I am taking a break from my break to weigh in on the discussion about how media consumption is changing, because I have a special advantage that us old fogies (anyone over 30) needs in order to comprehend fully how the world is changing. I have teenage daughters! If you think you are a modern, tech-savvy person, just sit with a teenager for 30 minutes and ask questions. You will soon realize there is a new world forming out there, and you might really not be as "with it" as you think.
Right now the focus is on how Netflix (NFLX) is disrupting classic media, and certainly it represents the first wave of change. (Do you old-timers remember when they used to mail you DVDs? It was a smart way to kill time until bandwidth caught up with their vision.)
Netflix represents half of the new wave of change, which is freeing established content from the constraints of time. Being able to watch your favorite shows when and where you want is a permanent change in lifestyle, and we are not going back. For those that complain about watching on a small screen, I advise you to get an Apple (AAPL) TV for $99. I binge-watch "House of Cards" on a giant, hi-definition screen with quality as good as any satellite or FIOS feed.
Where today's debate is falling short is on content itself. Clearly the movie/TV show business will not disappear. Hollywood generally is still a good storyteller. However, the attention of young people is moving toward "YouTubers." These are talented young people who establish their brands and build their audiences by posting on YouTube. Unlike a Justin Bieber, who used YouTube as a stepping stone to the established system, the YouTubers make good money and control their destiny by remaining on You Tube. As they build, I am sure established channels will become yet another outlet for them. But old media is no longer the primary channel to reach audience and monetize talent.
I had no idea about all this until I started asking my teen daughters what they were watching each evening when they were glued to their laptops. Not Netflix, not Hulu, but their favorite YouTubers. The magnitude of this wave of change was reinforced this week, when we took one of my daughters to see a promotional appearance by one of her favorite YouTubers, Miranda Sings, at the Mall of America in Minneapolis.
Clearly the mall staff was clueless about this trend; they must have expected a small group to show up, but instead hundreds started camping out in line the night before in order to get the ticket to see her. My nephew had a similar experience when he went to see Tyler Oakley in Iowa -- huge crowds overwhelmed the logistics planning. People over 30 are really unaware of the popularity these celebrities are building completely outside the established media system.
If you are over 30, take this quiz. Match the celebrity with the number of subscribers to their YouTube channel. Don't go to YouTube to look -- no cheating!
a.) 4.6 million
b.) 7.3 million
c.) 14.9 million
d.) 38.5 million
e.) 6.2 million
Consider what passes for success in old media. The "hot" shows of the most recent season were series such as "Big Bang Theory" and "Walking Dead," with around 20 million viewers. In comparison, Ryan Higa had more than 8 million views of a simple five-minute trailer talking about who he is. Ryan is probably not commanding the same ad revenue that Big Bang is yet, but consider his cost of production and YouTube's cost of acquisition, and that Ryan's audience now (the under-25 crowd) is the coveted demographic that all advertisers want to reach. PewDiePie has more subscribers than any of the most successful shows of the 2014-2015 season..
Teen viewing habits today will be "normal," mainstream viewing habits tomorrow.
Netflix is in a great position as the conduit of produced content, and the next decade belongs to it. But even Netflix has a weakness: It is still just a new outlet for Hollywood content. It is a bridge to the future.
YouTube is forming the new model of content discovery, creation and distribution. As big as Google (GOOGL) is today, the upside from YouTube could still be enormous for it. Any investors looking to position themselves to capture the move to new media needs to look at Google. Indeed, I think there is a reasonable possibility that Google could spin out YouTube someday, just as eBay (EBAY) spun out PayPal (PYPL). Over the next decade, YouTube could turn into real hidden value buried inside Google.
P.S.: The answer to the quiz:
- Ryan Higa c) 14.9 million
- Tyler Oakley b) 7.3 million
- Superwoman e) 6.2 million
- Miranda Sings a) 4.6 million
- PewDiePie d) 38.5 million