Part 1: Why Hybrid Events are the Future and What That Means for Venture Investors
One of my favorite things to do as an undergrad at Vanderbilt University was (you guessed it) going to live shows (if you didn’t already know, Vanderbilt is in Nashville AKA Music City). My favorite place to watch a show was actually at any one of three separate interconnected venues in an industrial-looking building located in “The Gulch” (Mercy Lounge, the High Watt, and the Cannery Ballroom). I love the electricity unique to live events and the thrill of not knowing what to expect.
Now, in the midst of a pandemic, I can’t imagine the next time I’ll be at a crowded stadium or jam-packed into a small concert venue. While this is sad for me, it’s devastating for the entertainment economy (made up of athletes, musicians, artists, entertainers, etc.) that depends on ticket sales for a bulk of its revenue. Until a vaccine is found, it’s not clear to what degree sports leagues or concert venues will permit in-person attendance. To put this impact in dollar terms, the MLB has estimated an economic impact of at least $5.1Bn (see figure below); the music industry forecasts a staggering $10Bn impact, as 75% of artist income is generated from live shows.
A big chunk of a fan’s willingness to pay is driven by the experience and opportunity to engage personally with the event, so replacing lost revenue by simply throwing live events online won’t work. Consumers’ entertainment consumption preferences were already moving towards online, interactive, personalized content that connects audience and creator; the absence of live events has only accelerated these changes.
So where does this leave traditional enterprise media?
Enterprise media companies were already moving towards live streaming (expected to be a $70Bn market by 2021). However, they simply don’t have agile infrastructure or technical expertise needed to meet the engagement needs of today’s audience. Now, a skeptic would step in here and say that a significant investment in interactive media infrastructure would be an overreaction to a temporary situation. This big investment would help the industry generate revenue short-term, but eventually live events will come back and the investments may not justify their time and effort if they only remain relevant for 6–12 months.
However, this misses the full opportunity. Even if COVID were to disappear completely in 8 months, the live streaming and interactive media outlook would remain bullish for two reasons:
- the entertainment industry (e.g. labels, promoters, agencies), worth billions and largely dependent on live events and ticketing revenue, will be scrambling to permanently hedge against this scenario repeating in the future; and
- these same entities will realize that their events are no longer constrained to a physical location or venue — artists in Los Angeles, CA can now reach fans in Seoul, South Korea (i.e. expanding their potential audience and revenues by orders of magnitude).
Reason 2 is more impactful because it actually represents an opportunity for future revenue expansion as a result of the pandemic. A clear example of the impact this reach can provide is BTS’ recent live streamed concert, which brought in ~$20M in ticket sales (as compared to Ed Sheeran’s Divide Tour, which Pollstar ranks as the highest grossing concert tour of all time and brought in $3M gross per show). That’s why I firmly believe that the future of media is neither online nor offline, but hybrid — the revenue and reach potential is too big to ignore.
Given my stance is that hybrid is the long-term play for enterprise media/streaming, how do I assess the attractiveness of this opportunity, and where do I see opportunities to invest? I see three distinct paths:
- Invest in end-to-end streaming solutions
- Invest in platforms
- Invest in infrastructure
End-to-end streaming solutions: Largely commoditized and dominated by well-monetized providers. The typical business model includes either a volume-based fee, charged on a per-user basis, a SaaS fee for accessing the platform, or both. Streaming solutions mimic television in that the broadcaster provides one-way content the audience consumes passively (Zoom is the exception here with two-way streaming, though it is not designed for hosting large events and the experience remains impersonal once a group reaches a certain size). This hyper-competitive space is already filled with winners, so I would not turn to a pure-play streaming solution unless there were significant two-way interactive functionality that blows away existing offerings.
Winners include: Vimeo, Zoom, Twitch, Agora, Mux, Ustream.
Now, I should mention that Zoom’s recent announcement of OnZoom does change the game a bit. While pure-play streaming is still their core, the shift towards enabling ticketed events, subscriptions, and donations represents an existential threat for platform solutions, which I’ll discuss in more detail below.
Platform solutions: Here I am referring to the consumer-facing live streaming sites that corporations, media brands, and influencers are leveraging to engage and monetize their new online audience. These platforms generally include an integrated livestream (from one of the streaming companies listed above) and a customizable toolkit that generates revenue for the event (e.g. paywalls, donation plug-ins, payment integration, commerce integration). Absolutely crucial here is for platform companies to offer their platform as a white label offering that can be hosted natively on a client’s site and handle streams from multiple sources.
However, these players are still heavily reliant on multiple points of failure on the back-end, including a reliance on existing streaming solutions.
Enter OnZoom, which offers corporates and influencers alike the ability to monetize their audiences via ticketed events — one of the core value props platform solutions offer. Now, while some of the platforms in this space have a head start on Zoom in terms of interactive functionality and real-time customization (which is one of Zoom’s biggest limitation to-date), Zoom holds the trump card of a massive active user base and a familiar, ubiquitous UX. In short, OnZoom is a game changer for this segment and a reason to set the bar even higher for an investment in a platform company.
Infrastructure solutions: If I had to place my bet in this industry, it would be here. As stated above, end-to-end streaming as a product in and of itself has largely been commoditized, and platform solutions suffer from multiple dependencies/points of failure (e.g. Open Broadcaster Software, Distribution, Encoding, Payments, and Streaming) and are facing an existential threat in the form of OnZoom. However, the needs of enterprise media go well beyond streaming and ticketing. The entire broadcasting tech stack has been largely been left behind technologically. The traditional middleware leveraged by broadcasters showcases this (credit to Mike Schabel, CEO of Kiswe, for educating me on this and pulling together the below infographic):
There is no way traditional enterprise players can engage individual users, stream across multiple platforms simultaneously, and provide flexible, tailored content on the fly with this mess. Streaming solutions won’t solve the problem because they are focused exclusively on providing live video; OnZoom doesn’t solve the problem because it doesn’t solve the production, multi-stream, or interactivity problems (though interactivity seems the next logical step in the roadmap); platform companies won’t solve this because they are focused on differentiation via apps/features/target verticals and are more well-suited for SMBs or influencers. Very few players are focused on resolving backend points of failure or helping brands broadcast more seamlessly. Therefore, I see a few opportunities in the infrastructure space:
- Next-gen broadcasting and production infrastructure that enables flexibility for interactive engagement. Production is admittedly hard to scale, and replacing the broadcast middleware is a massive problem to solve. Companies I like here include Kiswe, Easylive, and vMix.
- Kiswe and Easylive, in particular, have an interesting approach: they’re seeking to become the cloud infrastructure and livestream production partner for broadcasters by replacing the middleware layer and tailoring content to digital audiences. In my opinion, this focus on cloud-based broadcasting makes them an acquisition target for someone like Zoom.
“Today’s digital audience doesn’t want to feel like a ghost in the living room, they want to be involved. If you give the audience the ability to get involved in two-way interaction that impacts the live production of the event, engagement goes through the roof.” — Mike Schabel, CEO of Kiswe
- Multi-stream broadcasting and OBS stack replacements. Interesting companies here include: Restream, Socialive, Dacast.
- Restream in particular offers an interesting multi-stream solution that helps users stream online broadcasts across any platform simultaneously. Socialive is more focused on the corporate side of interactive media and acts as a back-end partner for platforms like Hopin and RuntheWorld, but they’re resolving a similar pain point.
- I expect several more players to enter this space and offer multi-streaming or platform consolidation solutions given the wave of entrants on the consumer-facing side.
Last bit — to get an idea for how demand for these solutions has accelerated of late, below is a chart I created that displays the rate of venture investment into the space (again, this chart is meant to be representative, not exhaustive, and includes solutions for corporate media streaming):
In short, the shift to interactive media cemented by COVID points to continued market expansion as well as opportunities to invest in startups that are enabling corporates/enterprise media to capture this shift. Platforms are attractive plays and have generated significant investment interest of late (and is a space worth keeping an eye on), but I feel the untapped opportunities are one level deeper, at the infrastructure level.