Facebook Changes its News Feed Algorithm

What it Means for Media Companies:

  • It will become more expensive for media companies to reach FB audiences
  • FB will likely increase focus on FB Watch
  • The short-medium term FB business impact is unclear but FB’s moat against government regulation and future competition is strengthened
  • Media companies will struggle to reduce dependency on FB

 

FB said it will start to show users more posts from their friends and family in the News Feed, a move that means people will see fewer posts from publishers and brands. Recode

What this Means for Media Companies:

The likely most significant impact of this change on the media industry will be on media companies’ social reach cost, FB’s focus on Watch, and FB’s moat.

  1. Media Companies’ Social Reach Cost

FB prioritizing friends and family interactions over posts from publishers and brands means that fewer organic posts from media companies will reach followers. In the same announcement, FB stated that they expect time spent in the app to decrease.

This announcement follows FB telegraphing last year that it will stop growing, and potentially reduce, ad loads (Recode).

Considering these points together, it’s clear that FB’s inventory for organic and paid media posts is shrinking. Demand for this inventory, however, is likely to continue growing since FB’s targeted, self-serve platform is one of, if not the most, effective digital marketing channels. The result would be an increase in the price media companies pay to reach FB users, whether they follow the media companies’ FB page or not.

Therefore, media companies should expect the following activities to become more expensive on FB:

  • Maintain relationships with their Facebook followers
  • Acquire users for subscriptions services
  • Distribute content (branded or otherwise)

In a desperate search for silver linings, the following repercussions could be seen as beneficial to established media companies:

  • Media companies with influencer networks may see these networks as an effective way to break through FB’s news feed algorithm
  • It will be more difficult for media startups to find initial traction without FB as an open network (e.g. Buzzfeed could have never flourished in this environment), leading to fewer sources of competition in the future
  • Valuations of FB dependent digital media companies may become more attractive for acquisition’s sake
  1. FB focus on Watch

Since FB’s ad load is now essentially maxed out, their growth levers are limited to increasing prices and growing other businesses. One of the businesses that is likely to increase in priority as a result is FB Watch.

FB is already planning to invest $1B in FB Watch original programming in 2018 (TechCrunch). So far, it’s not clear that FB Watch has been able to gain traction among viewers. If it ever does, it would not only take viewer attention share from media companies but also the advertising dollars that follow that attention. In this hypothetical situation, FB’s hyper-targeting abilities could be viewed as extra incentive to move video ad dollars to the platform, since linear ad targeting abilities are likely to trail behind.

FBWatchTrends1

FBWatchTrends2

  1. FB’s Moat

While FB’s motivations for prioritizing personal interactions over brand posts are not completely clear, the move could help them defend themselves against current scrutiny that the platform is bad for people and society. Whether the move makes the platform less toxic or not, it at least communicates a somewhat altruistic message that FB cares about its impact on the personal lives of its users and is willing to take initiative for that cause. In my view, this move reduces FB’s risk of government regulation.

An argument could also be made that the aspects of the platform that FB is prioritizing, the social graph and the interactions that come out of it, are also the aspects of the platform that benefit most from network effects, and are therefore most difficult to replicate. While the prioritization’s short-term impact on FB’s business is questionable, FB’s moat against future competition could be strengthened.

In conclusion, while FB’s news feed algorithm change is probably a net detriment to media companies, it’s unlikely that that industry will be able to reduce its dependence on the platform.

 

The Most Media Impactful CES 2018 Product Releases

Executive Summary:

  • Smart Displays – Google competing with Amazon Echo Show through hardware partnerships
  • TVs – Samsung and LG taking TV tech next level
  • Smartphones – Huawei shows new models

What it Means:

  • Smart Displays – Not clear consumer wants them, but if so, could become dominant video interphase
  • TVs – cool TVs are good for the PayTV bundle
  • Smartphones – with carrier partnership, could Huawei help Android take iOS market share?

 

1. Smart Displays

Amazon introduced the world to the smart display with its Echo Show in May, 2017 as part of its Alexa enabled device family. While Alexa has been an undisputed massive hit, it’s unclear that the Echo Show has really taken off with consumers. The greatest interest the Echo Show has generated has been over the controversy of YouTube pulling support of the device in December 2017:

SmartDisplays1

SmartDisplays2

Whether the smart devices are approaching product / market fit or not, Google made it clear that they’re jumping on board at CES. In an interesting twist, Google is taking the Android, hardware partnership, tactic to smart displays rather than staying true to the integrated hardware approach of the rest of the Google Home line.

Two Google Assistant enabled smart displays partnerships were announced at CES:

Lenovo

Lenovo.png

There are two models: an 8-inch version, and a larger 10-inch model. The platform itself is a simple version of the Google Assistant that responds to “Hey, Google” and does all the Assistant stuff you’d expect…There’s Duo video calling support, Google Maps, YouTube playback, and even Google Photos. (The Verge)

JBL Link View Smart Display

JBL

While we love the industrial design of Lenovo’s model, JBL’s—which appears to be based on its Link 300 speaker—looks like it will offer better audio, making it a flexible home entertainment and home control center. (PC Mag)

What this Means for Media Companies:

I have a feeling that we’ll be hearing a lot about smart displays in 2018. To make the arena even more interest, Facebook is rumored to be announcing their own smart display at their developer conference this year (The Verge).

Big Tech’s agenda to push these devices is clear – video enabled devices in consumers’ homes gives these companies all of the advantages of owning the video content interphase:

  1. Higher reach and conversion rates of video services (Prime Video, YouTube TV, FB Watch)
  2. Major influence on content discovery
  3. Nearly complete access to viewer behavior and preference data
  4. Affiliate revenue from other OTT services offered through the platform

Side note – Google’s motivation for removing YouTube support from Amazon’s Echo Show just became much more clear (The Verge)

The question remaining – do consumers want smart displays?

Content providers should keep a close watch on these devices’ traction. If they ever do take off, even more power will flow into the hands of the device OS owners and content providers will be pressured to conform to the device demands and design.

 

 2. TVs

On the topic of video viewing devices, the television just got a bit cooler at CES. Here are two product announcements that made waves:

The Wall by Samsung

TheWall.png

Samsung’s new – and the first-ever – modular MicroLED TV promises to put the current OLED standard in its place. At 146 inches diagonally, The Wall is a TV that engulfs your entire field of view with gorgeous, visually stunning images that rival what we’ve seen on OLED screens. (TechRadar)

LG Rollable OLED TV

LGRol.png

Paper-thin screens you can simply roll up have been futuristic fantasies for years. That won’t likely change anytime soon, but LG Display is pushing the technology a bit closer to reality with its 65-inch rollable OLED screen. This OLED panel rolls up like a poster and can be unspooled into a very flat panel TV. At 65 inches of 4K resolution, it’s the largest, most advanced rollable screen yet. (PC Mag)

What this Means for Media Companies:

Legacy video content companies should root for the television because the most accessible video content on the television is the traditional TV bundle.

Also, an interesting trend in the age of digital video adoption is viewers preference to consume video content on the mobile devices (Media Post). Upgrades like these CES product announcements could give the traditional television a boost of relevance in the digital future.

Consumers’ video device preferences will have huge implications on the video content gatekeepers of the future and therefore, the future partners of content providers.

 

3. Smartphones

Leading Chinese smartphone maker, Huawei, announced a couple of praised products as it attempts to continue its global growth momentum into the U.S.

Mate 10 Pro

Mate10

Huawei’s best phone yet is at last debuting in the US, and is indisputably the most impressive phone on the CES 2018 show floor. Not only is the Huawei Mate 10 Pro the most impressive device we’ve seen from Huawei to date, it’s also one of the most impressive flagships currently on the market, undercutting the competition while offering more in some key areas. (TechRadar)

Honor View 10

HonorView.png

Honor’s View 10 sets the bar for value. Huawei’s low-cost spinoff brand is bringing a 6-inch phone with tons of RAM and storage, an AI-enhanced camera, and a flagship-level Kirin 970 processor to the US for less than $500—that undercuts the OnePlus 5T by at least $30, and it’s about half the price of Huawei’s own Mate 10 Pro. Honor has sold great $200 phones in the US for a few years now, and this device pushes its market up to people who aren’t looking to make compromises. (PC MAG)

What this Means for Media Companies:

While Huawei does sell its smartphones in the US, it does so without the support of major carrier partners. For the moment, they’ll be continuing on this track in the U.S. as their rumored partnerships with AT&T and Verizon fell through (CRN).

If Huawei is able to develop U.S. carrier partnerships, its global expansion track record suggests they could become real competitors. Huawei smartphone are operated by Android, therefore any market share they could take from the iPhone would be a win for Google, and Google Play.

 

2017 Media Acquisition Recap

Executive Summary:

  • 2017 media acquisition volume in line with 2016’s high & well above the 5-year avg.
  • Media companies that made most acquisitions include Disney, Condé Nast, 3BL Media, Momentus Entertainment Group, HAAWK, Inc., Cision, Conversion Point Technologies
  • Most common categories among acquired companies include: Advertising, Media & Entertainment, News, Digital Media, Marketing, Software

As the future of media remains in flux, acquisition has been the go-to tactic for industry players to strengthen their ability to compete and solidify their significance.

Here’s a deep dive into Crunchbase’s recorded acquisitions made by U.S. media companies (specifically those tagged as Media and Entertainment & Digital Media).

  1. Strong Deal Flow: 138 acquisitions were made by media companies in 2017 – in line with 2016’s high and well above the five-year average:

5yrAcqVolume

 

2. Media companies that made the most acquisitions tell the following stories:

  1. Broadcast media company going all in on digital – Disney
  2. Publishing companies increasing the size and quality of their audience reach – Condé Nast, 3BL Media
  3. Entertainment group converging media with advertising, product, and gaming – Momentus Entertainment Group
  4. User Generated Content platform increasing its supply and ability to monetize content – HAAWK, Inc.
  5. Media service companies acquiring to increase the services they can offer – Cision, Conversion Point Technologies

Here are the details:

Top5Acq

 

3. Among acquired companies, the most common categories included: Advertising, Media & Entertainment, News, Digital Media, Marketing, Software:

AcqCoCat

 

What this Means for Media Companies:

Media companies are recognizing the need to innovate in order to maintain relevance and the data shows they’re finding acquisition to be an effective option to do so.

Media companies with ambitious goals to develop new businesses in 2018 can take cues from other company acquisitions when considering whether to buy, build, or license their way into these new businesses.

Voice Assistants Go Mainstream

Executive Summary:

  • Voice assistants and their devices are becoming more functional and booming in popularity
  • The opportunities to monetize their services are currently limited, but quickly growing
  • The voice assistant holy grail is locking users into set-top boxes and owning content discovery

What it Means:

  • Voice assistant will have huge influence on consumed content
  • Non-voice assistant media companies need to differentiate through indispensable content
  • It’s in the best interest of non-voice assistant media companies to conform to voice assistant winners to maximize content discoverability

Google’s premium Home Max smart speaker goes on sale

At $399, the Home Max is one of the priciest smart speakers to date…really, the Home Max and HomePod are speakers first, smart second. The speaker offers a feature that tunes audio based on the geometry of the room. The system also features dual-woofers and tweeters and connectivity with Google Play, Pandora and Spotify.

TechCrunch

This news bite is just one of the everflowing voice assistants device developments that show how the technology is constantly fulfilling more use cases and thus, increasing its addressable market.

Another one: Amazon’s voice assistant, Alexa, now has 25K+ skills (TechCrunch)

How popular are voice assistants?

This year, 60.5 million Americans will use Siri, Cortana or another virtual assistant at least once a month. That equates to 27.5% of smartphone users, or nearly one-fifth of the population.

eMarketer

US Voice-Enabled Digital Assistant Users, by Generation, 2016-2019 (millions)

 

Where’s the money?

As voice assistant capabilities and creativity expand, new methods of monetization are surfacing:

However, current revenue from voice assistants is likely negligible for all tech companies, developers and publishers involved. Google is even cannibalizing core business revenues by facilitating its Google Assistant services and devices. They are not currently monetizing the 20% of mobile queries made through voice searches (SearchEngineLand).

What’s at stake?

For the big tech, voice assistant companies, I would argue the big prize is the same as for video devices and AR headsets. Voice is seen a significant user interface and a future gatekeeper to content. This dynamic can be seen playing out through recent developments making video content accessible through voice:

  • Amazon’s most recent Fire TV models are voice-enabled:

 

Dominant set-top boxes benefit in the following ways:

  1. Higher reach and conversion rates of video subscription services (Prime Video, YouTube TV)
  2. Nearly complete access to viewer behavior and preference data
  3. Affiliate revenue from other OTT services offered through the platform

But a voice-enabled set-top box injects the benefits of owning content discovery with steroids.

Just as when Alexa is told, “Alexa, play music”, a recommended Amazon Prime Music song is played, in the video above, the command, “Alexa, play a comedy” will play recommended comedy video content from Amazon Prime Video. The point is, this Fire TV owner becomes much more likely to watch their comedies on Amazon Prime Video rather than Facebook, YouTube, or Comedy Central.

Not to mention, the voice assistant captures a new data set frontier: content preferences demonstrated through voice commands.

What this means for media companies:

As voice assistants improve functionality and become more ubiquitous, the media companies that own them will gain significant influence over content discovery. All other media companies face significant risk in losing their relationship with content consumers.

As visualized in the smiling curve below, the best way to compete against content discovery gatekeepers is to own indispensable content.

The Smiling Curve for publishing

Ben Thompson Stratechery

The unfortunate next best action for most media companies is to conform to the demands and design of the voice assistant gatekeepers. Doing so will maximize the discoverability of their content on this future video content interface.

How can media companies become early voice adopters?

  • Create voice-enabled content such as flash briefings and podcasts
  • Strike partnerships with DMVPDs owned by major voice assistant players such as YouTube TV and Amazon Prime Video / Channels

 

 

 

 

 

 

 

 

Apple Buys Shazam

Executive Summary:

  • Apple buys Shazam at a ~60% discount from peak valuation
  • The acquisition is expected to fuel marketing for Apple iTunes/Music
  • Shazam’s AR capabilities could boost Apple’s AR momentum

What it Means:

  • The acquisition is an example of marketing / product vertical integration
  • Similar, ad-based media / product integration can capture value in media

 

Apple confirms its purchase of Shazam for a reported ~$400 million.

“We are thrilled that Shazam and its talented team will be joining Apple. Since the launch of the App Store, Shazam has consistently ranked as one of the most popular apps for iOS. Today, it’s used by hundreds of millions of people around the world, across multiple platforms. Apple Music and Shazam are a natural fit, sharing a passion for music discovery and delivering great music experiences to our users. We have exciting plans in store, and we look forward to combining with Shazam upon approval of today’s agreement.”

Official Apple statement via TechCrunch

Shazam was founded in 1999. It was one of the original mobile apps, originally controlled via SMS. By most, it’s known as the app that tells you the name of a playing song. After nearly 20 years of existence, song recognition remained the primary functionality of the app. (Wikipedia)

It’s not that Shazam didn’t try to innovate. Here are a few of the services they launched with limited fanfare:

  • A social network of sorts that allows users to discover content shazamed by others
  • Lead conversion for brands by recognizing TV commercial audio and automatically directing viewers to advertisers’ web pages
  • In-app music video streaming service
  • An augmented reality app that detects signals on physical items to create video content

 

What does Apple see in Shazam?

Here are some ideas:

  • iTunes/Apple Music Marketing – when users Shazam a song they already have the option to be directed to iTunes. Apple’s acquisition will likely tighten that connection
  • iTunes Curation – Shazam’s social network data and functionality can improve the Apple’s listening experiences. Listeners can follow songs shazamed by friends/influencers and listen to playlists curated from their Shazam history.
  • iMessage Lock-In – Shazam’s song-sharing Snapchat feature, could further improve the Apple iMessage experience
  • ARIf Apple comes through with its promise to launch an AR headset, Shazam’s underwhelming mobile AR experiences will have new, intriguing possibilities
  • A Fat Discount – the reported acquisition price is ~40% of Shazam’s peak valuation

 

What this means for media companies:

It certainly confirms Apple’s commitment to music and maybe even AR. Aside from that, I have to stretch but here goes…

Shazam is a marketing service that captures maximum value by being completely integrated with a service it markets like Apple’s. Shazam has 120+M monthly active users (TechCrunch). In their pre-acquisition model, they would direct users to both Apple and Spotify music services. By owning Shazam, Apple will not only eliminate affiliate fees and increase conversion Shazam conversion rates, but they also cut off a significant marketing channel for fierce competitor, Spotify.

A similar dynamic is playing out with ad-based media companies more closely integrating with the services and products they advertise, through branded content offering e-commerce.

While it’s not a one size fits all model, branded content and e-commerce vertical integration can provide ad-based media companies with new levers to expand margins.

 

 

The FCC Repeals Net Neutrality

Executive Summary:

  • The FCC voted to repeal net neutrality rulings
  • Additional steps are required to solidify the repeal but overturning the ruling seems unlikely

What it Means:

  • MVPD owned content distribution services (DirecTV Now, Go90, et al.) have a leg up
  • Improved broadband infrastructure could come sooner
  • The increased cost of doing business for small to medium-sized content distributors could make their businesses unsustainable

 

THE FEDERAL COMMUNICATIONS Commission voted Thursday to dismantle its net neutrality regulations.

Wired

We’ve been tuned into this for weeks and the repeal is not a surprise. Here’s a quick and dirty summary of the arguments from the pro and against groups:

  • Pro Net Neutrality Repeal: Without being able to offer tiered quality services (i.e., charge more for faster content delivery speed), broadband providers lack the incentive to improve infrastructure, which would benefit all.
  • Against Net Neutrality Repeal: All internet content should be accessible to all internet users, at the same speed. Broadband providers should not able to block or give preferential treatment to specific content providers

(forgive the double negatives. i’m not quite comfortable saying pro-repeal is anti-net neutrality)

What Happens Next:

1. The repeal will go to the courts where advocacy groups will challenge the decision
2. FCC officials can still change their mind
3. Congress could overturn the repeal but only unanimously – the House, Senate and president would all need to agree to overturn the repeal (i.e. keep current net neutrality rulings in place)

What This Means for Media Companies:

I’m speculating but if net neutrality rulings are ultimately repealed, the following seems likely:

  • Broadband providers will prioritize their services: DirecTV Now, Go90, et al.
    • If you believe delivery speed is critical to the success of these businesses,  you could infer that the repeal of net neutrality could improve the likelihood of these services’ success
  • Improved broadband infrastructure (i.e. 5G) could become more real, sooner
    • Faster internet for all could make video content more accessible and open the doors to the next wave of very data-heavy technology
  • Higher barrier to entry for content distributors
    • Further consolidation among small to medium-sized content distributors at depressed valuations could make sense

 

Video Content Gatekeepers: Amazon, Apple, Google, Roku

Executive Summary:

  • Google pulls YouTube support from Amzn Echo Show/FireTV
  • AppleTV adds Amzn Prime Video
  • All sacrificing core horizontal businesses (YouTube, Amzn e-comm, iTunes) to strengthen position of vertical video device / OS products (ie. content discovery gatekeeper status)

What it Means:

  • Inevitable conflicts from simo competing horizontally & vertically
  • OTT is rarely DTC – there will always be a Tech CO intermediary
  • Media COs should focus on indispensable content
  • Explore opportunities to diversify business

 

Google Pulls YouTube Off of Amazon devices

In a statement this afternoon (Tuesday, 12/5), a YouTube spokesperson announced that the company was withdrawing support for its service on both the Echo Show and, more importantly, Amazon’s Fire TV

The Verge

Here’s the sequence of GOT events that have led us to this GOT moment:

  1. In September, YouTube pulled its programming from Amazon’s Echo Show device (The Verge)
  2. Shortly after, Amazon stopped selling the Nest E Thermostat, Nest’s Camera IQ, and the Nest Secure alarm system (Amazon)
  3. Two weeks ago, Amazon got YouTube back on the Echo Show by simply directing users to the web version, a workaround that left a lot to be desired (The Verge)
  4. Now Google has disabled YouTube browser access from the Echo Show AND Fire TV

What’s really going on here?

Both companies are sacrificing the reach of their core businesses:

  1. YouTube, which maximizes ad revenue by reaching as many people as possible, just cut YouTube off from as many as 36M people:

  1. Amazon, branded as “the everything store”, no longer carries Google products
For bonus points, try asking Alexa to order you a Chromecast and see how she responds. I was offered a Fire TV stick, then a Roku, before she ran out of options. (The Verge)

Why the sacrifice?

Amazon and Google are in an all-out battle for the home and becoming the dominant video content interface is the home’s holy grail.

Today, home devices are all about playing music, listening to news briefings and ordering the occasional groceries (more next week), but both Amazon and Google are working to make home devices, and their accompanying virtual assistants, the interface of video content:

The stakes for becoming the interface of video content are high. The interface of video content gains significant influence over content discovery.

As Stratechery’s Ben Thompson summarizes here and visualizes in the smiling curve below, in the internet age of content abundance, the companies that control content discovery, capture the most value:

The Smiling Curve for publishing

The reason is that the rest of the content value chain has to conform to the demands and design of the content discovery gatekeeper in order to survive. Tangibly, these video content gatekeepers capture the following value:

  1. Higher reach and conversion rates of video subscription services (Prime Video, YouTube TV)
  2. Nearly complete access to viewer behavior and preference data
  3. Affiliate revenue from other OTT services offered through the platform

Amazon and Google aren’t the only tech giants fighting to dominate the video content interface.

Amazon Prime Video comes to Apple TV

It’s here at last: the Amazon Prime Video app is now available for the Apple TV.

The Verge

I think a strong argument can be made that this reconciliation fits the same theme – Apple is sacrificing iTunes video revenue in favor of its video content interface.

Here’s my inferred sequence of events that led to Apple’s ultimate decision:

  1. Apple TV was the original smart set-top box and digital video OS combo
  2. For 3+ years from when Amazon’s Prime Video app launched, Apple TV did not support it because its services compete directly with iTunes (movies & shows for purchase)
  3. Prime Video is now so popular that customers are dropping Apple TV for Prime Video supporting alternatives
  4. Apple is now allowing Prime Video to compete directly with iTunes on Apple TV (tvOS) to maintain Apple TV customers

Apple has immensely benefitted from the close direct relationship its developed with customers through the iPhone and other devices. It is fighting for the same rewards as Amazon and Google are in home video content – maintaining that customer relationship.

The major sacrifices these tech giants are making clearly demonstrate the challenges of simultaneously competing horizontally (Amazon Prime, YouTube, iTunes) and vertically (Fire TV, Chomecast, Apple TV). Which is why a company without the inherent conflicts of interest of a horizontal money maker may be best positioned to become the defacto video content interface:

Despite being unprofitable, Roku trades at a 10x+ revenue, $4.3B market cap.

RokuStock.PNG

Investors see Roku’s advantage as a service neutral video device and operating system and are pricing significant future growth expectations into its valuation because of it.

What this means for media companies:

The fight over becoming the gatekeeper of video content demonstrates the value of being close to the customer. And while over-the-top services (OTTs) do provide significant control and access to data, they’re generally not really direct to consumer.

In most cases, subscribers are accessing OTTs through the video content gatekeepers: Apple, Google, Roku, and Amazon. At last check:

  • Affiliates keep 15-33% of DTC subscription revenue
  • Through an affiliate such as Amazon Prime video significant, if not all, access to viewer usage data is lost

So how can media companies compete?

  1. Always explore opportunities to close the gap between content and viewers, but also respect the likely futility of efforts that do not intelligently offer a unique value proposition
  2. The need to conform to content discovery gatekeepers, in most cases, is inevitable. But going back to the smiling curve:

The Smiling Curve for publishing

There are still significant opportunities to capture value by creating content that is indispensable to viewers, and therefore content discovery gatekeepers.

Especially in the somewhat likely scenario that no one company becomes the content discovery gatekeeper – the players remain fragmented.

By creating content that is indispensable to a significant market segment, media companies maintain negotiating leverage against content discovery gatekeepers.