Since I have returned to blogging, I have probably brought up the fact that content is not king several times. That is until last week, when I suggested that in the battle for PayTV supremacy, where the content goes may decide who wins the PayTV race–all the while, content rakes in better margins than it has seen in decades.
To reiterate my stance on why content is not king, let me break it down in to three parts. One, content creators have yet to develop a full-proof strategy for creating content that will always be well received by its target market. Two, the nature of creating content causes a systemically broken relationship between creators and customers. And three, there are no competitive advantages when it comes to creating content–if you have enough money, you can build a studio and buy the same talent that your competitors are buying.
However, while content alone may not be the best way to strengthening your income statement, it can be a good way to lock people into your product. For example, Apple does not make music, but all of those TV shows and songs you downloaded on iTunes makes it hard as hell for you to switch over to another phone maker. Also, while I would love to stop spending the almost $200 a month I pay for cable and internet service, I love ESPN, and my subscription to Time Warner makes sure I can get the worldwide leader delivered to my TV, PC and phone.
And there are countless other examples of content being used to uplift a decidedly non-content business. From Amazon and Instant, to movie theaters and high-priced popcorn, businesses that love to say they aren’t media companies sure do love the leverage that only a media company can provide.
Which brings me to the technology sector. A while back, AdAge reported that Facebook was in talks with top YouTube content to recruit them over to a new video distribution business they are reportedly building. Twitter is constantly making deals with content makers like ESPN and NBC Universal, while also establishing its very own news unit. And my employer, Google, shelled out millions of dollars to some of the world’s top celebrities and producers in exchange for their video-making prowess.
So why the disdain for being a media company?
Well, if you want to make it a simple answer, the multiple on a tech company is much higher than that of a media company.
That said, it also seems to me that the very battle over the internet, especially among its larger players, comes down to: “Who is going to control the best content?”
Just think of everything that the major technology companies do–it all relies on some semblance of content. Google relies on eyeballs to make advertising dollars, and without content for its spiders to crawl, video creators to put videos on YouTube, or blog networks to run Google Display Network on, the eyeballs go away. Apple wants you to buy its phones, but are their phones that cool without the countless apps they have to offer, the songs you can download and the games you can play? Amazon, while much more diversified in its producer offerings, was founded primarily as an online bookstore, and now it wants to become the biggest threat to YouTube in the short-form video space. And let us not forget about Microsoft, who just reorganized their entire IEB unit and brought in a CBS executive to help steer their way through the roads of the content landscape. Let us do forget AOL though–too small to adequately belong in this discussion.
Now, the difference between the aforementioned tech companies and pure-play content creators is that these tech companies don’t want to make content, they just see having it as a means to an end. If they can control (or at least partner with) the creators while maintaining their own distribution of the content, tech companies see a way for them to bypass their counterparts in the internet space. A tech company’s involvement at the production and distribution level means more control and the extraction of profits from both ends. Content creators only see margins at one end–often sharing those with the tech companies and/or distributors.
However, things are a changing. Somebody feel free to correct me if I’m wrong, but since the late 90s, content creators have never been as powerful as they are now. The rise of the internet and the ability for anyone to publish content to the world commoditized content a decade ago. But now, as tech companies duke it out for internet supremacy, content is no longer a commodity, it’s a luxury good. Sure you can live without it, but if you want to be popular, pricey and most importantly, profitable, you better have it–and not the cheap knock-off content either!
Look at the landscape now. We went from almost no video on the internet in the late 90s to thousands of people making legitimate salaries by making videos in their homes. The NFL is prostituting itself around Silicon Valley to see if they can drum up another multi-billion dollar partnership. Twitter makes a deal with NBC Universal to prop up its IPO. Sony buys digital rights to Viacom content. And Netflix is in the business of winning Emmys.
And while all of that still points to the fact that tech companies are in control, it doesn’t mean they aren’t paying for it. Netflix paid $100 million just to make/acquire House of Cards–not to mention the billions of somewhat-unexpected SVOD dollars content makers have raked in from Netflix over the last few years. (Non-factor) AOL paid more for Huffington Post than almost anybody thought it was worth. And while famous YouTube hater Jason Calacanis would scoff at what I’m about to say, YouTube is giving more than half of its earnings from videos to their creators. Do you personally think YouTube loves the margins on that deal?
So while the top dogs of the internet are still in control, both tech companies and content creators know that without content, many of these titans of industry would cease to exist as we know them. If studios all of a sudden said no more contracts with Netflix and they all went to Amazon Instant–well, that would have been a nice run for Reed Hastings. And if the NFL were to sign a distribution deal with Intel, that may determine the winner of the OTT race.
Listen, I’m not saying content is king, but content creators sure do have a lot of leverage from here on out. Tech companies, as well as cable companies, are battling over them like kids in a sandbox. Some of these companies cease to exist without certain content. And should the market work itself out, content creators will extract the majority of the value out of all future negotiations with these “non-media” companies.