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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”.
Last week’s “Is It Time to "YouTube-ify" Apple TV+?” argued Apple’s TV+ cannot attract enough subscribers who value Apple’s expensive Hollywood productions. The basis was, as Bloomberg’s Lucas Shaw wrote: “After spending more than $20 billion to produce original TV shows and movies that not a lot of people watch, Apple is starting to refine its strategy in Hollywood.”
Apple seems to be hitting frequent dead-ends with its assumption that consumers value expensive movies and TV series that emphasize quality and Hollywood star power. The answer may be that they do, but not enough to justify paying a recurring monthly subscription fee.
Netflix described this market dynamic in its Q2 2024 letter to shareholders as “premium content” generating “relatively small viewing” on competitors’ streaming services. The question, then, is what will consumers value and pay for that can justify any investment in storytelling?
First, Marshall McLuhan's "groundrules [sic], pervasive structures and overall patterns" of digital media are enabling new forms of storytelling in video and gaming. These are more valuable to consumers who increasingly seem more sentimental about the intellectual property of media companies than they are for the TV series and movie formats.
Second, platforms like YouTube, Epic Games' Fortnite and emerging generative artificial intelligence (AI) platforms enable various new and innovative forms of compensating creators and storytellers. A growing number of creators and consumers seem to value these as much as if not more than advertising and/or subscriptions.
The implication is that we are witnessing a significant shift in the economics and architecture of storytelling.
Key Takeaway
As we learned with "free money" from the linear and VHS/DVD rental models, the most effective new subsidies of storytelling may be more important than any iteration of the “back to the people” models we see right now.
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Total time reading: 5 minutes
YouTube
The proposal to “YouTube-ify” the Apple ecosystem mirrored YouTube’s Partner Program where audiences not only watch their favorite creators but also pay to engage with them (a business logic shared with platforms like Patreon and OnlyFans). Over the last three years, YouTube has paid out over $70 billion to creators, artists, and media companies. It now has three million creators in the Partner Program.
The proposal had three implicit assumptions about what Apple may be able to do:
Build products similar to YouTube’s advertising platform, Shopping (merchandise), Super Chat (having messages highlighted for the creator), Super Thanks (effectively, tips for content), and channel memberships (exclusive perks and content for monthly paying members).
Tie those products centrally to Apple Pay and/or its App Store; and,
Curate “premium” creator content that both syncs with Apple’s brand strategy and which audiences want to consume.
YouTube has not publicly released the percentages of those payments from advertising versus the partner program product. The reasonable assumption is advertising given the scale of Google’s advertising business ($237.86 billion in 2023). So, Apple would need to solve advertising, which has historically been a weak spot (largely because of its leadership on privacy issues).
Notably, merchandise sales are either via affiliate links in the video posts or via Shopify integrations which allow creators to sell products via live streams, videos, and the store tab. In the latter, the creator is monetizing traffic in Shopify. In the other YouTube products, the creator is paid out of AdSense, the service within which they primarily track and receive advertising revenue.
Consumers As Storytellers
In February’s Medium Shift column, “The Media Revolution Will Be Prompted”, YouTube creator Samir Chaudry told me audiences are “connected and invested” in the human creators who make YouTube what it is. The Partner Program reinforces that dynamic.
He added “it is in our DNA to tell stories and to hear stories told” by human storytellers. For this reason, he argued we should be less concerned about the emergence of generative artificial intelligence (AI) text-to-video tools like Sora. Human storytelling cannot be replaced by machine storytelling. The success of YouTube's partner program proves that consumers are finding value in having a one-to-one relationship with human storytellers.
However, the core premise of generative AI video storytelling is that it puts the storytelling in the hands of the consumer. They can pay for a generative AI platform to create stories that they want to see based on the text parameters that they enter (e.g., world, character, genre, mood). Effectively, consumers will be reallocating funding to an AI service what they could have paid for a monthly streaming subscription or to a creator.
This echoes something former WarnerMedia CEO Jason Kilar told then-Vox Media's Peter Kafka back in December 2021: “...if you’re going to invest a lot of upfront capital in creating beloved characters in worlds, I think it’s only natural if you have the capabilities and if you have the skillset in terms of leadership and talent to be able to lean into telling those stories, both in a linear fashion with narrative storytelling but also an interactive fashion with gaming.”
Epic Games’ Fortnite and Roblox offer one version of this. 65 million daily active Roblox users and over 250 million monthly active players of Fortnite play the games for free. But, they are monetized primarily through in-game purchases: Users pay licensed third-party character “skins” which allow them to play as their favorite characters in virtual worlds (NOTE: They are also monetized via advertising and membership subscriptions). Disney’s recent partnership and $1.5 billion equity stake in Epic Games reflects an aspiration to create a similar dynamic with consumers.
Warner Bros. Discovery’s “Multiversus" allows fans to use DC and Warner Bros. characters in a free-to-play crossover fighting game. It is a freemium model, enabling users to buy characters, items and other elements of gameplay.
In all three platforms, consumers may pay to access their favorite characters and create new stories with them within the parameters of a game world.
Back To “Back to the People”
The gaming, creator economy, and generative AI are three of the four “Back to the People” business models I have discussed since April (the fourth is memecoins). Basically, these are business models with the clearest signals of succeeding with intellectual property outside of walled gardens. No one business model seems most promising right now (though I concluded that blockchain and memecoins offer a compelling case for greater returns at a smaller scale).
In May, Emmy-winning San Francisco startup Fable Studio introduced a platform called Showrunner that combines the value propositions of all three. A platform the company says can write, voice and animate episodes of shows it carries. For the initial release, users will be able to watch AI-generated animated series and create their own content, including the ability to control dialogue, characters and shot types, among other controls.
Consumers can pay between $5 per month to $36 per month to produce as few as 10 stories per month and as many as 80. This is far beyond licensing skins: Fans will be paying both to become the creator and for generative AI to be their personal storyteller.
Fable’s long-term objective with consumers is for them to be able to produce video with beloved worlds and characters. With publishers, its long-term objective is to ensure that they are paid for each and every fan-generated use of their worlds and characters.
Similarly, The Information recently reported on Inkitt, “a startup that lets writers self-publish books and uses artificial intelligence to edit, distribute and sell the most promising works on its Galatea app.” Inkitt announced a new generative AI feature that writes fan fiction based on the app’s popular stories.
Inkitt Readers can select their favorite Galatea story for inspiration, and customize elements like character names and the story’s setting. Inkitt pays authors a royalty when a reader generates fan fiction, and it is the same royalty that they earn from the sale of an original title.
New Paradigms
YouTube, Fortnite and Roblox all seem to have laid the original foundations of these consumer-driven storytelling models. Whether or not generative AI has a viable future for media businesses, emerging business models like Inkitt and Fable are further innovating the payment mechanisms for consumers to compensate creators and IP holders.
As we learned with "free money" from the linear and VHS/DVD rental models, the most effective new subsidies of storytelling may be more important than any iteration of the “back to the people” models we see right now. The back-of-the-napkin math of consumers as storytellers suggest the opportunity—and the paradigm shift within it—may be enormous.