Monday AM Briefing: Tension between Creator Economy Strategies & Short-Form Video Business Models

A Quick Follow-Up To Amazon Advertising's Seismic (?) Breakout Quarter

I got a fun question from The Entertainment Strategy Guy (ESG) on Twitter shortly after Amazon Advertising's Seismic (?) Breakout Quarter went up:

It's a great question: what evidence do we have that Amazon is monetizing video well?

Since Amazon doesn't break out advertising revenues by category, it's worth checking out two sources I did not include in Friday's essay:

1. Amazon's 10-K for 2021, and

2. The Amazon Ads Blog

The short answer is, they don't tell us anywhere about how the video ads business is performing relative to others. They describe video on the earnings call as an area of innovation. But they also describe the entire ads business as "innovation".

The Amazon Ads Blog is a different animal. It lists its reach as 135MM on unduplicated US viewers on Amazon Streaming TV ads and Twitch, and a 90% increase in purchase rate when integrating Streaming TV ads into a media strategy. It also has a post detailing Amazon video advertising's advantages over linear TV:

1. incremental reach and unique audiences to linear TV campaigns

2. an audience consisting of a higher proportion of light TV viewers than linear TV campaigns, and
   

3. lighter frequency than linear TV campaigns.
   

It's a compelling sales pitch. But a key problem is the numbers are self-reported, something I highlighted back in If Streaming Growth *Is* Slowing, What Will Advertisers Buy In CTV? Specifically, journalist and consultant Mike Shields wrote about an emerging "credibility problem" in the Connected TV (CTV) marketplace:

I’m not saying that some of the numbers being thrown around in CTV smell fishy, but they don’t smell great, particularly if you go out in the world and talk to people.

There is also the problem of ad buyers undervaluing the reach of CTV, according to a 2021 study from The Association of National Advertisers (ANA) and Innovid where the average campaign in the study reached only 13% of the available U.S. CTV households. Meaning, even if CTV offers reach, ad buyers are risk averse to buying the necessary reach, which Innovid/ANA say is 40% of households.

Moreover, it was recently reported by Lauren Johnson of Business Insider that Amazon is now aggressively pursuing TV advertisers and brands who typically buy ads for brand building and brand awareness and are "using Google's playbook to focus on big brands and ad agencies". The implication is that those media buyers are not yet "all in" Amazon's sales pitch, which supports Mike Shields' skeptical take, above, and ESG's skepticism that Amazon's advertising story to investors may be 90% sponsored search ads.

So, I was too bullish in my conclusion that Amazon's Q4 2021 was "seismic"?

I don't think so: a $10B quarter is objectively seismic in digital advertising, especially given the two decades of failed or subscale digital advertising businesses that came before Amazon. I also think this Business Insider story highlights both a reorganization and newfound confidence in Amazon's ad sales division, both of which reflect Amazon's momentum in advertising and growing market demand for CTV inventory. 

I also don't think the NFL - which has been historically and notoriously risk-averse to innovation given all 32 owners need to approve a deal - would have agreed to a 11-year, $1B/year distribution deal with Amazon for Thursday Night Football if they didn't believe Amazon could not monetize it with ads from big brands. 

That all said, Amazon is making it clear it needs to build a better story for risk-averse linear media buyers who insufficiently invest in CTV reach, to date. That story is not likely to change in one fiscal quarter, or four, as cord-cutting trends begin to flatten out.

But, I still believe Amazon's CTV story to ad buyers will be helped in the near-term by NBCU's struggles with the 2022 Winter Olympics.

A Short Essay on Tension between Creator Economy Strategies & Short-Form Video Business Models

Plenty is being written of the contrast between Meta and Google's Q4 earnings and the market's reaction to them: Google's went up ~5% after it posted its earnings, and Meta's lost 20% or $230B in market capitalization. In essence, one has successfully navigated the twin headwinds of Apple's Anti-Tracking Transparency efforts and the rapid growth of TikTok, and the other has not.

Both have been pursuing business models in short-form video to date, too - the driver of TikTok's growth. Google has a good story with its TikTok competitor Shorts but Meta has a weak story, to date, with its TikTok competitor Reels.

There is an interesting question tension that is emerging between creator economy models as strategies, and short-form video as a strategy.

[Author's Note: The rest of this essay will be exclusive to members, only.]

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Google CEO Sundar Pichai told investors a story of engagement for its Shorts product:

We are also seeing exciting momentum at YouTube. YouTube Shorts continues to drive significant engagement. We just hit 5 trillion all-time views and have over 15 billion views each day globally. This is helping our creator community reach newer and bigger audiences.

Meta CEO Mark Zuckerberg told a story of "pressure on impression growth in the short-term":

But there are two things that I want to call out that are having an impact on our business. The first is competition.
People have a lot of choices for how they want to spend their time, and apps like TikTok are growing very quickly. And this is why our focus on Reels is so important over the long term, as is our work to make sure that our apps are the best services out there for young adults, which I spoke about on our last call. The second area, and related to this, is that we're in the middle of a transition on our own services toward short-form video like Reels. So as more activity shifts toward this medium, we're replacing some time in News Feed and other higher monetizing surfaces.

So as a result of both competition and this shift to short-term -- short-form video, as well as our focus on serving young adults over optimizing overall engagement, we're going to continue to see some pressure on impression growth in the near term. Now I'm confident that leaning harder into these trends is the right short-term trade-off to make in order to get long-term gains. We've made these types of transitions before with mobile feed and Stories, where we took on headwinds in the near term to align with important trends over the long term. And while video has historically been slower to monetize, we believe that, over time, short-form video is going to monetize more like feed or Stories than like Watch.

Both statements are not clear on how the format fits into either the Meta or YouTube business models.

This hits on a point that was lurking both in the background of last week's Member Mailing, YouTube's Q4 Earnings & The Quiet Revolution of the AV1 Codec, and in my opinion piece for The Information, Why YouTube Sees Hollywood’s Future in the Creator Economy: if hardware support for the AV1 codec is going to have the most strategic impact for YouTube and Netflix over the next 5 to 10 years, then what strategic purpose do creator economy investments achieve?

In other words, is the creator economy truly important to the business models of Google and Meta, respectively?

I think YouTube has made a strong case, to date, that the creator economy is fundamental to its business model. As it announced last August, YouTube that it has over 2MM creators in its YouTube Partner Program, and has paid more than $30B to creators, artists, and media companies over the past three years, alone.

Spread that $30B across three years of income (2019:$15.1B, 2020: $19.7B, and 2021: $28.8B, or $63.6B total) that's about 47% of total YouTube ad revenues. It is probably somewhat less given that YouTube also monetizes via Paid Digital Goods.

But, as for Meta, YouTube superstar creator MrBeast has the best explanation why the creator economy is more of a tactic for Facebook, as he told The Information's Sam Lessin:

The beauty is currently if any creator wants to make like real money, they flock to YouTube. When Vine blew up, people went to YouTube because they weren’t making money. The same with TikTokers who are currently going to YouTube, right? YouTube is definitely currently the best social media platform to make like real cash.
Take Instagram: If you’re a big creator, you get priced out of the market. There’s very few brand deals for you, and there is no ad revenue. YouTube [on the other hand] is perfect no matter what size; there’s tons of brand deals. There’s obviously ad revenue, as long as you’re in the partner program.

In short, Meta is far behind the competition in the creator economy. Zuckerberg's answer to the question, "do you have the content you need?", admits as much:

It -- you know, we face a competitor in TikTok that is a lot bigger, so it will take a while to compound and catch up there. But fundamentally, you know, we think that there's a lot of potential for it to continue growing. So to your question, do we have the content that we need, you know, it's a flywheel. So the better tools that we can build for creators and the better monetization we can offer them, which tends to be an advantage that we have over other competitors is how effective our monetization and ad systems are, then I mean the bigger it gets, the more it will attract more creators, and it will kind of build on itself.

Facebook sounds more ambivalent than YouTube, and we have two clues as to why:

1. big creators get priced out of Meta's ad market, and 

2. video has never been its strong suit in either driving user adoption or monetizing.

It would be a bit of a stretch to argue that Meta lost market capitalization because the creator economy is a tactic still in formation and not fundamental to its short-form video strategy, but Google gained because the creator economy is a strategy for YouTube and Shorts has 5T views. to date.

Rather, the point is the creator economy is fundamental to YouTube's revenue model, seems incidental but aspirational to Meta's, but both have yet to figure out viable business models for short-form video as TikTok continues to take market share (over 100MM users in the U.S.)

That seems notable.

Must-Read Monday AM Articles

* Hollywood agencies are building mini-media empires around TikTok creators and taking the strategies these digital influencers use and applying it to bolster the careers of the agencies’ already established clients.

* One of TikTok’s growing capabilities could potentially disrupt a whole new sector of business: influencer marketing agencies.

Emerging "Metaverse"-type convergence strategies

* Spire Animation Studios has raised $20 million from Epic Games and others as it aims to produce animated films for the metaverse.

* Web3 is the future, or a scam, or both. The NFT marketplace is a "Complete Disaster".

Aggregator 2.0

* Spotify CEO Daniel Ek told employees Sunday that while he strongly condemns the racial slurs used by Joe Rogan in the past, he won't be cutting ties with Rogan. The Wall Street Journal went behind-the-scenes into the crisis at Spotify.

Sports & Streaming

* UEFA has again sold the 2024-27 U.S. rights to Relevent Sports Group (owned and co-founded by Miami Dolphins owner Stephen Ross), which told the Champions League it could guarantee at least $250MM for the rights in the United States.

* The NYT dove into the "rising human cost of sports betting"

Creative Talent & Transparency in Streaming

* CAA is leaning heavily into the NFT marketplace (and influencers are openly discussing how the market is rigged), including Paris Hilton and Jimmy Fallon discussing their Bored Ape NFTs on The Tonight Show

*  Bored Ape Yacht Club is discussing a financing with Andreessen Horowitz that would value it at between $4bn and $5bn ($ - paywalled). Buzzfeed News uncovered the names of BAYC's pseudonymous founders.

Original Content & “Genre Wars”

* Variety VIP's Andrew Wallenstein dove into the implications of Apple CEO Tim Cook's comment to investors, "We don’t make purely financial decisions about the content. We try to find great content that has a reason for being.” ($ - paywalled)

Comcast’s & ViacomCBS’s Struggles in Streaming

* A good thread on Paramount+'s #TCA22 day with an exec session featuring Tanya Giles (Chief Programming Officer) and Nicole Clemens (President, Original Scripted Series).

* According to Antenna data, many of new customers unsubscribe from streaming services within a few months. Also, Antenna published data on the success of free trials across streaming services.

AVOD & Connected TV Marketplace

* France Télévisions President Delphine Ernotte Cunci argues “There is a Netflix button on remote controls. There must be a France Télévisions button in the same way,”

* Advertisers and TV networks will begin to seed alternative measurement providers to Nielsen as secondary, or “shadow,” currencies — and in some cases as primary currencies for individual campaigns.

Other

* WPP formed a partnership with Instacart to give its clients an early look at Instacart Ads product offerings and access to new tools and features on the platform.

* Univision closed its Televisa acquisition and aims to quickly turn a profit in streaming.

* The EU may be headed toward a ban on behavioral advertising