Investing To Keep IP Competitive Against Meta's "Hundreds of Millions" of Small Business Creators
Good morning!
The Medium delivers in-depth analyses of the media marketplace’s transformation as creators, tech companies and 10 million emerging advertisers revolutionize the business models for “premium content”.
I recently have written about three unsentimental technology executives: Meta CEO Mark Zuckerberg, Netflix Co-CEO Ted Sarandos, and Oracle Executive Chairman Larry Ellison.
Ellison seems well-positioned to pivot Paramount away from streaming and towards a cloud-usage model. The open question is whether that is indeed what he intends to do with that business.
Netflix seems ready to disrupt its streaming business over a year and a half after Netflix sunsetted its DVD business. Sarandos recently told an audience in London that Netflix must cannibalize its own business and “constantly challenge ourselves, to break [the business] and move our business forward on behalf of our consumers.”
Zuckerberg is selling Meta’s aggressive bet on artificial intelligence (AI) with a more expansive definition of "creator" to include "hundreds of millions" of small business accounts, too. This will capture and monetize audience attention at a greater scale. But, it is unsentimental for both Hollywood’s definition of “premium content” and YouTube’s definition of “creator content”.
All three bets aim to build and own various versions of Marshall McLuhan’s “the invisible ‘groundrules [sic], pervasive structures and overall patterns’ for the internet. They are all unsentimental for the media conglomerate and traditional distribution business models.
Yet, on the demand side, consumers seem increasingly more sentimental for the intellectual property of media companies than for the formats of TV shows, movies and console games.
There is a gloomy backdrop of ongoing technological disruption, mass layoffs and cord-cutting. But, we may still imagine where media companies may invest to generate returns on the beloved characters and worlds in their vast libraries of IP.
Key Takeaway
In addition to cost-cutting, media conglomerates must (1) deepen consumers' relationships with the beloved characters and worlds of proprietary IP and (2) deliver a return on investment to shareholders within the next two to five years.
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The Best Investment
I increasingly reference Marshall McLuhan’s “the medium is the message” because the most important story in media is how internet architecture is evolving invisibly. These evolutions are a constant mix of rapidly evolving computer code and processing power that is continuously shaping and changing business models for media and entertainment.
Distribution no longer has limited channels and formats.
Ellison, Sarandos and Zuckerberg (and YouTube CEO Neal Mohan, below) each seem positioned to produce and/or evolve new models for media and entertainment with their respective company's investments in architecture. The “message” of these investments in the internet medium is that consumers’ emotional and financial relationships with media and entertainment are pliable and ephemeral.
The best investment in media is in the architecture that captures as many of those behaviors as possible. Whereas McLuhan argues one problem with investing in media is it is “ineffectual in shaping” those behaviors.
Zuckerberg's Caveat
Zuckerberg believes that “individual creators or publishers tend to overestimate the value of their specific content in the grand scheme of" Meta’s AI language learning model (LLAMA). If creators demand that Meta not use their content with LLAMA, then, “when push comes to shove… we just wouldn’t use their content. It’s not like that’s going to change the outcome of this stuff that much.”
He added an important caveat: “My guess is that there are going to be certain partnerships that get made when content is really important and valuable.” His framing opens the door to LLAMA models offering certain services that include beloved characters and shows from third-party IP.
In one sense, Zuckerberg is predicting the future of media within Meta's family of apps and AI offerings. This future is bearish for legacy media—these apps serve over 3.27 billion daily active people—but with some exceptions.
The other is that individual creators and Hollywood IP will have more value outside of Meta’s family of apps IP and AI offerings. This is YouTube's bet. Its CEO Neal Mohan recently argued YouTube's job is to "build the stage" for the viewers and creators, musicians, artists and media partners. However, it favors creators in its Partner Program over legacy media IP.
It is also Netflix's bet, having found hits with older shows like NBCU’s “Suits” and The WB’s “Gilmore Girls.”. Paramount. It has proved with “big IP” like Paramount’s “Teenage Mutant Ninja Turtles: Shredder’s Revenge” and Rockstar Games’ “Grand Theft Auto” that it can make popular games accessible on mobile for the first time and to 270 million members worldwide.
Online gaming platforms like Epic’s Fortnite and Roblox Technological see growth opportunities in leveraging beloved characters and shows from legacy media IP (and Disney invested $1.5 billion into Epic Games in April). 65 million daily active Roblox users and over 250 million monthly active players of Fortnite play the games for free.
Valuable IP will still be monetized outside of Meta’s “unsentimental” ecosystem or “family” of apps.
“Back to the People”
The creator economy and gaming are also examples of four broad buckets of business models where characters and stories may be monetized when “back to the people”. The other two are:
Blockchain (e.g., non-fungible tokens (NFTs), meme coins), and
Generative AI tools (e.g, learning language models that learn from data and produce content autonomously); and,
Meme coins are groups who coordinate around “timely pop culture topics (existing or newly created), building real markets around them, and then socializing the fuck out of them.” I argued “the possibilities for that IP seem endless” if media conglomerates put their IP in the hands of creators with media businesses that can drive awareness for meme coins.
Meme coins currently have a market capitalization of $45 billion.
As for generative AI, I have written a few essays about Fable Simulation’s Showrunner—a platform that can write, voice and animate episodes of shows—which has a longer-term, more ambitious vision of generative artificial intelligence delivering interactive storytelling for fans.
There is an emerging generation of generative AI entrepreneurs thinking similarly. Showrunner seems to be the tip of that iceberg.
Bloomberg Intelligence projects the generative AI market will grow to $1.3 trillion by 2032, up from $40 billion in 2022.
There are objectively good reasons for media management teams to invest in either.
The Next Best Investment?
The question for C-suite executives at media conglomerates is where to invest if they cannot build the internet architecture to monetize their IP. Their challenge is arguably three-fold:
They must replace the monthly recurring revenues from affiliate payments that are being lost to accelerating cord-cutting trends;
They must cut costs to preserve positive cash flow;
But, they also have a fiduciary duty to shareholders to maximize the value of their IP in next-generation technologies.
Zuckerberg described the key risk inherent in any investment to maximize the value of their IP:
I think that in any new medium in technology, there are the concepts around fair use and where the boundary is between what you have control over. When you put something out in the world, to what degree do you still get to control it and own it and license it? I think that all these things are basically going to need to get relitigated and rediscussed in the AI era.
This is a frightening scenario. The architectures of those technologies may not have the legal protections to preserve the value of IP. In accounting terms, any investment of capital expenditures in new technologies may require an equal or greater investment in legal expenses.
That is not an appealing story to tell shareholders. However, it does not rule out making smaller investments in newer technologies like generative AI and meme coins, or in the entrepreneurs behind them.
Cost-cutting is a reactive strategy. Investment is proactive. What is the downside of investing in generative AI entrepreneurs or meme coin entrepreneurs if they can (1) deepen consumer relationships with the beloved characters and worlds of proprietary IP and (2) deliver a return on investment to shareholders within the next two to five years?