*An OP-ED on Why The Acquisition Does and Doesn’t Make Sense & What Those Following Suit Can Learn*
As the saying goes, “all boats rise with the tide” — but what it doesn’t address is the outcome if those boats are actually becoming sinking ships?
Late yesterday, Verizon officially announced it has acquired Vessel, the soon to
be defunct subscription-streaming service built by the former Hulu team including Jason Kilar, Richard Tom, JP Colaco, amongst others. The deal was billed as an acquisition of the “underlying technology”, which, all things considered is far better than the existing Verizon streaming product in user experience and discovery.
Only Tom will continue on staff at Verizon, while Kilar and Colaco will support in the transition, then part ways. While the terms of the deal were un-disclosed, Vessel had raised $132 million from Benchmark, Greylock, Comcast Ventures, and Jeff Bezos’ personal fund to achieve its vision.
Vessel began hitting rough waters just over a year into the business. In July, VideoInk reported that Vessel was not only struggling and terminating creator contracts, but working on a new plan to pivot the product to being a group video chat offering called “Hubcap.”
Save for the gold-star team, Vessel’s “promising” future was beginning to look bleak.
And as of yesterday, Vessel distributed a less-than-celebratory note to former partners, shadowing a harsher reality than one might expect from a company just acquired by Verizon:
“We wanted to thank you again for being a part of the Vessel journey. As a reminder, we will be sunsetting Vessel, and the service will go offline on Monday, 10/31/2016.”
On few fronts, the acquisition (er…acqui-hire) makes sense as recently-appointed GM Chip Canter faces the mountainous task of overhauling a struggling product and patchy business strategy for Verizon’s OTT play — go90 — as well as Verizon’s entire digital video plan across its portfolio including AwesomenessTV, RatedRed and Seriously.
“With Richard Tom leading technology and operations and Lonn Lee heading up product, we have the upmost confidence in our ability together to rapidly execute and enhance our products,” Canter said in the announcement.
Verizon’s video product has received various negative hits from users and industry insiders. The user experience and layout of go90 is frequently changing. The ad unit glitches. And, technically, the app is far from stellar.
“I think maybe [go90] did get a little over-hyped, and I’m sure we contributed to that to a certain extent,” Verizon CEO Lowell McAdam said earlier this year. “We didn’t believe it was going to move the needle on a $130 billion revenue stream overnight. It’s one of those things you have to work into.”
And, while Verizon will not keep Vessel operational, the fledgling company’s uphill struggles can become learnings for the telco as it continues its efforts to win in streaming.
So, What Can Be Learned?
At a time when subscription streaming services and stand alone OTT products are on-trend, it’s almost more important to spotlight the businesses struggling to realize their visions. (i.e. Samsung Milk Video, Scripps now-defunct “ULive”)
Kilar and team made three bets (that are being repeated across basically every streaming destination):
- That creators drive meaningful audience (yay, superfans!) to new destinations, where they would pay for early access to said creators content
- That the industry is on the cusp of a maturation that would drive a windowing strategy, and cascading waterfall of revenue streams just as it does in the theatrical and television business models
- That short-form, mobile-friendly, premium content would win
The second bet was right — the industry is seeing windowing strategies thrive, and secondary markets for content are becoming commonplace. But as brands, and Hollywood, are learning — YouTube and social video stars followers don’t always follow, and if they do, even fewer pay to follow.
And as Ben Smith said in his op-ed for VideoInk “The Ugly Truth About Vessel” — “The secret is that you can’t have a party without an audience. In other words, you can’t build the business mechanics of a platform without first delivering unique and authentic value to your audience.”
LESSON LEARNED: Influencers don’t replace good ol’ fashioned, tried-and-true marketing.
The third assumption might be right if we’re talking Tastemade on Snapchat, or another premium publisher molding its content strategy to the user behavior of an existing platform. This is not the case of a new, zero-rep destination like go90, or Fullscreen.
“By thinking of itself as a premium platform like Netflix, but by actually being more of a non-premium destination, Vessel was born to fail,” Smith said. “When you build a business before you build the meaning or reason for the platform to exist for the audience, you don’t yet have the powerful user behavior that will drive a platform.”
“America runs on Bulova time.”
This was a pain point faced by Samsung in attempting to acquire users for Milk Video, a business that mirrors Verizon’s approach. Samsung pre-installed Milk Video on its devices and tried to use its distribution to as its primary user-acquisition tool. Verizon has also struggled to build audience, even using open platforms like YouTube and a new web destination to help net viewership and build the go90 brand.
LESSON LEARNED: Nobody cares about your platform and distribution doesn’t yield user acquisition.
Lastly, content isn’t cheap, especially in today’s inflated market where companies like New Form Digital are making roughly $20 million (rumored) in annual revenues on production and licensing deals alone. Verizon spent over $500 million in its first year for content acquisition and messy deals that it’s now unraveling. Samsung is rumored to have spent $250 million over two years. YouTube Red is also said to be spending on par with both of these companies to compete, while Fullscreen supposedly has a budget over $125 million to spend on content for its SVOD. This equates to billions of dollars being spent on content that almost never gets renewed! Add Hearst, Conde Nast, AT&T, Facebook, Snapchat, Spotify and the other platforms buying and funding content and a many billions later, the industry is still fractured and overly segmented.
LESSON LEARNED: Make smaller bets but more of them. Learn and then scale.
With Vessel’s tech, solid marketing, and a renewed content strategy, Verizon could rehab go90 and smartly roll out a revised OTT plan for RatedRed, Seriously, AwesomenessTV and other video entertainment brands it acquires. But if the company keeps a blind spot on where previous competitors have failed, it, too, will likely sink.