I am convinced one of the biggest challenges in streaming is the problem of “walled gardens”. As I wrote last month. the “walled garden problem” is legacy libraries with limited libraries and audiences locked into particular services, so publishers are unable to understand consumer preferences holistically across other services and platforms.
One challenge presented by “walled gardens” is a back-end problem, as reflected in the Disney+ bundle or AMC+ bundle: users may have one login that works across three different apps, but the user must log into each app separately to consume all content.
The other challenge is walled gardens all are smaller scale than free ad-supported TV services (FASTs) from connected TV (CTV) devicemakers like Roku and Amazon [1] or even YouTube (135MM connected device users per month). So the data on users that legacy media publishers intend to sell to advertisers both suffers from a less scale and a lack of a broader, more holistic understanding of the consumer beyond the “walled gardens”.
Two proposed solutions to “walled gardens” emerged from Walmart and YouTube last week, and they reflect both Walmart and YouTube smelling weakness in the "walled gardens" model.
Walmart+
The New York Times reported last week:
Walmart has held discussions with major media companies about including streaming entertainment in its membership service, according to three people with knowledge of the conversations, part of an effort to extend its relationship with customers beyond its brick-and-mortar stores.
In recent weeks, executives from Paramount, Disney and Comcast have spoken with Walmart, the people said, as the retailer ponders which movies and TV shows would add the most value to its membership bundle, called Walmart+. The people spoke on the condition of anonymity because the discussions were private.
One open question is what the business model will be, as the NYT reporting suggests one outcome but implies another:
It suggests that Walmart’s proposal is similar to the “aggregator 2.0” bundles from Verizon and T-Mobile that offer their customers free or discounted subscriptions to streaming services like Disney+ or Paramount+ as an extra incentive to sign up; and
It implies that Walmart is also asking for deal terms similar to the deal struck between Amazon and Disney to license library content for IMDb TV (now FreeVee) back in February 2020.
The latter is more relevant to the problem of “walled gardens”, as it would involve (1) Walmart disaggregating content from “walled gardens”, (2) offering that content to 150MM weekly Walmart customers, and then (3) competing with its licensors for advertising dollars to target those customers with ads.
In addition to scale, Walmart has a competitive advantage in being able to close the “attribution gap” between (1) where people learn about products, services and brands, and (2) the mediums where they do the shopping and the buying. One version of this is already in the marketplace: an exclusive shoppable ad pilot program with Roku where viewers will be able to buy featured products fulfilled by Walmart directly from Roku’s platform.
It would be reasonable to assume Walmart’s own streaming platform may offer something similar. However, shoppable video within ads currently may be limited to Roku’s OneView ad-buying platform. Amazon and YouTube also have also been trialing live shopping limited to livestreaming videos.
Walmart seems to have market advantages that legacy media streamers know it will be able to leverage at their expense. That may be why we haven't seen any deals announced yet.
YouTube
The Wall Street Journal reported on Friday:
YouTube is planning to launch an online store for streaming video services and has renewed talks with entertainment companies about participating in the platform, according to people close to the recent discussions.
The company hopes the new platform, which it is referring to internally as a “channel store” and which has been in the works for at least 18 months, could be available as early as this fall, some of the people said.
This offer is closer to Amazon Prime Video Channels or The Roku Channel models: “YouTube is discussing splitting subscription revenue with streaming partners, although the terms may vary widely for each partner, according to people familiar with the situation.” This means, YouTube will take some percentage of subscription revenues (Amazon and Roku take around 20%) and in the case of ad-supported streaming services, some percentage of the ad inventory, too.
The news emerges after YouTube told shareholders it had “strong growth in Upfront commitments”. As I wrote back in May, this reflects how “The networks are no longer gatekeepers to scarcity”. Also:
If anyone is positioned to disrupt the upfronts model, it’s the platforms. At the head of the pack is Alphabet, with its YouTube subsidiary reporting 135 million connected TV viewers in the U.S. Roku and Amazon also have scale, although they don’t break out their U.S. numbers. All of them can correlate a specific household seeing an ad with an outcome like, say, the sale of a car. Brand managers may still find a success story in fuzzy Nielsen data, but they get a much more vivid narrative about the efficacy of their dollars from the platforms.
YouTube may not be positioned to close the attribution gap like Walmart because it is not an e-commerce business. But, it can aggregate scale for advertisers better than legacy media streaming services in the early stages of launching ad-supported tiers.
YouTube told shareholders it had “strong growth in Upfront commitments” and one senior YouTube executive shared with me that he believed they took market share from linear at 2022’s upfronts.
So, streamers agreeing to partner to access to YouTube’s 135MM monthly CTV viewers may also be conceding YouTube’s competitive value proposition to advertisers. Then again, the advertising marketplace may be too “co-dependent” for this to matter: eMarketer still estimates that $65B in linear ad spend in 2026, down only 5% from $68.4B in 2022.
Catch-22
A “catch-22”: is a paradoxical situation from which an individual cannot escape because of contradictory rules or limitations. Here YouTube and Walmart are offering a catch-22 to streaming partners: scale your ad-supported streaming solutions with our audiences while we prove the competitive value of our advertising solutions to your advertisers. And, if you don't partner with us, you won't scale.
It’s similar to Amazon’s and Roku’s pitch to advertisers but with one key difference: the scale. Walmart’s 150MM weekly customers and YouTube’s 135MM CTV viewers are more than triple Roku’s and Amazon’s market penetration.
It’s obvious both Walmart and YouTube smell blood in the advertising market. But only Walmart offers the truly dangerous solution for legacy media: an alternative to the walled garden problem. YouTube seems to be happy to help prolong the "walled garden" problem for users to its benefit, and at the expense of its partners.
Footnotes
[1] According to estimates I recently provided to PARQOR readers., Roku has 63.1MM active accounts, with the majority in the U.S. Assuming around 90% are in the U.S. and Canada (56.8MM), and 90% of that subset of users are in the U.S. that totals just over 50MM active Roku accounts in the U.S.
Assuming Amazon Fire TVs have 85% of the reach of Roku in the U.S., there are ~42.5MM active Amazon Fire TV accounts in the U.S.
Must-Read Monday AM Articles
[Author's Note: I have hyperlinked certain themes to specific past mailings where I first defined and discussed them]
* There was a good follow-up Twitter discussion to my essay last Friday about the WarnerMedia streaming plus gaming strategy. The general consensus was that WarnerMedia’s strategy across streaming and gaming made sense, but the execution of it may have been more sophisticated and ambitious - and required more patience from AT&T management - than former WarnerMedia CEO Jason Kilar would admit publicly.
* There is one thing that Google TV-powered smart TVs lack that all other major smart TV brands have: FAST channels
The Vibe Shift
* Samsung issued a white paper on gaming on Connected TVs
* The videogame industry is seeing a sharp slowdown in growth as people are going out again after a pandemic-fueled spurt of spending on game software, hardware and accessories. Companies are seeing falling valuations ($ - paywalled).
* The gaming industry is tipped to maintain its recent rapid growth, and could be worth $321 billion by 2026, a new PwC report says.
* HBO Max unveiled a redesigned user interface for desktop and mobile apps, enhancing both content discovery and app functionality.
The 200 vs. The 10 Million
* Small businesses are cutting back marketing spending due to Apple’s anti-tracking transparency initiative. The Wall Street Journal reported background on Apple’s and Facebook’s negotiations before the initiative launched. ($ - paywalled)
* Congress have asked the Director of National Intelligence Avril Haines to investigate whether "foreign weaponization" of widely available adtech data poses a national security risk
Aggregator 2.0 & Bundles
* Multicultural audiences have more “walled garden” streaming subscriptions than general market audiences, according to a new report from App Science. (free - registration required)
* Variety VIP+ had a good breakdown of legacy media’s efforts in video gaming and what Warner Bros. Discovery must get right ($ - paywalled). Its multi-player game “Multiversus” has reached 11MM+ players in its Beta phase and its official launch comes this week.
* Why “Multiversus” is amazing (YouTube video)
Sports & Streaming
* A Lunch with the FT interview with F1 manager and “Drive to Survive” star Toto Wolff
Creator Economy, Platforms & Transparency
* Internet platforms including TikTok, YouTube and Amazon say the future of retail is live ecommerce, but early experiments in the UK and the US suggest there’s still a long way to go ($ - paywalled)
* “A telltale sign that a TikTok video has been Twittered is when the creator has pinned a statement to address whatever is happening below in the comments.”
* There are do’s and don’ts marketers on TikTok (and the agencies that build and execute their campaigns) must pay close attention to
* Jake Paul, the YouTube star-turned-boxer, has raised $50 million alongside sports betting entrepreneur Joey Levy to launch a new company called Betr. The company will create a platform for sports micro-betting transactions and media content for sports betting fans
* The Information reports TikTok wants to grow its ad revenue to rival that of Meta, Google and other competitors. But internal turbulence in the advertising department could complicate those plans.
* Comcast Advertising that found FAST channel penetration among households has more than doubled year-over-year.
Original Content & “Genre Wars”
* The lack of specifics, and some mixed signals, in Warner Bros. Discovery CEO David Zaslav’s newly announced “reset” for DC has created an atmosphere of confusion — and rampant speculation — over the future of more than a dozen DC film and TV projects already in the pipeline.
* Martin Peers of Bloomberg argues Zaslav’s “sweeping strategic shift is an enormous step back for consumers that could very well backfire”. Meanwhile Zaslav’s doctine is “make sure we get paid.”
* Puck’s Eriq Gardner reports SAG-AFTRA is driving changes to actors’ strict contract requirements with streamers ($ - paywalled). Deadline’s David Robb had more on Netflix’s evolving contractual relationships with guilds SAG-AFTRA and WGA .
* Ben Stiller, executive producer and director of Apple TV+’s “Severance” spoke to Decider about working with Apple
* Purple Hearts is unexpectedly becoming Netflix’s movie of the summer scoring over 100 million hours in its second week. Why?
AVOD & Connected TV Marketplace
* A good summary of a recent podcast from GroupM featuring its two business intelligence execs -- Brian Wieser and Kate Scott-Dawkins - and their breakdown of the ad industry implications behind big media company earnings reports, their own proprietary analysis of Netflix vs. the pay TV universe in the U.S. (free - registration required)
* Tubi is set to launch its free, ad-supported streaming service in Costa Rica, Ecuador, El Salvador, Guatemala and Panama, joining its current offering in Mexico (where the AVOD platform debuted in 2020).
Other
* Months into its war against Ukraine, Moscow continues to let its own citizens access YouTube, leaving a conspicuous hole in its effort to control what Russians see and hear about the conflict. A Ukrainian woman uses porn and gambling sites to tell the truth about Putin's war in Ukraine.
* It’s not clear what Warner Bros. Discovery’s home entertainment release strategy will be moving forward
* My favorite story of the week: Hulu’s “The Chef” has fueled a spike in sales of the beef sandwich at Chicago-specialty restaurants across the country ($ - paywalled)