Newsletter
young girl watching TV with remote control in living home

Silicon Valley Pushes into Video Business

by -

Silicon Valley’s technology giants are trying to muscle their way into the entertainment business. The fantastic “Five” — Amazon, Apple, Facebook, Microsoft and Google — have all made bold pushes into the realm of original programming in recent months, stretching beyond their core businesses and ploughing their vast reserves of capital into video, in search of growth in the “Golden Era” of TV content. 

Chasing Netflix, Hulu

They seek to emulate the success of digital streaming leaders such as Netflix and Hulu, whose smash-hit series like House of Cards have propelled them from little-known startups to multi-award-winning-Emmy producers. Will it be just that simple?

The Five already control the distribution of much of the world’s online entertainment, and have the money to become vast television networks. Now they want to own what is uploaded to their media channels. None more so than Amazon, which has established one of the strongest footholds in the online video sector in a fierce battle for supremacy with rival Netflix. Last year Amazon launched its Prime digital video service as a standalone subscription in the US and will also soon produce the most expensive show ever seen on the small screen with the Lord Of The Rings TV adaptation.

Cord-Cutting Consumers Shift Online

Consumer preferences largely drive the trend. TV viewers increasingly are moving away from linear viewing — tuning into a show at a set time — in favour of on-demand, digital platforms.

Yet while many of the Five have been successful in creating world-leading media platforms — Google acquiring YouTube, for example, or Microsoft with its Xbox — some have had trouble making great content to keep viewers tuned in. Competition is intense — not least from US networks NBC, Showtime, Starz and HBO, which have all launched video subscription services.

That has led to a surge in spending among the Five on original entertainment content. Amazon has spent an estimated $3 billion in one year on movies and shows, aiming to compete with Netflix’s estimated $6 billion spend last year on popular shows such as Narcos. Amazon also outbid Netflix and other rivals to host the Grand Tour, spending some $250 million. Netflix, meanwhile, has developed The Crown and also plans to air Walt Disney movies in the US, such as The Jungle Book.

Facebook To Launch 30-minute TV episodes 

Facebook too has made waves in the entertainment industry as it strives to bring original content to its social media platform. If the Wall Street Journal is to be believed, Facebook will soon launch 30-minute TV episodes, which it will pay up to $3 million for, including adds. Facebook also reportedly signed deals for content with other media providers including ATTN, BuzzFeed and Vox Media.

The WSJ reported that Facebook intended to share advertising revenue with those who contribute short-form media. One distinguishing factor for Facebook will be a spread-out release of episodes, as opposed to the “binge watching” model widely used by Netflix and Amazon.

Facebook has also tried to encourage other forms of content on its platform in a bid to keep viewers engaged for longer, which could open up advertising revenue and potential revenue share deals with news publishers.

It last year unveiled a plan to tweak its algorithms to give long-form journalism a more prominent place on Facebook news feeds. The change meant Facebook’s algorithm predicted how long a user was likely to spend reading an article, and took that into account when ranking articles on the news feed. Facebook refers to the initiative as promoting “quality content”, which may help it further differentiate from rivals.

YouTube Will Spend Hundreds Of Millions Of Dollars On Original Content

Google-owned YouTube has arguably made the biggest push into original programming. It offers a “YouTube Red”, ad-free service showing content like Foursome for $10 per month. A pricier option, at $35, is “YouTube TV”, which offers TV from other networks alongside YouTube’s own original content.

The company also plans to produce six original series for its free website. In total, hundreds of millions of dollars will be spent by YouTube on more than 40 original TV shows and films over the next year.

This represents a huge change in the business model of YouTube, which until recently had relied entirely on advertising to generate its revenue.

The shift may also be a way for YouTube to move away from negative perceptions of its brand amid concerns by advertisers that their ads will appear next to inappropriate content. Original content will help assure advertisers that their campaigns will run alongside appropriate and quality videos. In return YouTube may be able to command higher prices.

Apple’s Super-High-Definition Movies

Apple has taken a different approach, preferring to launch the hardware on which viewers will, it is hoped, consume digital content. The iPhone maker is striking deals with Hollywood studios to offer super-high-definition movies on the new Apple TV, known as a “4K television”, which offers more than eight million pixels per frame. Apple hopes to charge $19.99 for the movies, according to the WSJ. The company first launched a TV product in 2007, which ultimately flopped.

Overall Apple plans to spend more than $1 billion each year on original content. It recently hired Jamie Erlicht and Zack Van Amburg from Sony to lead its content production, and was in talks to use, as its content base, the iconic Culver Studios, the Financial Times reported.

Reputational Damage The Biggest Challenge

The Five’s recent reputational damage may be their biggest challenge. The EU has recently accelerated efforts to clamp down on tax avoidance, targeting Google, Amazon and others for higher taxes. Amazon was recently ordered to pay €250 million, and the European Commission’s competition watchdog said it plans to force Ireland to collect €13 billion in taxes owed by Apple, through taking the case to the European Court of Justice.

Also, Facebook, Twitter, and Google have been grilled by the US government over concerns that Russian operatives used their advertising platforms to influence US politics.

Such controversies may make consumers less willing flock to their platforms to watch the latest hit movie or TV show, and advertisers are already pulling out of deals which ultimately fund their production. Who will succeed in the race to dominate the online entertainment business remains to be seen. But one thing is for sure: the Five are making huge strides, with consumers likely to be the ones to benefit.

Note: The opinions expressed in this article are the author's own and do not necessarily reflect the view of Alvexo on the matter.