAYS LATER—Many of us on the Manatt Digital Media team are based here in Los Angeles. We see this happening before our eyes. In fact, we saw it immediately out of the gates of 2015 at CES, where NorCal VCs were seen intermingling with L.A.-based new digital-first video companies up and down the Strip.

PREDICTION 4YouTube is increasingly under siege by new competing video platforms like 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).

THE REALITY, 30 DAYS LATERVessel officially set sail against the YouTube tide in private beta just in the past week—and Facebook video is at the center of digital media exec conversations everywhere. Oh yes, and don’t forget Snapchat. Snapchat is now officially a media company, having launched an alternative video platform under the name Discover in late January. I’d say this prediction already has been satisfied—and we’re only going into our second month!

PREDICTION 5Traditional pay TV packages likewise increasingly are under fire in the “Great Unbundling” that began in 2014. What was unthinkable just one year ago (even six 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.

THE REALITY, 30 DAYS LATER—And so it goes . . . Even the kids aren’t safe! Nickelodeon just announced its own stand-alone OTT service, joining this ever-growing list that we will need to revisit continually throughout the year.

PREDICTION 6Traditional 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.

THE REALITY, 30 DAYS LATER—We’re only 30 days into the year . . .

PREDICTION 7On the music side, massive moves are made away from business model-challenged stand-alone services (Spotify and Pandora both are reported to still be operating at a loss). Like Apple buying Beats (which was never about the economics of Beats Music), numerous potential behemoth buyers exist.

THE REALITY, 30 DAYS LATER—It appears that Spotify is looking to find itself some extremely wealthy private buyers (not the anticipated IPO). Spotify has hired our friends at Goldman Sachs to raise a $500 million round. Now watch as reactive sparks fly among the remaining stand-alone services that have any kind of mass. Spotify sings. Now the other guys dance.

PREDICTION 8Gamers 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. Finland-based Silvermile and Seriously are two companies with Rovio roots to take . . . well . . . seriously. VR also enters the ring with gamers at mass in 2015.

THE REALITY, 30 DAYS LATER—Yes, this is happening . . . at an ever-accelerating clip. But, it is happening behind the scenes for now. No single-story earth-shattering news just yet. But, like I said, we’re only 30 days in.

PREDICTION 9Which 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.

THE REALITY, 30 DAYS LATER—2015 already marked a major milestone for Oculus and VR in general. Not directly on the gaming side. Rather, on the cinema side, as Oculus unveiled the world’s first major cinematic VR “experience” at the Sundance Film Festival. In my book, this qualifies at least as being on the right track. And, remember, we still have about 320 more shopping days until next XMAS—so plenty of time to slip one under this coming year’s tree.

PREDICTION 10—All of this leads to the big one—a concept I floated 1.5 years ago. Apple buys Tesla. Now THAT would be a headline for 2015!

THE REALITY, 30 DAYS LATER—We’re not quite there yet, but Musk just announced a new SOFTWARE UPDATE that actually makes Teslas go faster. Think about the implications of that alone . . .

No matter what you think about these top 10 predictions—or how the digital media world is tracking to them in the early days of 2015—it cannot be denied that the pace of activity continues to accelerate.

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Amazon-ics—The Tech Giant’s New Hollywood Math

By Peter Csathy

Amazon is the new kid on the theatrical motion picture block, having just announced its Hollywood studiolike motion picture ambitions to produce roughly 12 films per year (at very indielike budgets of $5-$25 million each). Amazon already is a major player in OTT video, of course, with both Amazon Prime (including HBO-like original programming) and its “under-the-radar” stealth YouTube-like short-form video platform, which continues to grow in prominence. Bottom line—Amazon is now a full-fledged media company. After all, it just won its first highly coveted traditional media accolade—a pair of Golden Globes.

But, is it? After all, despite its media trappings (or in spite of them), Amazon is still—and always will be—an e-commerce company first and foremost. Everything else—all other services—is an entrance into its infinite store of possibilities that Amazon monetizes in bulk and at low margins. That is Amazon’s business model. Get consumers into the store, keep them there, and make it easy for them to whip out their credit cards.

That means that video content—in whatever form it may take (premium shorts, licensed movies, original programming like Transparent, and now theatrical motion pictures)—is the marketing preshow for that main feature of shopping. In other words, content is fundamentally a marketing spend—and ultimate storytelling success is not measured by traditional Hollywood metrics (box office receipts). Retail metrics matter.

This means that Amazon’s business model is fundamentally different from that of any pure-play entertainment company. Pure-play motion picture studios like Warner Bros. and pure-play entertainment distributors like Netflix can monetize one thing and one thing only—the video content itself. Their sole metric of success relates directly to the motion picture content (box office/ancillary revenues and subscription numbers, respectively).

Not the same case for Amazon. Traditional motion picture/content rules and metrics don’t apply. There are no box office receipts to tally. No pure-play subscribers to count. This is retail! Amazon Studios succeeds if its motion pictures drive us into its virtual superstore to shop.

This means an interesting and unique form of freedom. Business and creative freedom. Case in point, Amazon’s series Transparent. Transparent is content built not for a mass audience, but rather for a passionate niche audience—and that is good enough. No pressure for it to “succeed” in a traditional way. And, Amazon’s newly announced indielike theatrical film strategy follows that same playbook. Produce “smaller” films for passionate niche audiences (niche audiences that it has already identified precisely via the deep shopping metrics and profiles that it captures from our ongoing shopping habits). Release those small films theatrically first (both domestically and internationally), thereby marketing Amazon to passionate audiences in a highly visible new way. Collect whatever box office receipts that come (which is seen as being pure gravy). Perhaps also collect some industry accolades for them (after all, underlying economic freedom leads to perhaps an additional level of creative freedom, which may lead to more celebrated films)—more great marketing. Subsequently, exclusively feature them on Amazon Prime (more marketing).

THAT is Amazon-ics.

And, Amazon’s economics are unique as a result. The studios don’t have it. Netflix doesn’t have it. Although, Netflix’s pure-play subscription model also allows for more business and creative flexibility as well, because the only metric that matters is overall subscription growth; hence, Netflix’s own revolutionary moves that have led to the two phenomena of “binge” viewing and true “day and date” theatrical/digital release (its upcoming plans for Crouching Tiger, Hidden Dragon 2, among others).

Interestingly, other major tech titans have something like it. Apple, Google and Samsung similarly use content as advertising to drive their underlying core business models of hardware sales and advertising—not primarily to monetize the content itself. Again, that leads to more business and creative freedom. Here is my recent discussion in that regard.

What does this mean for filmmakers and us, the audience?

Right now, indie filmmakers should rejoice because they have a new potential home for their labors of love, the success of which is not measured solely by the box office revenues they generate. That means more indielike stories will be told.

And, that means more movie variety for all of us.

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Oculus’ LOST VR Cinematic XP Debuts – Its Pixar Luxo Jr. Moment?

By Peter Csathy

This past month may have represented a momentous and landmark day in the annals of cinema. In January, VR powerhouse Oculus premiered its first VR cinema “experience” titled Lost at the Sundance Film Festival. Up to this point, most in media and entertainment have viewed Oculus and its VR technology to be gamer-focused. But, cinematic storytelling — on a wholly immersive new plane — has always been a central part of the plan. And, this past month may have marked that moment in time . . .

Oculus’ premiere of Lost has shades of Pixar’s 1986 landmark release of Luxo Jr. written all over it. Remember that one? That’s where papa lamp, son lamp (Jr.) and a ball made cine-magic — transforming movies forever via CGI (here is the link to that classic cinematic moment in time for those of you with nostalgia). And, how about this? Pixar’s pedigree is all over Oculus’ Lost as well. One year ago, Oculus hired Pixar veterans to lead its cinema efforts under the “Story Studio” banner. So, did Oculus’ “first-of-its-kind” cinematic VR “moment” deliver at Sundance? Mixed reviews — with content-focused pub The Verge excitingly calling it “the future” of cinema, whereas tech-focused TechCrunch gave it a more tepid review of being “cute, immersive, but hardly interactive.”

How does VR for cinema “work” from a storytelling perspective? Hard to imagine for sure, especially since normal notions of film simply don’t work in the virtual world. As an example, Oculus Story Studio’s Creative Director Saschka Unseld recently told TechCrunch that VR-driven narratives flow very differently than more linear-flowing movie streams — with myriad rivulets that reveal themselves only when you look at particular elements. My “experience” — as a result — may take four minutes whereas yours could be 2X or 3X longer. There is no one story. It’s a layer cake. Think the movie Inception — but, YOU are the Inceptee. And you aren’t just watching (with VR goggles on at this point). You are experiencing.

I have spoken with many insiders in the media business who have had glimpses of Oculus in the storytelling context — experiencing cinematic moments. And they have told me that, without question, it’s a game changer in every sense of those words (which really don’t do justice to their reactions). We have entered the “great unknown” of future cinema, whatever that word means in this context. And, the premiere of Lost at Sundance was just the beginning.

So, while CEO Brendan Iribe underscores that gaming is still the company’s immediate focus, make no mistake. It’s showtime. And, while your mouth may be agape the first time you experience Lost, it won’t be due to a hunger for popcorn. It likely will be a reflection of shock and awe.

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More Media in Social Media

By Mary Ermitanio

Competition continues to heat up among the social media giants as they expand their media operations to enhance experience for users and create opportunities for brands and content owners. Last year was a big year for video on Facebook, which ended 2014 with a whopping average of 3 billion videos viewed on its platform daily (including videos autoplayed). Earlier in January, Facebook reported that the number of videos uploaded per person increased 75% over the last year. Although the volume of videos is still lower than that of YouTube’s, video sharing on Facebook is significantly higher. Marketers understand the emotion-inducing impact of videos and see their audiences consume much more online video now than ever. With high video engagement levels on Facebook, some senior industry observers and pundits believe that Facebook now presents a potential real threat to YouTube.

Twitter is also looking to position itself as a video platform with the launch of its native video feature, which requires that all videos be hosted by Twitter. The feature is currently available to its brand and media partners but will be extended to consumers in the first half of 2015. Twitter already owns the popular video-sharing app Vine, but this native feature will enable users to capture and share moments more quickly on the Twitter platform, similar to the features on Facebook-owned Instagram.

This unprecedented, 24/7 access to consumers not only benefits brands but also content creators. Access Hollywood recently launched the new series Early Access on Facebook exclusively on the platform, marking the first time Facebook inked an exclusive distribution deal with a media company. AT&T has partnered with the mobile-first ephemeral messaging app Snapchat to distribute its scripted series SnapperHero on Snapchat’s platform, where episodes would be available for only 24 hours. Additionally, Snapchat recently introduced Discover, a feature which serves ephemeral news and trending content from media partners, including CNN, Cosmopolitan, Yahoo! and Vice. Through Discover, brands and creators get direct access to Snapchat’s highly engaged Millennial user base. As with the other social media platforms, Snapchat’s media endeavors don’t stop here. It is growing its own media team and already producing content for its own channel on Discover. There is more to come as these platforms expand from social networks into destinations for content consumption.

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