On the internet

The first thing we need to do is define what type of video content exists in the universe. Traditionally (pre-internet) this could be with by subdividing it into live and non-live content. Then what happened when the internet came, we could then combine content into random and non-random. I chose to break these down like this because all of content can really be subdivided into these pieces of content. For example, there will always be a demand as a function of us as humans which would want us to consume live content. If we live in a world where people like watching sports this need for live content would make us watch people kick a ball in tight shorts around in the 80s or in the 2010s when people prefer watching pre-pubescent troglodytes play computer games. The fundamental need is for live content. Similarly, with the internet there are people who just embrace whatever happens (randoms). Like a podcast or anything else where nobody has any sort of script and people who care how things happen (non-randoms) like a tv show or what else. If you wanted you could subdivided these categories by satellite (traditional tv video) or by broadband (internet video). 

The reason why non-random content is only possible during the internet is because previously, the traditional gatekeepers would have to approve of you because of the scarcity of time. As a result you had people competing with produced content as those were the standards of the time. But then what happened (and this not meant to be groundbreaking stuff) is that the internet removed the scarcity problem so a lot of people were able to post whatever they wanted. This allowed the individual to get involved and deliver to you more authentic content. Even internet companies, the modern day equivalent to your CNNs still present their ideas in a more honest way.

Like I mentioned before some mediums are more conducive to some content. So the internet 

The fact that we consume non-studio content at a multiple rate to that of studio shows you that not only do we prefer it, but could you please shut the other one off. (Some could make the argument that the medium is what brings the views, but i’d argue it’s more of a symbiotic relationship than you give it credit for. In addition, the internet has also created two new business models (which generalises pretty well to all internet companies/products) one which tries to pre-select content (Netflix, Disney, HBO) and one which tries to aggregate from the masses and crowd source their content (Youtube, Twitch). More on that later. There is also another question which is the most interesting thing to me, to what extent can these two business models coexist in the same environment (which is also a general question about internet companies and traditional companies). 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Another thing that is important that i briefly highlighted earlier is that these two types of content are just different. The reason is that video is a function of the medium that it is in, because the content maps to the medium of which it is being carried in. So because the economics of TV were set up the way they are, the type of content we got was a function of that set up. So when there was a change in the set up, for example when DVDs died studios did not find any profit in making mid budget films, so now we just get blockbusters. Another way to relay it directly to video is currently what people are realising about comedy. This was inspired by the comedian Andrew Schulz who is to me one of the top 3 funniest people out here. He was shunned by the neo-gatekeepers (Netflix, Amazon, HBO and other internet content companies). What he realised is that nobody consuming content the same way. Nobody was finishing comedy videos. So he then released a lot of short videos which was greeted to much success. From Netflix’s side this tells you a few things. That content has a greater rate of decreasing marginal returns for minutes of content. Said another way, people get bored more quickly so what’s the point of recording an hour special. What that means in a financial sense that the market will soon realise that it is being inefficient in producing all these minutes so nobody is watching because it is a market in active competition. So with time the inefficiencies get self corrected by the market in the chase for the maximisation of profits (Aynd Rand just got a boner). The market is already correcting. Netlfix have now also produced a series of 15 minutes stand up sets. So maybe they are starting to realise that mo money mo problems as they are sobering up to the fact of how many lives they ruined because they gave Adam Sandler all that money. 

As of writing this in the summer of 2019, the three main players in traditional non-live streaming are Youtube, Netflix, Amazon and because this is not 2005 all the way in 4th place Itunes. Disney has not yet come out with any sort of serious competitor as of yet. There are some other mainstream but nevertheless popular sites like Twitch which hosts very specific mainstream content. Now the reason any of this is interesting is that these websites somehow do different things because they are have different goals but nonetheless fall under the same umbrella as they are all trying to provide you with content on the internet. This is a sort of similar set up that you see all around tech. Where the level of isomorphism is such that a company which started out like an online book store (Amazon) is somehow competing a company which was started as an online dating site (Youtube). In tech there is this sort of this fractal competition structure. Which is just a fancy way to say that Apple competes with Samsung more than it does Google, but it is still competing with Google. But I’m saving the rest of this for later. To bring this back to streaming, how is it that a company which spends billions producing it’s own content (Netlix) and one which is paying zero for any of it’s relevant one (Youtube).

What makes video streaming even more interesting is they each at any point in time could have been each other to more of a lesser extent. What i mean by that is that Apple could have just become more of a Netflix type product if they weren’t so asleep behind the wheel. These firms are all operating in a very fungible space. I’ll explain what i mean in a second but, some of these websites, like Youtube, are platforms and others like Netflix are a service. A platform (roughly) is when the sum total of all added value of the users of that platform surpass the value add of the platform itself. Something like Microsoft which the sum total that humanity was able to achieve with windows from electronic oil drilling, to airplanes to the pure distribution of knowledge is greater than the value of the windows value itself (debatable in the philosophical sense but whatever you pedant). Netflix is service, in the sense that you provide them with money and they will provide you with pre selected content.

Now the question is if both these different video models are going to survive at the same time. The answer to this questions depends on what question. What type of content do we as a consumer prefer. I am not saying that there will ever not be a demand for 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Firstly, there is no specific reason which keeps you from consuming your content from one source. There is no reason for you to watch movies on Netflix, listen to music Spotify. In fact each of these tech firms are trying to compete for as much as your attention as possible. The end product is just your time. but what’s interesting is, you have all these different inputs (Netlfix, Fortnite, Facebook to name a few) competing for one output. This allows for some sort of open game competition between very different content providers. The most natural comparison would be to the way in which food companies compete for your hunger. but I’d argue this is different because there is more of a difference between Spotify and Youtube than there is between food because they can be sup-grouped into a category which are more or less vehicles for nutrition.

This more intertwined competition in tech allows for a more of an isomorphism to occur in the field. Because everyone is competing for the same thing, each individual internet firm is competing with each other individual firm through some sort of fractal hierarchy structure (which is just a fancy way to say that Apple competes with Samsung more than it does Google, but it is still competing with google). The same cannot necessarily be said in a more traditional industry structure because finance firms are trying to do other things than competing with corn makers. this is because traditional industry is more about producing different things while internet firms are more about bringing industry through a certain place. this is why we should pay more attention to the way in which internet culture operates, because as these companies eat away at the traditional pie more of the wealth of the world are going to be drawn through that place making more of the world a function of that place. the way in which the tech space work is also very interesting as some focusing on becoming the default to ensure they have the power of the default (which goes to show you the power of some behavioural insights that we know) this is more akin to virtual integration. horizontal integration would be a company trying to take up more of your attention pie, think facebook trying to get into sports rights.

that’s why what i am about to propose  is so interesting. because it combines a company which has the most sophisticated through and through virtual integration infrastructure as they profit of not only saving on their own costs but also selling their capabilities to others. and it satisfies an aspect of horizontal integration as it would take up more of a slice of the attention pie by undercutting your main rival who is by your way your main rival despite not currently competing in your main income source because you are both so dominant in your respective fields. this is something that could only ever be possible on the internet.

Amazon needs to compete with google on video streaming if they are true about actually fulfilling their goal as “the everything store”. Firstly i should say, i do not understand why Amazon are not currently doing this because they already have all of the infrastructure set in place.

But before we get to how Amazon could own all of video streaming, let us first discuss what video streaming we are referring to. Because as of this second the conversation is very muddled.

The problem with that idea is that there was never any sort of way that Netflix would be a monolith in this space. the reason is that Netflix by construction because of their own ambition and set up to inherit the mantle from old media gatekeepers and hand it to them. the reason why that was never going to work is that Netflix cannot have a monopoly on good ideas, so it’s not like Netflix can just out-content everyone one forever. so then the only difference between Netflix and anybody else for us to think of Netflix as the heir incumbent would be the technology gap between them and old media. but that gap was also just a headstart and little else, there is no reason to believe that old media was never not going to adjust to a new distribution service eventually. And ultimately, for Netflix to beat Disney they need to become Disney, while all Disney has to do is copy a distribution technology. But again what makes this conversation even more interesting is like i mentioned previously, this is ultimately an old media perspective. Youtube on the other hand takes the opposite approach in terms of their business philosophy, which is very much something shared by Amazon. They are trying to bring the physical world onto the internet and take a cut on everything going on there. So the bet with youtube was that, the internet provides a platform for an absurd amount of human content, and they are betting the net value of the content because of the sheer number of participants will be greater than the value of the pre selected content.

As a function of this, the online streaming industry is split along platforms which want to host studio content, crowd sourced content and sports others which provide curated content. Amazon is the only one who managed to have a foothold in both spaces in parallel through twitch and amazon video. It remains to be seen how spontaneous vs curated content co-integrate in the long run and to what extent are they substitutable for the other. the extent to which will then dictate the future level of isomorphism in this space. But so far, these two forms of media have been able to push societies buttons in different ways at the same time. so there is less of a need for Netflix to look like youtube. However, it’s hard to imagine relying on others to create your media for you in the case of youtube is not better long term. such a thing will always be in vogue, so it’s going to be a more robust medium going forward. the main question in my mind when it comes to the internet, is that will we the same hierarchies of traditional industries on the internet once the foggies wise up. or will the internet actually transfer wealth from corporation to the consumer. this mirror more or less the trend of the domestication of the internet that we’ve been doing at the very least till the adoption of the internet. that to a lesser extent is the current question of youtube. will they stay loyal and promote individuals or is it just going to be a conduit for corporations.

in the sense of being a producer of pre-selected content Netflix is limited by its ambition and its business model. Eventually Netflix will have to produce most of the content on it’ website, making the content on it increasingly different than the rest of the tittles on the internet. so instead of going to Netflix to watch movies. you are going to go to Netflix to watch Netflix content, because they do not have a monopolies on movies anymore. Amazon video, despite lacking in original content it still gives you the option tittles which is not part of its video service. this basically means, in the same location Amazon is able to run to recurrent operational models in the sense that they allow you to both stream content that you can stream but let you buy the content that you want to buy. thereby giving you more variety in choice.

but that then raises the question, why doesn’t take on youtube, or to said otherwise why doesn’t amazon diversify into non-live crowd sourced content? The first reason why this is a good idea for amazon is that whenever amazon and google are in direct competition, amazon is playing by different rules because it doesn’t have to generate profits for a quarterly earnings call, the metric it’s being judged by is growth. If you want to map this formally, amazon in a game theory sense is playing an infinite game while going is playing a finite game. Amazon is then able to optimise over a larger time horizon allowing for a greater local maxima. as opposed to the folks at google who are judged by how much money they can generate. So how does this advantage translate into a rival against youtube? Firstly, like i mentioned previously, for now youtube is predominantly a crowd sourced platform. so the main issue would be to attract the attention of the consumers by focusing on the producers. it is worth remembering that content creators are fickle. especially nowadays as due to the lack of competition in the space they basically have no power. it is true that Amazon would struggle with some of the same sort of problems youtube is facing as they are structurally built into the industry. so the only question that is on their mind is it better for me to post on twitch or on youtube. Nothing else. So although Youtube is by far and away the predominant player in the field their supply lines (content creators) can be easily taken elsewhere.

Amazon could give their platform a structural edge by increasing the amount they give to content creators, which starts off a dynamic process. in the sense, the more you pay the independent content creators on your platform, the higher the quality of content you would be able to produce. based on the assumption that independent content producers are more likely to reinvest in their output. Although the academic literature has yet to explore this field, anecdotally that is the impression of the behaviour you get. so not only is your platform more attractive to producers you are also providing more attractive content to consumers. if you wanted to be direct about it, you could do some data analysis and see which youtubers provide the highest ROI in terms of maximising network effects and sign them exclusively to your platform.

Additionally because it is amazon they already have the server space to run this because they own their own servers. so from a cost perspective this is just them increasing their product spectrum in order for them to own all forms of streaming services. the only ones who would be able to do so. the question then becomes if we should put everything under one umbrella. the answer to that question is how different is twich and twitch video from amazon video. so different they need to be separated (albeit under one amazon umbrella) in order not to confuse their customers. Quite frankly as well. I’d bet on non produced content over produced content as the main source of entertainment. and this is conjecture but you can cannot outcreate the internet no matter how many more resources you have compared to any individual person. there is a lot to be gained (in addition to a lot of crap) from the wisdom of the crowed.

the best part about this from amazon perspective is that it’s just taking away more of the internet pie from google its main competitor. although you shouldn’t compete with google when it comes to software most of the time, it is easier for amazon to dip into googles core business (search) as all they need to do is take away more of the internet from google. while google needs to somehow figure out firstly which of the core business they would want to take from amazon, and they would struggle with breaking into online retailing.

again this move is also very much in the amazon core philosophy if the true goal of amazon.com is “an everything store”. because it would be the only place to access all sorts of video streaming. people are lazy they are more likely to go to one place because it has everything than going somewhere else sometimes. but regardless the core business model and technology of competing with youtube is not foreign to amazon.

you could also make the argument that if amazon were to compete with youtube they would be in the best positing to win the streaming war once you factor in gaming both professionally and on the independent streamer level, they already have a foothold in the sports category, which could be further subdivided into live and non live sports. personally i would not invest in live sports for a few reasons. firstly, valuations are very high right now even without factoring in the future of live sports on society as a hole. more kids are just going to keep playing more video games and are going to be to playing less traditional sports. those kids are then more likely to spend the rest of their time watching video game related content and less likely to watch live sports. So twitch and amazon are also set up to thrive if sports preferences were to change as well. however, in the mean time buying current sports rights is the easiest way to make sure you attract viewers and legitimacy in the present. but i would avoid bidding for any of the main contracts because there have never been more bidders. i would either opt to buying the video rights for mainstream sports in previously unexplored markets like what Facebook is doing broadcasting the Premier league in India (as long as the valuations are rationale). but for the most part i would opt for using the early ESPN model of having all of the niche sports, for minority rule reasons. focusing on that sort of content, which again can be done very strategically and tailored depending to what market audience you want to attract. you would be able to maximise the amount of people actually using your service while everyone else is going through the winners curse.