Social Goes Hollywood and What That Means for Investing in Media & Entertainment

Several weeks ago, I discussed how the rapidly evolving digital landscape is changing traditional, and creating new, media and entertainment investment opportunities at Opal’s Family Office & Private Wealth Management Forum.

Digital audiences have shifted how and where they consume content, and streaming services have evolved into award-winning production studios. Possibly more important is looking at the consumption habits of younger demographics like Generation Z. This generation is bigger than the baby boomers, they are constantly connected to screens with access to content, and they have new ideas about their digital footprint. Generation Z chooses to spend a significant percentage of their time consuming content on apps and services such as Snapchat, Instagram and more. This tidal wave of disruptive channels is already encroaching on time spent on traditional media and entertainment channels (read: eyeballs), and the emergence of new platforms that seek to capture Generation Z audiences is showing no sign of slowing down.

Although Snap (Snapchat’s parent company) hasn’t been an over performer on Wall Street, as a company they understand how significant a part of Generation Z’s digital content footprint they’ve become. Generation Z Snapchat users have grown up creating, self publishing, and consuming friend and studio content side-by-side, without adhering to traditional lines of distinction. While it’s true that the majority of content on Snapchat to date has been user generated (UGC), Snap is aggressively licensing original short format video content, in large part through a partnership with investor NBCUniversal.

As reported by Cynopsis, “Stay Tuned,” Snapchat’s first daily news show from NBC News, has over 29 million unique viewers since its July 18 launch.* Alongside spinoffs of “The Voice” and “Saturday Night Live,” it becomes clear that what was once a social network has it’s sights on becoming the channel of choice for Generation Z.

In other words, Snap wants Snapchat to become Generation X’s seamless one-stop shop for content about friends, news, and entertainment. If Snap’s foray into original content is successful, Snapchat has the potential to become one of today’s primary tastemakers, much as MTV was for Generation X.

Update (8/24/17): Snapchat Shows plans to add their own scripted video content to the mix by the end of the year. While head of content Nick Bell stated that Snapchat is more of a complementary service to TV, he acknowledged that they are “capturing the audience who are not probably consuming TV at the same rate and pace of engagement that they once were.” This suggests Snapchat might become more of a direct competitor to broadcast, cable, and streaming services.

Investing in media & entertainment in the age of digital disruption


This presentation was given to a group of family offices interested in making investments in media & entertainment at Bloomberg‘s New York offices in October 2016, and focused on sustainable business investment strategies, including:
• Content creation and distribution platforms
• Emerging technology (e.g. TVE, OTT, AR, MxR, VR, etc.)
• Monetization (subscription, PPV, advertising, commerce)
• Data analytics and support systems

How Apple is About to Reboot the Music Industry

It was almost twenty years ago today…

While that admittedly doesn’t have the punchy ring of the Beatles’ original, it sets the time nicely for two entities, Apple Computer (still to become Apple Inc.) and Jimmy Iovine, who was already building toward a post-Napster world for the music industry from artist discovery through distribution.

But first, a little here and now.

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Apple’s 2014 acquisition of Beats, co-founded by Iovine and Dr. Dre, may have created the savior the music industry has been looking for since the late 1990s.  Earlier this month at WWDC, Apple unveiled the highly anticipated, and soon to be released, music service resulting from their acquisition.

In short, Apple Music strives to combine your music library with a subscription service in a single cloud-based offering. This pits Apple against Spotify, Rhapsody, Rdio, Tidal and others in the next wave of consumer acquisition being hailed the “Playlist Wars.”

Flashback to 1999.

In 1999 Jimmy Iovine, Chairman of Interscope Records, partnered with Doug Morris, CEO of Universal Music in a startup venture called farmclub.com. Farmclub was visionary in nearly every way. It was a three-sided website with the support of a weekly co-branded TV show on USA Network. The three sides were as follows:

  1. Unsigned bands could create pages to market themselves, upload their music and communicate with fans.
  2. Fans could discover bands, download and share their music.
  3. A&R staff could monitor activity to see where critical mass was forming in order to sign up-and-coming artists or route them to the weekly TV show.

If this sounds lackluster or like standard fare by today’s standards, consider 1999 carefully:

  1. AOL was the biggest consumer ISP (still via 28k and 56k dialup modems, not broadband)
  2. The iPod wouldn’t debut for another 2 years
  3. MySpace didn’t launch until 2003 (nearly 4 years later)
  4. Music-oriented reality programming like American Idol was still 13 years away (2002)

What Jimmy had going for him was the vision, second-to-none artist-focused music industry experience and a legitimate, mainstream cross-media outlet for artists. What he had working against him was that MP3s were still geek chic, no consumer-friendly plug-and-play handheld tech (the Rio was state-of-the-art), and an uncontrollable consumer experience (it took ~10 minutes to download a single song IF you didn’t lose your connection and have to restart the process).

Back to the future… and that much needed reboot of the music industry.

The Internet heralded in an era and consumer mindset that has been called the “end of the album.” For historical purposes, it’s important to realize that even The Beatles started out in a what was then a singles driven business. While the “death of the album” is a fun debate over drinks (after all, who doesn’t want to talk about how life-changing “Wish You Were Here” was?), it’s a wasted argument from a business perspective. We’ve come full circle and are now in a world led by singles again.

Partially in the face of declining sales of digital singles, numerous “all-you-can-eat” subscription services have emerged. Tech companies in spirit, many have played to their strengths, focusing on playlist models created by algorithms or social curation.

It’s no secret that Apple has had an interest in the music industry for a long time and, while on the surface this could be seen as a defensive play to protect the leadership position of the iTunes ecosystem, there’s a lot more at stake than continued consumer acquisition and market dominance. If Apple Music is successful, it could be the much needed reboot of the music industry.

If Apple Music, by way of its parent company and iTunes ecosystem were a Big Mac, Jimmy Iovine is most definitely the “secret sauce” the competition should be most concerned about. In addition to Jimmy having worked with artists that includes John Lennon, Bruce Springsteen, Tom Petty, U2, Gwen Stefani, Lady Gaga, and Iggy Azalea over the past 40+ years, this isn’t his first foray into the post-Napster world.

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Here’s why Apple may not only lift their bottom line, but the entire industry in a way that their competition cannot:

  1. Jimmy: He’s a veteran insider with a music first and an artist forward perspective, not a tech startup focus, doing it from the “outside.” He has the industry weight, credibility and track record with artists and labels to get buy in across the industry. He’s spent nearly 20 of his 40+ year career learning, experimenting and getting ready for this play. While he was brave enough to fail with Farmclub, now he has the power of Apple behind him.
  2. Apple: The #1 paying customer base and paid digital music ecosystem, and history and credibility with record labels and artists which includes the highest royalty percentage in the industry.
  3. Subscription: In a move that harkens back to the days of FM radio, Apple Music is betting on trend-setting music tastemakers, DJs who curate playlists out of music epicenters New York, Los Angeles and London. This expert-driven music subscription with physical homes in cultural epicenters steeped in music history is their bet on the future. In addition to the aforementioned streaming services competition, paid radio service Sirius / XM also better watch out.
  4. Artists First: Apple retracted their initial plan (via tweet by Eddie Cue) to be royalty-free for the first three-months, during which the service will be free to consumers. While this was, at least in part, due to a letter Taylor Swift sent to Apple, it demonstrates that Apple is willing to be open-minded about the need to support artists.
  5. Social: Apple music provides a system that allows up-and-coming artists and unsigned acts to not only market themselves and engage with fans, but to convert to revenue, something that has been elusive for artists on social networks like Facebook (and once upon a time, MySpace).
  6. Your Music: Icing on the cake is that Apple Music is a one-stop-shop. In addition to the subscription service, all your music is also accessible right from the same app.

Although I’m skeptical that Apple will allow direct integration with my Sonos system, I’m looking forward to the free 3 month trial that starts later this month… and what’s to follow for Apple and the music industry as a whole.

For context and transparency, I led the development and delivery of farmclub.com on the Internet for Jimmy Iovine and Doug Morris in 1999-2000.

Originally published on Digital Surgeons’ blog on 6/23/15.

A Day at NASA’s Jet Propulsion Laboratory

This past week, one of my business partners and I had the pleasure of spending several hours with Steve Collins at NASA’s JPL. I’m sure it would be fair to say that had I been able to see a reflection of myself, it would have been a mixture of a wide-eyed child trying to soak absolutely everything in with the ear-to-ear grin of someone who couldn’t believe all of the real “fantasy-come-true” things he was seeing. That Steve, a completely down to Earth and plain-spoken, but insanely smart and accomplished NASA JPL engineer, took time out of his day to give us a personal tour of the facility was one of the most amazing and intellectually stimulating experiences in recent memory.

As we were standing underneath a full scale replica of Galileo, our conversation wasn’t the regurgitation of history taught to a tour guide, but a deep and detailed conversation with the scientist who was responsible for the telemetry of Galileo. Talking about Galileo’s orbits around Earth and Venus as it prepared for it’s voyage, and then traveled, to Jupiter was first-hand perspective that left me with a glimpse of the passion, excitement (and sometimes fear) for what it must be like to have mission-critical responsibility.

curiosity_900wThe same can be said about Curiosity, which he had an integral part in both getting to Mars and to its ongoing exploration of the surface, and is more closely related to how we initially met. Seeing the Curiosity’s “sister” on Earth was similarly amazing and I was thrilled to be able to talk at length about why Curiosity’s wheels are tearing on Mars’ surface (and understand through touching one that has been put through similar experiences here on Earth). Extra credit to anyone who knows or figures out the “Easter Egg” on Curiosity’s front driver-side wheel.

mission-control_900wAs we walked in for an “on the ground” tour of Mission Control, which has data visualizations that are more impressive than the biggest budget Hollywood movie (maybe in small part because they are real), we saw an installation from their resident artist that uses LED strands to display real time satellite transmission data. I can’t say strongly enough how cool I think it is that they have a resident artist in 2015.

Our conversation over the few hours we spent together covered the successes, “normal” mid-mission corrections, and inevitable, unexpected errors and failures where we talked at length about the ways in which the members of the mission crew get creative to troubleshoot, remedy or even sometimes hack fixes from literally thousands of miles away.

One of the most rewarding moments was when we were talking about a problem they encountered with a tape drive. As we were talking about all of the variables, and then unknowns, Steve eyes suddenly went distant for a moment and he said half to himself “Wow, I never thought about it from this perspective before.” That a conversation one of the smartest people I’ve ever met could have led him to a different way of thinking about a problem or approaching a solution is valuable to me beyond words.

I hope Steve found the time even partially as rewarding as we did. They truly venture to “Dare Mighty Things” every day. And yes, they had long since come up with a workaround for the problem all by themselves.

Google’s Latest Ad Play: Becoming A Wireless Carrier

 

Last week, Google finalized a deal to become a mobile virtual network operator (MVNO), offering consumers branded mobile services through a partnership with Sprint.

For the uninitiated, a MVNO is essentially any company that buys wholesale mobile services from a physical network operator (ATT, Sprint, T-Mobile or Verizon in the US) and repackages them for retail sale to consumer or business customers.

On the surface, this sounds like a pretty straightforward and safe model, especially for a trusted brand like Google, but succeeding as a MVNO is tricky business, and there are more casualties, including high profile brands like Disney, than there are success stories like Virgin Mobile.

So why is Google doing it?

Google is a pragmatic company, and their play is more about protecting and growing their core revenue stream (advertising) than it is about furthering Android’s already globally dominant market share. As the price of mobile services continues to decrease, and consumer dependency on smartphones and tablets continues to rise at the expense of desktop usage, mobile ads are becoming increasingly important. Despite Google’s already significant percentage of the mobile ad market, they have to be aggressive and creative about channel growth since mobile ad rates are significantly lower than their desktop counterparts.

This leads to two important, related questions…

  1. How does Google plan to succeed?
  2. What’s in it for me, the consumer?

Big Data

Google is an Internet company that makes money from ads when we consume content, not when we make phone calls, so expect big, attractively priced data bundles to facilitate increased consumer data consumption.

Tiers are Falling

We’re already accustomed to inline ads on the web, in mobile apps, etc. (unlike Amazon’s kindle with offers which places awkward ads alongside books), so Google may offer dramatically reduced-cost / subsidized tiers in exchange for additional ad placements. If so, these tiers are likely to be the lowest prices consumers have seen, and expect that the ad solution will be something much more creative than just increasing the volume of ads served.

Hyper(Active) Targeting

In addition to serving ads, Google will have access to a different level of personal information about every subscriber (name, address, credit score to just scratch the surface) for behavioral profiling and targeting. Their subscription agreement may require use of this data, or they may let subscribers opt-in for less expensive service (see above).

Predictions

Google will likely be successful operating as a MVNO, in part for doing the necessary tightrope walk to offer Android handsets on their service while nurturing Android OEMs and carriers, even though their primary play isn’t selling more Android handsets… but that’s not all.

Google will be agnostic with regard to handsets. We’re about to be in a world where iOS devices (and Windows Mobile and Blackberry too) are made available on a Google branded service, which leaves me wondering about the future Apple’s spartanly branded iPhone. I’m fairly certain this won’t work for Tim Cook and company:

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