The Future of Digital Entertainment

Report and Analysis of Digital Entertainment World 2018, Los Angeles. www.dewexpo.com

Disclosure – There were a lot of parallel tracks and presentations, so I could not attend everything. This is a report on what I saw and heard. User Generated Content, eSports, Gaming, Advertising, Blockchain, Cryptocurrency, Data, Artificial Intelligence, Virtual and Augmented Reality, 5G, Superfans, Millennials, Netflix, Amazon, Youtube, Facebook, Apple.

What was barely mentioned: Twitter, IoT.

What I did not hear mentioned: Google, Android, Roku, Connected TVs.

First, my own axe to grind -- there was also not much said about the difficulties and intricacies of building and operating OTT content systems. There was one outdoor speech during lunch on Day One by #Jonathan Rivers of 3Pillar Global where his lone voice tried to warn the crowd that building and maintaining an OTT system costs a lot more than anybody realizes. You cannot just build a platform and expect to be done. Owning and operating an OTT platform is like owning an animal. It takes time and money to keep it fed, keep it healthy, and exercise it. It’s never a build it/ one-and-done/ walk-away situation. I patted Jonathan on the back for that speech since Quickplay was founded on that premise, and my past seven years building TV-Everywhere and OTT services internationally proved his point. But a key takeaway now is that these TVE and OTT systems are expected to be commodities, and easily obtainable from multiple sources, like utilities. My experience tells me it’s still more complicated than that, more like deciding to install solar on your roof, dig a well, install a septic tank, and go off-grid. I can do that, but not everybody can or should. But this audience at DEW was more about the indoor ambience, interior decoration, furniture, and personal comfort items that turn a cold, sterile apartment into a home worth living in. They don’t know or care about the drywall framing, plumbing pipes, or what’s under the carpet. Enough said.

Rather, DEW was mostly discussion about how millennials are ruining traditional business models and the need to innovate or die. Cord-cutters, cord-shavers, and cord-nevers want entertainment that is not like your fathers’ entertainment, consumed in ways your fathers cannot grasp. It was in this context that I think I heard from an onstage panel that Twitter is a dead-man-walking. Twitter is dominated by older, white males. That’s the kiss of death for anything you wish would be popular with millennials.

DEW is an impressive list of VIPs and Executives from video, music, games, advertising, publishing and emerging technology providers sharing their perspectives on the future. Many of them were white males, even with grey hair, but there was far more diversity onstage and in the room that inspires hope that there’s a bigger table with more seats for my daughters and new generations. Just look at the agenda and speakers’ list. To that point, #Lisa Marino, the CEO of RockYou Media gave a slightly uncomfortable speech shining a light on the need for diversity, and the need to change our culture to stop accepting sexual harassment and discrimination as “normal”. As an over-40 female of Hispanic origin, she experienced inequality in pay, discrimination, and harassment, and as the CEO, she found that she had to change her own thinking in order to fix her company culture and system where even she herself accepted “social norms” that needed to change with the times.

Of course, the “big ones” like Apple, Facebook, and Netflix did not share “what’s next”. But there were a lot of startups pitching their value propositions hoping to change the future without any guarantee of actual success. I met a few new faces and saw some familiar faces. #Allan McLennan of Padem was in the audience. #Fredwill Hernandez is trying to market a Latin Music channel. #David Moffly, CEO of Baeble, has a channel with original, curated music. #Jeronimo Macanas, CEO of Jump, was part of the Startup Pitches Track, with an impressive User Behavior and Data Analytics product that’s already in market and working with some Latin customers. Overall, almost everybody shared insights, current practices, and fresh ideas.

Here are some key takeaways and quotes… (terminology: “Data” is a catch-all phrase that means all user behavior data points, analytics, and metadata.)

If Content is King, then Data are the keys to the kingdom. “Every relationship is a con game waiting to happen”. You try to gain users’ trust but the implicit goal is better targeted advertising. A lot of revenue is tied up in advertising. Even if you forego advertising and charge direct subscription or rental fees, Data drives content recommendations and production spending.

There was some animosity towards Content Distributors from the Content Producers because Distributors eat too large a share of the revenue pie and they collect user Data but do not share that Data with the Producers. There was a lot of grumbling about the ongoing consolidation of Distributors and their growing power. One weapon that might help Content Producers keep a bigger share of the revenue pie and also get access to Data is Blockchain. Blockchain “enables the era of the value driven internet”.

At the moment, the development and use of Blockchain for the entertainment industry is in the hands of a bunch of startup companies racing to develop systems where “Artists” and “Producers” can sell their content directly to consumers, without a Distributor or other middleman, retaining up to 99% of the revenue, and the End User/ Consumer would also “own” their Data, granting access to their personal Data only to chosen entities, such as back to the Producers. This goes beyond Rights Management. And there are issues to be solved if Blockchain is to be applied to such a use case where permission is needed for access and privacy is desired. But it was asserted that Blockchain could enable new distribution channels, such as AAA (American Automobile Association) “selling” content to their customers just like they sell travel cruise packages today. Imagine that. Buying or renting a new popular movie from AAA?

Blockchain would also solve royalty tracking and timely payment issues. In the music industry today it can take up to eight months for an artist to get paid a royalty for content consumed, partly due to the fact that distributors and aggregators in the value chain like to hold onto money and earn interest as long as possible before paying it back. Blockchain could authorize “instant” payments. Cryptocurrency was only mentioned in passing as a convenient, global payment method to buy content. But the implication is that cryptocurrency will solve all the local, foreign currency exchange issues in a global marketplace.

If Blockchain were viable for this use case, it would break the existing flow from Producer to Aggregator to Distributor. It would highly disrupt the entertainment world as we know it. Disruption is already pounding at the gates with all the user generated content, Producers fielding their own direct-to-consumer OTT services, Distributors and Aggregators producing their own content, the incestuous rise of Gaming related to Content, as well as eSports and Games themselves becoming entertainment content. But Blockchain in this use case would be like giving guns to peasants in feudal Samurai era Japan – a peasant with a gun trumps a Samurai with a sword. For better or worse, it would level the playing field. We would all be plugged directly into The Matrix at that point.

Overlay Artificial Intelligence on top of this and God only knows what our future would look like. #Erik Huberman from Hawke Media gave an informative presentation about the current and future state of AI. Erik did a good job of explaining that AI is a popular catchphrase improperly applied to today’s “if-then-else” rules which are not really what AI promises to become. This year we can expect laptops with as much memory as a human brain can hold. In five years, we can expect CPUs with as much computing power as a human brain. In less than twenty years, we will see amazing algorithms and applications using AI that is “as smart or smarter” than many humans. Basically, The Rise of the Machines is progressing and The Terminator is coming for us (and specifically for your job) in the near future. Blue-collar jobs will go first. Then white-collar jobs like accountants and lawyers. The last to go will be the “creative” jobs like marketing, but even there, eventually AI will either partner or take over. AI will create music, paint pictures, and identify the things that make content popular to specific humans. Of course, hopefully none of this will pan out as a doomsday scenario, but one never knows.

Netflix is both a content aggregator and distributor and is now also a content producer. Using their vast Data capabilities, they have a much better chance of producing popular, hit content. This gives Netflix a competitive advantage over traditional content producers who crave user data analytics as if Data could magically tell a studio whether or not to produce any given movie. Whether or not Data can guarantee producing hits instead of flops is not yet fully quantified with enough case histories to claim Data is “the cure”. But everybody strongly believes that Data improves your odds. And everybody at this show believes that Netflix does Data better than anybody else, even Amazon.

There was much talk about the woefully inadequate feedback of Data to the Content Producers. There are many reasons that music artists perform live concerts. It’s not just for ticket sales or to spark interest in buying their content. Artists need to connect with their fans, feel the audience, and learn how to better produce content they like. In the same way, Content Producers are adamant that they want and need access to Data. Hence the real threat that Netflix, Hulu, and Amazon present to Hollywood because they own their Data and allegedly use it when producing their own content.

The rise in mergers and acquisitions such as Disney and Fox are partially driven by the need to own the feedback loop from the end consumer to the studio to enhance content production that is popular and sellable, as well as retain more of the revenue otherwise shared with Aggregators and Distributors.

Netflix and Facebook were onstage together for a presentation about Data. Netflix does extensive Data capture, measurement, analysis, and lots of A/B testing and other experiments on end users (probably without their knowledge). At one point, the Facebook presenter mentioned that Netflix collects “100,000 end user data points”. That puzzled me. What the heck are they measuring and collecting? How could there be that many data points? So after the presentation, I approached the Netflix speaker and asked for examples of 100k data points. The response was, “Oh you know, things like device type, location, time, and gender” -- to which I rudely blurted, “how can there be 100k data points like that??” – to which the Netflix speaker said, “we collect what Facebook wants us to collect”. Huh? Well, I wouldn’t expect Netflix to share their secret sauce recipe with a stranger, but still… 100k data points? Are they somehow using a mobile device camera to view the facial expressions of the user? Are they using the device mic to listen to the background noise? Are they capturing device gestures and posture? Are they somehow sniffing the air in the room to detect food and beverages present? Have Netflix and Facebook made a secret pact with my cat to spy on me? I wouldn’t be surprised. My cat is crafty.

Not to be ignored are Games. There are lots of examples of Games that spun out of a successful movie franchise. These games are an ever increasing revenue source back to the Content Producer, and more popular with millennials than many understand. There will be more Game strategies in the future that keep fans engaged while a series is off season or the next movie sequel is under production. There are also lots of examples of movies that were created based on a popular game, but this has not always been as successful as hoped. One issue for both the Game and Content producers are the Intellectual Property Rights. Although Star Wars gamers would highly resonate with a “Hello Kitty” costume for Darth Vader, Lucas would never agree to desecrate him like that. The IP rules and boundaries limit creativity and may be reducing potential revenue. But what would the world be if everything was for sale and nothing was sacred? Still, it seems that some Producers need to “lighten up” and “let the Games begin!”

Content Producers usually look for a Game company with a proven track record of morphing a show into a game before granting rights tied to their content. But with such a prerequisite, how does any new blood get into the game? The Gaming industry is growing, especially on smartphones and tablets where content is also consumed. And traditional platforms like Xbox and PlayStation have become movie and tv content consumption platforms. There will be more crossover between games and content. The day is coming and may already be here when an online computer game will “air” at a specified hour just like linear tv programming today. Millennials will “tune in” to watch their favorite Gamers and/or eSports players for a live event that has a “kick off time”.

Virtual Reality and Augmented Reality are the now and future crack cocaine for Games, and eSports might lead the way with AR and VR before current professional sports figures out what to do. There are quite a few VR and AR accessories coming online now from Europe and Asia, in addition to the well known American VR and AR device providers. It remains to be seen how quickly Content Providers will find ways to produce movie content in 360-degree, immersive formats where users can use VR/AR devices to “get into the movie” and view it from different angles, and perhaps even become part of the story. One speaker opined that in the future, people will look back at us hunched over our small screens, gazing into the tiny portals of our smartphones and tablets, or even huddled around our flat, big screens, and they will pity us. They will pity us we had to peep through a keyhole into worlds where they can jump in and walk around in full 360.

5G networks are coming, but their full promise and potential are still years away. 5G will provide huge, wireless data pipes as well as incredibly low latency and responsiveness. This will enable self-driving vehicles, TBD IoT use cases, and ubiquitous, wireless data pipes for more content consumption. The faster data rates will enable VR and AR to get out into the streets and also into your car. 5G will be faster than WiFi in multiple ways. In order to build out the 5G network, the number of “base stations” must be expanded many-fold. For every 4G LTE base station today, there could be up to 100 “smaller” 5G base stations blanketing the area. This is taking time.

YouTube gave a panel discussion interview regarding User Generated Content. YouTube actively hunts for and cultivates new stars online who manage to build loyal followers. YouTube has a method for finding “influencers” who can unlock new ecosystems and new channels and garner large followings. Superfans. These are enthusiasts keenly interested in following a specific Artist and belonging to a tribe. The YouTube panel discussion was insightful about building trust with fans and followers in order to better capture their likes and dislikes to recommend better content and targeted advertising. YouTube emphasized the need to capture Data and analyze it not just for what it says, but also for “tone”, how it is being said. Analyzing emojis is very important. What customers say and also do not say is important.

From the YouTube discussion, cultivating customers should be like dating. There is an initial conversation that ends within respectful boundaries. Sometime later there is a follow up conversation to discuss likes and dislikes. Then a relationship is built and trust is established. The current practice of “buying Twitter followers” or offering a potential customer $20 “on the first date” feels more like prostitution than building a trusted relationship. Millennials can sniff this out and find it disingenuous. I myself accidentally answered my phone when an unknown Los Angeles area-code call came in – only to hear an unctuous voice pitching me a free 3-day stay at a “luxury” resort, and all I’d have to do is “tell everybody you know. You can do that for us, can’t you?” I tried to be polite as I told the telemarketer, “I’m not interested” and hung up.

Millennials are eschewing traditional tribes like the NFL in favor of new eSports, and new Artists generating their own content. YouTube channels are made for creative Artists. eSports and even video multicast of Games with a view from a Superplayer are rising in popularity. eSports alone currently have over 30million global fans, which is not as big as the NFL’s 100+million fans, but eSports are global, not just American, and promise to overtake the NFL within three years. One speaker predicted that within three years, there will be eSports and Game players with common household recognition, names you will know, similar to current pro-athletes in America.

Apple gave an interesting interview about their retail stores and philosophy. Basically, Apple store staff are not supposed to “sell” anything to you. They are supposed to find ways to enrich and enhance your life. Apple is growing the number of brick and mortar retail stores and hoping to turn them into community gathering spots, like a town square. To facilitate this, they are dedicating at least 40% of all store floor space and staff for education, artistic and creative activities, and community gathering space. Apple is a trusted brand with loyal Superfans. They intend to leverage their stores much like Starbucks in order to be a gathering place where people can spend leisure time, thinking, creating, even doing business, all under the Big Tent of Apple.

There was some discussion about how Apple’s stores provide a competitive advantage over their competitors, Amazon was named, because it is not possible to rely purely on online, virtual communication to build fan loyalty and grow community. Apple has relatively few brick and mortar stores, far less than Starbucks for example, but what Apple has already took so much time to create that competitors will not easily replicate or quickly catch up. Apple believes they have a such headstart that they will never be overtaken.

One interesting tidbit: educational, artistic, and creative classes sponsored in Apple stores have drawn lots of kids and young people. They learn programming, robotics, music generation, drawing and other creative, artistic endeavors. As measured by some metric only known to Apple, the greatest “creativity” comes from the stores in Greater China, not America. The Chinese kids and young adults are showing more signs of creativity than their American counterparts.

Consistent monetization with predictable revenue is the Holy Grail for any company, certainly all players in the Entertainment Industry. The trick is to invent new business models before the existing ones erode. Whether enabled by AR/VR or just tied to some tricky use of smartphones and tablets as second screens in the living room while watching a Big Screen, there are new revenue streams coming. One simple example would be where you are watching a movie, and the actor is wearing something that catches your eye. You will be able to instantly find that clothing item online and buy it. Advertising needs to grow up into marketing and electronic sell through, not just a cartoon talking Gekko selling insurance. The best ads are not perceived as ads by the end user, rather they are perceived as informative and welcome entertainment.

#Karina Kogan of TBS/TNT apparently filled in for somebody who bowed out of a speaking engagement the day after the Superbowl, and I’m really glad she came. TBS/TNT’s interesting strategy has been to leverage casting technology from Vizbee to “encourage if not force” the user to cast streaming content from their mobile device to a Big Screen. The advantage is that the mobile device serves as a token to identify the specific end user (not always possible for a standalone Big Screen device in a multi-person household), and video ads are “worth more” on a big screen than a mobile device. It will be interesting to see what innovation cross pollinates between AT&T/DirecTV and the Time Warner family, including TBS and HBO, after the merger breaks through the Department of Justice roadblock.

On that note, I give a shout out to #Sam Toles of MGM for blurting out something I’ve been advocating for years. “In the future, your digital entertainment will be free”. I’ve been working on that business model and ecosystem for years and have much to say about it, but not here, not now.

End of Report.