Vessel Opens Its Door To Closed Windows

YouTube has ridden the wave of improving technology, connectivity and consumer sophistication, to become the largest content destination on the planet.  Along the way it has ruffled feathers, disrupted traditional businesses, established new content paradigms and is laying the foundations for a new video industry.  In that time it has transitioned from plucky challenger to dominant incumbent, with strategy shifting discernably from disruptive innovation to defensive sustaining innovation. It has thus itself become ripe for disruption as has its default business model of ad-supported free viewing.  Enter stage left new challenger, San-Francisco-based start-up Vessel.

Vessel And The Windowing Opportunity

Vessel, was founded on a simple assumption: digital natives will pay for restricted access to premium content. Vessel’s business model entails content creators launching new video content exclusively on the site for 72 hours prior to making this content available for unrestricted viewing on other video platforms, should they wish to do so. In return for this, they receive an increased share of ad revenue (70% compared to 55% from YouTube). Crucially for content creators this ad revenue is based upon significantly higher quality ad inventory than currently exists on either YouTube or Facebook, with innovative ad formats.  This will in theory deliver much higher CPMs, though first Vessel will have to build out its roster of advertisers.

Where Vessel stands out as a short-form video outlier is its commitment to a premium subscriber-based consumer experience. With a monthly subscription fee of $2.99, the service believes that there is a willingness to pay for early access to content amongst engaged native content audiences.  Vessel will also share 60% of that subscription revenue back to content creators.

The Data Backs Up Vessel’s Assumption

The general perception of digital natives is one of freeloading, low value consumers constantly switching attention between different content offerings.  The reality is markedly different. Due to the ubiquity of free because of the pervasive ad-supported model, these millennials are constantly trawling through the clutter of low value content to seek out quality content.  It is a Tyranny of Choice, where high quality content struggles to cut through the back ground noise.  When they find high quality content digital natives reward creators with their attention.  This is why, according to MIDiA’s latest video user consumer data, 44% of under 25’s subscriber to YouTube channels.  They also ascribe value to scarcity and exclusivity of access to both content and experience in general.

Our data also reveals that although only 3% of US consumers would pay for access to windowed short form content, this rises to 7% of YouTube channel subscribers. This might sound modest, but it is solid demand for an entirely new product concept that has only ever been free before.  But much of the initial momentum is likely to come from the creators rather than the audiences.  The most viewed YouTube channels are those of native digital content creators who inherently understand the desire for scarcity and uniqueness.  YouTube stars like the Smosh Brothers, Zoella and the ubiquitous PewDiePie.  These creators have a keen sense of their own brand value and increasingly question the need for relying solely upon one platform for their marketing and promotion. The stage is set for battle for the digital native generation of content creators with windowing the weapon of choice.

Potential Market Disruption

A quarter of the most successful YouTube channel views now arise from native content creators and this segment is now the fastest growing category of audience share and hence ad revenues. Despite the fact that both Vessel and YouTube are well placed to complement each other’s consumer experiences, YouTube has started both locking in and increasing revenue share for its top performers. Its heavy-handed contract negotiations with artists like Zoe Keating are well documented and evidence is emerging of the same approach being applied to YouTube-native video creators.  These are the tactics of an incumbent battening down the hatches in preparation for the oncoming attack. At the same time it is also considering extending its music subscription trial to video and also starting to integrate Google ad support functionality to its ad offerings to provide a wider range premium ad inventory.  Make no mistake, YouTube is not underestimating the coming threat.

What Next?

Vessel is making a bold bet on the potential of digital native content creators delivering paying millennial audiences. Success will rely as much upon the successful execution of the idea as it does on how Youtube responds. The genie is well and truly out the bottle and YouTube needs to recognize that its de facto exclusive ownership over digital native content creators and their audiences can no longer be taken for granted.

Whether YouTube responds in a positive and engaged way remains to be seen. Hegemons rarely last when they operate on assumptions rather than a genuine understanding of their core audience.  However YouTube has been here before.  When Hulu and iPlayer started their ascendency there was a risk that all YouTube was going to be left with was music video and skateboarding dogs.  It is of course far stronger now than it was then.  But there is another element of history repeating itself too.  The former CEO of Hulu, Jason Kilar, also happens to be the founder and CEO of Vessel.  Let battle (re)commence.

These ideas and many more will be explored in MIDiA's forthcoming Online Video research and analysis service.  For more details please email info AT midiaresearch DOT COM