Ampere Analysis has conducted extensive research into the strategies of the digital studios – the creators of ‘made-for-social’ video.
It’s a challenging, fast-paced market, where control of IP and the ability to diversify across platforms and revenue sources are essential to success. The report is based on analysis of 60 digital studio groups and their channels, Ampere’s tracking of production and commissioning activity, in-depth interviews with digital studios in Europe and North America, and Ampere’s own extensive international quantitative consumer research.
Commissioned content – an unpredictable revenue source, especially in Europe
Commissions for content from the social video platforms are an increasingly important revenue stream for digital studio groups. Since the middle of 2018, YouTube, Facebook, and Snapchat have commissioned over 200 digital originals. Short-form-focused Quibi is joining the made-for-mobile fray in 2020, with over 80 scripted and unscripted titles in development.
With 58 shows in production at the end of October, Facebook Watch is the second largest commissioner of unscripted content globally after the BBC (see chart). Snapchat and Quibi have significantly bolstered the volume of commissions coming from the digital space. Snapchat takes joint ninth place, alongside broadcast mainstays HBO and National Geographic, all with 22 commissioned unscripted shows currently in production.
Despite the number of commissions, there still aren’t enough to offset the challenging economics of digital-first production. Timing and the unpredictability of commissioning activity is a major concern for smaller digital studios, impacting cash flow and investment opportunity. As a result, many digital studios have adopted hybrid business strategies to boost their income streams. These include branded video, secondary rights sales influencer marketing, and direct control of ad sales against content distributed by via their own social media channels.
There’s another challenge specifically for the European digital studios, who are finding that the bulk of commissions are made in the US. Ampere’s analysis indicates that of the active in-production shows commissioned in the first half of 2019 for Facebook, YouTube, Snapchat, and for new premium short-form video service Quibi, less than 10% were being made in Europe. But the tide may be turning. Facebook has more recently begun to diversify. Its latest commissions are Western European-focused, with the UK and Germany emerging hubs for the social media group.
Henry Beckwith, Analyst at Ampere Analysis says: “The nature of the fast-evolving digital space requires that digital studios need to ensure long-term sustainable growth over short-term gains. Fast-paced technological developments and shifting consumer trends mean that diversification of business models and revenue streams is key to ensuring stability in a volatile marketplace. In particular, digital studios that have greater control over their IP can maximize income and margins, which can then be used to drive growth in other areas of the business.”
Traditional broadcast groups are emerging as a key source of funding
Overall, incumbent broadcast groups still have substantially larger budgets than OTT players for commissioned content, plus they have a growing appetite for material that appeals to younger audiences. As a result, many digital studios have them in their sights, and some studio groups are using their social video expertise to discover talent and create or license IP to commercial and public broadcast groups. Key to their success will be spotting and securing social video personalities early and adopting formats that could be easily shifted to a broadcast environment.
Volatile commissioning patterns present further challenges
YouTube and Facebook have been the most important platforms for digital studio businesses and commissioned a range of exclusive content to support and promote their services – including YouTube Premium and Facebook Watch. However, a concern expressed by many studios is the volatility of this commissioning activity, their volume, and impact on cash flow. Just 10 titles were commissioned by the social players in Q1 2019, compared to 44 in Q4 2018 and 68 in Q3 2019.
Instagram and Snapchat rising rapidly as viewing platforms
With their developed monetization strategies and extensive consumer reach, YouTube and Facebook are the most important platforms for the digital studios. However, recently many studios have been impacted by algorithm and advertiser issues on Facebook and YouTube – leading to a renewed focus on original ‘brand safe’ content. Due to its sheer scale, YouTube’s monthly audience mirrors many broadcast TV groups, with 41% of its audience aged between 18-24 and 56% of its audience ABC1. In comparison, Snapchat and Instagram have by far the youngest audiences, and as such can be highly attractive to brands unable to reach these viewers via alternative video platforms. Snapchat however currently lacks the same monetization opportunities of other platforms and requires extra post-production strategies due to its vertical video nature (video designed for viewing on mobile devices). Snapchat and Instagram skew particularly heavily towards younger viewers, with 63% of Instagram and 78% Snapchat viewers aged 18 to 34.
Hannah Walsh, Analyst at Ampere Analysis, says: “Our research indicates that daily mobile video usage has increased by 40% since Q3 2017. Keeping a finger on the pulse of mobile-centric video trends, such as vertical video is key for digital studios to succeed in a highly competitive sector. Vertical video on Snapchat and Instagram is now being used to drive audiences and reach younger consumers. Many digital studios already have post-production teams in place to adapt original content into a vertical video format and are looking at new vertical video player TikTok as their next target to capture a younger audience.”