Last month we held another edition of our Venture Forum, this time focused on interactive media and entertainment. We fixed our attention on four main pillars – gaming & eSports, virtual & augmented reality, connected sports, and short-form content. These areas boast some of the most eye-popping opportunity sets we have seen within the space, with over 1.2 billion mobile game players (Spil Games), 134 million eSports viewers (SuperData Research), ~57 million fantasy sports players (Fantasy Sports Trade Association), and over 10 billion monthly views for the top 100 YouTube channels (Deloitte).
These figures are a strong indicator of why advertisers and media companies have been paying close attention to those industries. The path to monetization for these industries, however, is less clear. We designed the day to surface key questions and to hear the perspective of not only our own executives, but also of those at leading startups, venture capital firms, and our corporate peers. Below are some key takeaways from the event:
What is the best approach to Virtual Reality? - We kicked off the morning with a pair of presentations from VR startups focusing on different types of content and experiences, namely cinematic and live entertainment (concerts, Broadway, fashion, etc.). The presentations left us with two key questions to consider. First, what is the best monetization model - access fee (one-time or subscription) or impression/advertising? Second, is it better to be on the production, licensing, or distribution side of VR? In the coming months, we expect startups to continue to experiment and provide market-tested evidence that will help answer these questions. The answer might very well be “all of the above,” hinging on the type of content, thus making it difficult to apply a template approach to the entire space.
Disruption brewing in traditional sports – This topic could not have been timelier. Just one week prior, the S&P Media Index had lost 8.3%, or roughly $54B in value (Shelly Palmer). Much of the loss was blamed on Disney’s Bob Iger, who scared the market talking about ESPN’s distribution woes. For context, ESPN has lost ~7.2M subscribers in the past 4 years, of which ~3M came in the last year alone (SNL Kagan). It is no secret that Millennials consume content differently than their parents and that cord-cutting is a real threat. We heard from two startups that are bringing innovation and disruption to the sports viewing space. The first startup allows consumers to create automated highlight reels (think customized SportsCenter or RedZone) and a personalized sports-centric programming guide using an existing pay TV service, web, tablet, or mobile device. The second startup is immersing viewers into the game or arena via virtual reality technology, providing them with an active and visceral viewing experience rather than a more traditional passive viewing experience. While both companies will face challenges as they try to play with one of the most sensitive content categories there is, what is clear is that there is disruption coming beyond the broad cord-cutting threat. We’ve got our sights set on such disruptions and similar companies pushing the boundaries in this space.
VR technology is interesting, but it is unique content and experiences that will drive change – Our New Media Experiences panel acknowledged the rough start with VR back in the 1990s and 3D TV in 2011, posing the question if now is really the time for immersive media. One of the panelists, the CEO of a VR company, declared that this was a Ted Turner moment for the industry, that this is the first time that both technologists and storytellers are ready to take action together. Our very own Arianna Huffington, President & Editor-in-Chief of The Huffington Post, recalled that when radio was first introduced as a new medium, people tried to do with it what they always had done – reading books on air. A fresh look at VR is required if we want to use it to change behavior, she stated. Following on this note, a speaker on a subsequent panel declared that VR today seems much like the CD Rom of years ago stating that “people viewed it as something that would change industry, culture and business, but in the end they realized it was just a storage medium.” He further explained that the CD Rom was more of an enabler and the way it was deployed and used by people made it interesting. Generally, social and cultural factors drive movements and trends, not technology. This raises the question of whether there is an overemphasis on VR technology itself, rather than the social and cultural ways that media can be deployed on it. We expect winners in this space to be those that can effectively use these new mediums to provide unique experiences that connect with users at a visceral and emotional level.
Corporations looking at eSports & Gaming need to understand its strong culture – League of Legends (LoL) and Dota 2 are the most popular and successful games in eSports today, with tournament prizes recently topping $18M for a finals event. To further illustrate the popularity, LoL in only its 4th year, was able to pack a stadium in South Korea with over 40K people for its finals, generating 288 million global viewers and sustaining over 27 million peak streams, while being broadcasted globally by 40 partners in 19 languages. For context, the MLB All-Star game this year attracted 11 million viewers. We were told by a panelist on the Gaming & eSports panel that the industry is tribal in nature. What most didn’t know is that eSports was born from gamers modifying commercially released games and iterating them over time – that it emerged organically from a passionate community without overt corporate influence. Another panelist pointed out that sports and games in general have almost never been invented by media companies, but rather by folk culture – examples include soccer, chess, basketball, and Parcheesi. The conclusion is that companies need to take a bottoms-up look at the industry and focus on enabling passionate end users and creators. Today, gaming is less about receiving information from a central authority and more about sharing, trading, and modifying content.
When it comes to media, the fans are the real IP – We had the pleasure of hearing from a renowned actor, comedian, writer, & producer about how he engages fans over various social media platforms while working on a network television show. Through his own “fandom” experience, he was able to see how Millennials received the show, in many instances in real-time, and how divergent their vision was from the direction the studio was taking the show. He explained that the fans fixated on parts of the show that had strong resonance with them and not necessarily on the primary character or plot lines laid out by the studio. Because the studios didn’t see the fan art that was being created, the changes they made in the subsequent season alienated the core fan base that eventually caused the death of the show. He further claimed that studios don’t really care about the user or fan experience, but only about getting advertisement. By not considering the true authentic fan experience, studios are neglecting the real IP of their shows – the fans. This talk demonstrated the opportunity that an earlier presenting startup was attacking by facilitating real and authentic conversations that connect social influencers directly with brands and advertisers.
Facebook: Friend & Foe??? – On our Monetization & New Ad Models panel, Arianna Huffington asked how concerned we should be that advertisers could now go straight to consumers using social media platforms like Facebook. One panelist’s view was that at the end of the day it’s about the content and the connection with the audience. He added that platforms like Facebook are great for helping to reach people, but great content from companies like AOL, Huffington Post, and NBCUniversal, etc. are what drives engagement and interaction. Therefore, the shift in the ecosystem that we are seeing revolves around how content is being distributed, not necessarily around who creates the content. Another panelist forewarned that we should not lose sight of the fact that we are giving a lot of authority to Facebook over our data and customers. Interestingly, on our Audience & Consumption Patterns panel, there was a heated discussion on content and distribution that lead to a rather interesting statement. “If content is King, then distribution is Queen. You can argue which of them wears the pants in the relationship.”
Tim Armstrong’s closing keynote - a master class on competition – On recognizing who your competitors are: “50-70% of content is going to be created by people, not media companies.” Tim described meeting a girl on a college campus in Massachusetts who used new media tools and an authentic voice to become the authoritative source of local content in the area. “In reality, we compete with her because she in essence has become her own media company providing news, sports and weather. She now owns that campus. Imagine her impact if she were to apply her business model to a rapidly growing third world country like Nigeria!” When it comes to reacting to competitors, Tim reflected on the Wright brothers and their approach to aviation. They faced many competitors at the dawn of aviation, including the governments of Brazil, France, and the USA, as well as some of the wealthiest people in the world. Yet their approach was what Tim dubbed the “figure it out syndrome.” They simply picked a point in the future and committed to figuring out the solution for flight by that date. Relating it back to Verizon, if we assume the smartphone is the device of the future, he would like us to pick a date that is 20 years out and have the guts to go “figure out” what we need to do in media and advertising. He also encouraged first-hand knowledge; that Silicon Valley doesn’t have all the answers and looking at Facebook or Google’s business model is never as good as understanding your direct customer needs.
There is a lot of potential within Interactive Media & Entertainment. However, building a monetization path for the various sub-segments within it can be rather difficult. In order to be successful, you must not disrupt the user experience, especially given how fickle current consumers can be with their media consumption practices. Startups emerging in this space can serve as useful test cases and valuable experiments that we can and should learn from.
In closing, we would like to give a special thanks to Shelly Palmer, Zeev Klein and the rest of the Landmark Ventures team for helping us produce another successful edition of the Verizon Venture Forum.
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