This trend offers one answer to the question I posed in Q2: “Media companies have millions of consumer credit cards on file. What are they building for their customers?” 

In Q2 2023, Warner Bros. Discovery, Paramount and Disney removed titles from their respective streaming libraries. Notably, Warner Bros. Discovery removed prestige HBO titles like “Insecure”, “Band of Brothers”, “The Pacific”, and “Six Feet Under” and licensed them to Netflix. Notably, “The Pacific” surfaced in Netflix’s Top 10 lists this week. If Netflix or another platform values these titles more than Max subscribers value these titles, then Warner Bros. Discovery is properly maximizing the value of its library through licensing. 

But from the perspective of a retail, direct-to-consumer model, the move is a head-scratcher: If those titles have value to existing and target subscribers of Max, and the relaunch of the app includes personalized recommendations, then why are these prestige titles *not* on Max? 

Warner Bros. Discovery CFO Gunnar Wiedenfels recently offered one answer at an investor conference: Consumers signing up for a subscription VOD service for two or three weeks, “going through an enormous amount of content and then mov[ing] on.” In other words, there simply is not enough “bang” for the buck in a legacy media streaming service. Consumers have more and better choices for spending money in exchange for delight elsewhere, like Netflix and YouTube.

In May’s “The ARPU of Storytelling”, I wrote about how average revenue per user (ARPU) offers the best retail business story to be told by media companies now that they have all these credit cards on file. As I wrote in May’s Medium Shift column, media executives and Wall Street investors alike are coming to realize that the new ARPU from streaming alone will not replace the lost ARPU from cord cutting. That extra revenue will have to come from somewhere else.

But what does that demand look like somewhere else and how can it be monetized?

I argued on Monday the YouTube story is one answer. The combination of over 50% of its viewing being creator content and its growing domination of TV usage in streaming suggests that it is driving consumer demand towards more niches, and also setting them up to spend more in new and different ways via its Partner Program monetization tools (e.g., channel memberships, shopping, chat).

In July’s “The Disorienting Emergence of Threads”. I quoted something Instagram head Adam Mosseri said in an interview with The Verge’s Alex Heath: 

Creators are becoming more and more savvy. They’re using more and more platforms. It’s becoming rarer that a creator is completely attached to one platform because they’re always worried about the risk of being overly beholden to one company that they obviously can’t control.

I argued that Mosseri is describing consumers, too, and saying neither creators nor consumers seem to have any loyalty to any platform. They seem to only have loyalty to each other. They both just want to be delighted, if not on a familiar platform, then somewhere else where someone knows how to delight them. 

As I have argued previously in last September’s “Can Disney TikTok-ify or Amazon Prime-ify Itself?”, a business model that successfully delivers “delight” to consumers will also deliver shareholder value. In both The Medium and my Medium Shift column on The Information, I have been writing about how legacy media companies have been struggling with solving for consumer “delight” as their business models shift from wholesale to retail.

Two of my favorite companies to write about who have successfully built solutions for delight are Yahoo—which I wrote about in August’s “Why Disney Needs to Yahoo ESPN”—and The New York Times, which I wrote about in September’s “The Daisy or The Flywheel?”. Another favorite example is Sony-owned anime entertainment company Crunchyroll, which I wrote about in “Fare Thee Well, Media Conglomerate (…After April 2024)”.

There are effectively three levels to the question of consumer delight emerging, ranked from smallest to largest in terms of business model size:

1. Creators delivering delight across platforms (e.g., $20 million to $80 million in revenues per year)
2. Media companies that have figured out delight on their own platforms (e.g., YouTube and Netflix belong here at $30 billion in annual revenues)
3. Media conglomerates struggling to identify delight in the shift from wholesale to retail (e.g., Disney at over $80 billion in annual revenues)

Adam Mosseri’s insight is fascinating because it reveals how competitively weak the media conglomerate model is. Cable TV has been replaced by multiple platforms, and consumers are no longer beholden to any single one, both online and offline.

Last October, I wrote in “What Will Happen When Artificial Intelligence Recasts “The Office”?” that there is a compelling argument—”though early and incomplete”—the future business models for videos produced by AI engines like Midjourney will “look a lot like the creator economy”. That is because:

“the businesses best positioned to host all that content, to target different content to fans of those celebrities with an algorithm, and to monetize it are Netflix, YouTube or TikTok. Because all that content will need algorithms to map different celebrities and different clips to the audiences who are most likely to watch them.”

One year later that remains true, though with a dark underbelly: actor Tom Hanks recently shared a photo of an AI-generated version of him selling dental products warning his followers it is not real. AI-recreations of the late comedian Robin Williams have been going around, too, much to the concern of his daughter. Algorithms on TikTok understand that Hollywood actors are popular with audiences, but they are not yet understanding that the actors in the video clips are AI-generated.

Hollywood actors are the blockbuster side of the business and the creator economy is the niche side of the business. The success of the creator economy has been driven in large part by YouTube’s 2007 decision to share advertising revenues via its Partner Program, which now has over two million creators in it. Since then, platforms like Instagram, TikTok and Snap have incentivized creators to produce videos on their platforms, too. 

Creators like Jimmy Donaldson aka MrBeast (312 million YouTube followers, $82 million in annual revenue) and Charli D’Amelio (213 million TikTok followers, $23 million in annual revenue) have found extraordinary success by fully embracing the algorithmic distribution and powerful monetization tools offered by their distribution platforms. They are considered “premium content” that competes with linear and legacy media content as must-have advertising.

If one subscribes to the investment hypothesis that The Chernin Group founder Peter Chernin has held and tested in media for the past two decades—”Content will aggregate at two extremes: the big blockbuster hits and niche products”—then Hollywood blockbusters and creator-led niches will be the only two models that will succeed in media. The rest of the models, what Chernin calls the “bland middle”, will be “gone, and gone forever.”

Slow Ventures General Partner Sam Lessin recently argued this dynamic will play out in AI on The Informations’ More or Less podcast and later fleshed it out in a diagram: 

Their guest on the podcast that week, Adobe’s Chief Product Officer Scott Belsky, tweeted a different version of the same argument: 

Often lost in the narrative: AI will help small companies leverage advantages typically reserved for big companies (making sense of data, security, marketing at scale, personalized experiences, etc…), and this could redefine how we think about SMBs.

They are both adding meat to a point that I made in my Q3 2023 trends mailing: “The view of any individual or cohort of consumers by a singular AI program is ‘now truly holistic, and the decisions that are made about serving us content from data within a warehouse may be made without human insight or guidance.’”

AI working in the cloud shares a lot in common with algorithms recommending content on YouTube or Netflix. The difference is that the algorithms in AI are more sophisticated (and require more back-end computing power from chipmakers like Nvidia) and the data sets they work with are exponentially larger. The implication of the tweets, above, is small companies can imitate the playbooks of YouTube or TikTok creators by fully embracing and investing in the powerful capabilities of AI tools in the cloud. 

For example, in May’s “Consumer Data May Be Too Complex Media’s DTC Models”, I wrote about AI apps built by marketers that now run within the data warehouses—the system of record or authoritative data source for all consumer data owned— that assume the roles of third-party Adservers, Demand side platforms (DSPs), and attribution/measurement. So, all three roles be different operational centers within a media conglomerate like Paramount Global or Comcast’s NBCUniversal. The hypothesis of the tweets above, a savvy small business owner can build a bot within the same data sets and can replicate the scale and power of these businesses at a fraction of the cost.

In doing so, they will be positioned to be more agile and to produce larger returns than Small and Medium-sized businesses (SMBs). The key question for Q4 2024 will be, how will we identify these businesses? What will they look like? That opacity is the key difference from the creator economy, where performance data is public. And that makes the value of any data or signals much more valuable.