Monday AM Briefing: YouTube at 2022 Upfronts, Which Streamers Will Survive in 2022?
Seemingly lost in last week's news cycle were these data points shared by YouTube in a new blog post, YouTube is the Main Stream: Our NewFronts and Upfronts approach:
according to Nielsen, YouTube reached over 135 million people on connected TVs in the U.S. in December 2021 (NOTE: up from 120MM in December 2020);
YouTube accounts for over 50% of ad-supported streaming watch time on connected TVs among people ages 18 and up; and,
over 35% of YouTube CTV viewers ages 18 and up can’t be reached by any other ad-supported streaming service, according to Nielsen.
That data was shared in the context of a surprising announcement:
For the first time, we’ll host YouTube Brandcast, our annual advertiser showcase, during the week of the Upfronts. The live show — taking place on May 17 at 8 p.m. ET in New York — will feature top creators and music talent. Advertisers will be able to tune in via live stream.
YouTube will also participate in the Newfronts as a "principal sponsor", though it did not share details as to what that will mean in practice.
It's the timing of the announcement that seems most significant. We have sat through two months of earnings calls describing increased cord-cutting trends in the U.S., and legacy media streaming businesses struggling to justify both their business models and their value propositions (if not existences).
YouTube is breaking into the 2022 Upfronts with a distinctly different pitch than its competition:
Almost 2x the penetration on Connected TV than estimated remaining linear households (~70MM seems to be market estimate), more than 2x the Roku active accounts and almost 3x the active Amazon Fire TV accounts worldwide as of December 2020.
The same reach as Amazon's unduplicated US viewers on Amazon Streaming TV ads and Twitch (which I wrote about earlier this month in Tension between Creator Economy Strategies & Short-Form Video Business Models).
Exponentially better ad-targeting capabilities than the competition and at a greater scale.
A compelling story about capturing younger demographics in the U.S., at scale (which notably fails to define the demographic captured more narrowly as 18-34).
And therefore, great success lies ahead?
I think the lesson of the past few years of cord-cutting is that, even though legacy media companies betray weakness, they are not actually weak. Increasing affiliate rates have compensated for lost households, and higher CPMs have compensated for fewer impressions.
A big part of that can be attributed to legacy media advertising being stuck in "codependent" relationships, as I wrote about recently in If Streaming Growth *Is* Slowing, What Will Advertisers Buy In CTV?:
..."codependent" relationships matter more than sell-side economics, and in turn can overwhelm the economics of emerging, smaller-scale line items like CTV or digital media revenues at legacy media companies.
But, YouTube is entering a new forum where it has relationships, and legacy media linear teams probably have stronger relationships (for now).
That said, legacy media has two additional challenges in Connected TV ad sales. First, they don't have competitive scale with the likes of Roku, Amazon or YouTube:
Targeting becomes harder when audiences don't tune in at scale, or have been proven to be less inclined to pay for and use the streaming service where the Olympics are constantly available.
Second, as consultant Mike Shields has written, there is 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.
YouTube has a strong pitch about its supply of Connected TV inventory. In particular, it has a larger, growing supply of content from its two million creators. As I pointed out in Why YouTube Sees Hollywood’s Future in the Creator Economy:
large channel creators like MrBeast are driving YouTube production models closer to Hollywood production models. MrBeast is spending an estimated $4 million per month or $48 million per year on production costs, and investing all the revenues back into new productions.
So, as legacy media navigates whether it should spend more on supply, YouTube spends little to nothing on supply (except for creator funds).
The open question, then, is what does consumer demand on CTVs look like in 2022? It still feels like early days for this factor.
Which Streamers Will Survive in 2022?
I realized over the weekend that my "less is more" essay offers a fun framework for how to think about the streaming marketplace in 2022: basically those companies betting on a "less is more" approach, those attempting Netflix's "more is more" approach, and those pursuing neither.
[Author's Note: This section will be exclusive to members, only.]
The companies pursuing a "less is more" approach are:
Fox Corporation ($22.6B market cap, P-E Ratio of 17)
Lionsgate/Starz ($3.29B, P-E Ratio N/A)
AMC Networks ($1.73B, P-E Ratio of 7)
CuriosityStream ($190MM, P-E Ratio N/A)
The last three are betting on subscription models, and specifically "genre wars" businesses:
By focusing on specific genres [and target demographics], and aggregating them together in a service that both has a clear value proposition and is cheaper than cable, AMC+ can find wins year-round in the genres that Netflix, Disney+, and Amazon Prime Video simply are not focused on year-round.
The flip side of "less is more" is not "more is less" - it's the belief that Netflix's "more is more" strategy is feasible for others: more content spend leads to more growth, and more growth leads to network effects, those network effects lead to Netflix-like growth, and Netflix-like growth leads to Netflix-like P-E ratios (NOTE: Netflix has a $173.5B market cap and 36.61 P-E ratio)
That was ViacomCBS's sales pitch in its Investor Day two weeks ago ($19.32B market cap, P-E ratio of 4.46), and it failed. Although, it is also trying to have a little bit of the "less is more" strategy with smaller services like BET+, Showtime or Noggin.
That was Discovery's pitch up until its Q4 2021 earnings call last week ($14.26B market cap, P-E ratio of 15), and then management spent an entire call walking back that pitch. It has also been WarnerMedia's pitch within AT&T ($170.8B market cap, P-E ratio of 8.65) and next under Warner Bros. Discovery.
But, going beyond those businesses, we then hit an interesting wall: Amazon, Apple ($2.69T market cap, 27.37 P-E ratio), Disney ($272.2B market cap, 88.74 P-E ratio) and even Comcast's Peacock ($213.4B market cap, 15.47 P-E ratio) fall into neither bucket [1]. The Return on Investment (ROI) on streaming is not fundamental to any one of those businesses, but especially not their P-E ratios. Additional spend doesn't drive growth.
Conclusion
As I wrote on Friday, I recently heard a compelling case (off-the-record) from a media CEO that by Q4 this year we will start seeing more public media companies see their bottom lines get hit by expanding production costs.
The interesting question is whether productions betting on streaming services with "less is more" or "more is more" strategies will get hit harder when production investment inevitably declines. Odds are both will hit hard as investors fall out of love with the streaming model.
But, the safest bets will be all Amazon, Apple, Disney and Comcast's Peacock. They seem immune for one simple reason: their priorities for impressing shareholders lie elsewhere.
[1] As IAC Chairman Barry Diller compellingly argued:
Diller was notably bullish on Comcast’s strategy in streaming because they are “the only ones with both feet on both sides” of the streaming marketplace with X1 software and Peacock;
Must-Read Monday AM Articles
* Deadline's Peter Bart predicts how the Warner Bros. Discovery merger will play out under David Zaslav
Emerging "Metaverse"-type convergence strategies
* N/A
Aggregator 2.0
* Variety's VIP dove into the implication of Netflix's new animated interactive short "Cat Burglar"
Sports & Streaming
* Sports Business Journal's John Ourand reported NFL's Sunday Ticket "will move exclusively to a streaming service in 2023, as several sources have described Apple and Amazon as the front-runners to get the NFL’s out-of-market package."
Creative Talent & Transparency in Streaming
* TikTok Wants Longer Videos—Whether You Like It or Not
* Spotify's recent acquisitions of Podsights and Chartable is "kind of unprecedented" because Spotify now owns an independent measurement firm that’s supposed to evaluating Spotify's performance.
* Casey Neistat is premiering a David Dobrik documentary at SXSW about Dobrik's rise and fall
Original Content & “Genre Wars”
* The European heads of Amazon Prime Video, HBO Max and Paramount+ have talked up their autonomy from the U.S. during a Berlinale Series panel
* Viaplay has signed a deal with NBCUniversal Global Distribution that makes it the exclusive streaming home of DreamWorks Animation series in the Nordics, the Netherlands and Poland.
* Puck's Matt Belloni dove into a great question: "why hasn’t Disney's branded TV division had more breakout hits?"
* Inventing Anna, the Shonda Rhimes-created limited series about the grifter otherwise known as Anna Sorokin, has scored the most hours viewed for an English-language series since Netflix changed the way that it reports its ratings data last summer.
* Netflix struggles with ambitions in India: it only has 5.5mn subscribers in India, whereas Amazon Prime Video and Disney Plus Hotstar, have 16mn and 50mn, respectively ($ - paywalled)
* Tving aims to compete with Netflix on distributing Korean content in Asia
Comcast’s & ViacomCBS’s Struggles in Streaming
* N/A
AVOD & Connected TV Marketplace
* Apollo Global shared with Insider's Claire Atkinson its investment strategy in Legendary and Tegna ($ - paywalled)
* To reduce advertising fraud in the connected TV (CTV) and streaming businesses, Roku is starting up a new free technology, Roku Advertising Watermark, to help advertisers and publishers verify the authenticity of their video advertisements. (sign-up required)
* Fubo TV continues to experiment with pricing models, and saw an increase of subscribers by 106% compared to the prior year
Other
* The Guardian dove into how influencers in Russia and Ukraine are responding to the war in Ukraine
* A terrific piece on What's On Netflix's Kasey Moore, one of my favorite resources on streaming