Disclosure: This article reflects personal opinions about potential future content distribution models.

Today, the way we consume content is fundamentally changing. We no longer patiently wait for our favorite movie or shows to be released in theaters or on TV. We follow the actors of our favorite shows doggedly on Twitter, look for hints about the show on their Instagram page. We group chat with our friends about which actors were chosen, what plot twists we expect or hope for. When the show is released, we are often first consuming it online through streaming providers like Netflix or Amazon. And when the show is over we express angst - what to watch now? Maybe we’ll go back to flipping through YouTube videos or scrolling social media, until something else catches our eye.

In a world where many consumer platforms are distributing content primarily through online channels, creators and communities hold tremendous power in distribution through social platforms. They are our curators* in an increasingly noisy online experience. At the same time, consumer preferences are shifting to online experiences that are more immersive and interactive. And as these preferences manifest in rising demand for these experiences, new tools are emerging to enable creators to leverage their distribution to provide those experiences to consumers.

As a result, we seem to be on the cusp on the next wave of the democratization of content creation, which has the potential to put more power in the hands of creators and consumers than ever before.

Why is this happening now? And how might these trends fundamentally change the way we experience and consume content like film and TV?

A Quick Introduction to Film and TV Production & Distribution

First, let’s take a step back to understand how movies and films are traditionally created and distributed, and the stakeholders who control each step of the process.

Getting a movie made involves numerous parties (creators, production houses, investors, studios, and distributors), each taking a share of the profits that result from theater, TV and streaming release. In general, the process for film and content creation follows the below steps:

At each step of the process when a new economic agreement is struck, the returns to creators and early investors are diluted. The Stephen Follows film institute provides an excellent visual waterfall of the payouts of revenue. According to the Film Institute, a typical film might see the following deductions from the gross profit made:

• Press and advertising costs
• Distribution fees paid to distribution partners (some estimate Distributors take ~ 30% of every dollar earned)
• Sales agent fees
• Original production budget

At the end, after all these deductions and after the original production cost is covered, creators and investors can then claim their profit.

Clearly, the model involves a number of parties intermediating between the initial creators and consumers, in exchange for a significant take on the profits of the content. However, the world of content creation and distribution has been disrupted in recent years by the rise of streaming giants. These streaming giants have discovered ways to streamline production and distribution, in order to cut out some of these middlemen by creating their own content and distributing directly to consumers on online platforms. One of the best examples: streaming giant Netflix.

The Rise of Netflix

Netflix is now one of the largest content empires in the world. With its online streaming platform and success of its in-house hits, Netflix has fundamentally disrupted content creation, funding and distribution. No longer reliant on theater empires like AMC, Netflix is able to nimbly create and distribute content that generates millions in revenue without having to work through these intermediaries. And it has paid off - Netflix is worth over $200B in market cap generating over $28B in TTM revenues, producing some of the most famous shows in the world from The Witcher to Squid Game.

So how did Netflix do it? The company, founded in 1997 by Reed Hastings and Marc Randolph, started out as a mail-to-home DVD service which competed with the likes of in-person video rental Blockbuster (remember those days?). Over time, Netflix came to realize that much of the innovation in content was happening online through streaming services. The company launched their streaming product (the product many of us know and use today), in 2007. This transition to a cloud-based product enabled the company to expand at a rapid rate, growing from a little over 7M subscribers in 2010, to over 30M just five years later. By 2013, with over 40M subscribers and over $4B in annual revenues, Netflix took the opportunity to bring some content production in-house. That year, Netflix introduced its own produced shows "House of Cards" and "Orange is the New Black." The shows were both wild successes - over 670k people binge-watched House of Cards’ season in the first weekend of its launch.

Netflix shocked Hollywood with the success of its in-house created projects, which even in its earliest days challenged the status quo of content production & distribution. Rather than wait for projects to be sold by studios, Netflix was able to bring creation & production in house to gain greater control over show & film economics. Streaming providers like Amazon and Disney+ quickly followed suit, capitalizing on the ability to market and distribute in online channels as well as produce content in-house.

Streaming Sells: The Future of Content Distribution

Netflix (and its streaming giant peers like Amazon and Disney+) mark a fundamental shift away from traditional Hollywood film and TV production and distribution. They have emerged as leaders in Web2 content distribution through a highly scalable growth flywheel that relies on subscriptions to support paid marketing (including marketing around new shows). They offer a new, centralized, distribution platform by going direct to consumers on their platforms.

Additionally, they offer consumer experiences that cater to a shifting preference for online-first content, a trend which COVID has only accelerated. Statista released a report suggesting that the preference for seeing a movie for the first time on a streaming provider versus in a theater has changed rapidly in the past few years. In November 2018 just 18% of respondents reported strongly preferring to see a movie first on a streaming provider; that number jumped to 36% in June 2020 after rising to 27% in March of 2020. Meanwhile, the percent of respondents who strongly preferred viewing for the first time in theaters dropped below 15% in June 2020 versus 28% in November 2018.

The New York Times recently reported that Hollywood is now actively struggling with macro shifts from both COVID and this general shift in consumer preference for content consumption. Even historical box-office winners like the James Bond franchise are underwhelming the industry - when “No Time to Die'' was released last year, it grossed $40M less than the 2015 Bond movie “Spectre” and $144M less than “Skyfall” (NYTimes).

Some in Hollywood are raising warnings about at the potential for streaming giants to further consolidate power. In a world where these platforms are completely dominant, they could theoretically garner unforeseen power over which shows get funding, and which creatives and actors are chosen and how much they are paid. However, as the barrier to enter the content space is lowering & new technology and consumer preferences are emerging, there is potential for further disruption of video content creation, funding and distribution, which puts more economic power in the hands of consumers and creators.

With this disruption, there is potential to create infinitely more types of content with more diverse creators, actors and participants who are able to have greater say than ever before about the content they create & consume.

Content and a Web3 World: The Potential for Disruption of Centralized Content Distribution

While these macro trends (viewing content primarily online, online-first distribution) have the potential to further centralize power in the hands of streaming giants, they also have created opportunities for further democratization of video content creation, funding and distribution. With the aid of these new tools (and innovations driven by web3 technology), the next wave of content could be created and distributed in a fundamentally more decentralized way.

Why? First, a world of increasingly online-first content distribution has returned some of the power to the actors and creators who participate in content creation. Actors & creators who are able to garner a large social following have inherent value to any consumer-facing platforms, as they represent unique distribution with their online following and community. Some of these creators have already begun to experiment with leveraging their own distribution to create projects they create and control. For example, Reese Witherspoon launched her own media and production company HelloSunshine. As a production company, HelloSunshine manages a curated book club, shorter-form shows that stream on platforms like InstagramTV, a podcast, and a talk show.

While some of the productions are distributed through third-party networks, HelloSunshine has been able to assert unique power in identifying, creating and funding new titles, in part because of the success of ventures like the Book Club, a curation of books with “a woman at the center of the story” on social media. Reese has been able to use her social following to launch new books through the Book Club (the Book Club has over 2.2M followers on Instagram while Reese herself has over 27.2M). Those books represent opportunities for completely new IP for shows. HelloSunshine was recently acquired for $900M by Blackstone.

Additionally, new monetization models are emerging for creators that want to fully cut out intermediaries of distribution. Some of these models exist in Web2, in the form of memberships and gated content (examples: Patreon, Fanhouse), that allow creators to charge viewers for content. Recently, new models for shared ownership and content monetization have emerged through Web3 that represent new ways for creators to fund larger-scale projects (example: organizations like DAOs) and monetize on those projects (example: NFT-gated content).

Second, in a purely online ecosystem, streaming providers must compete with every other entertainment format online for subscribers and viewers. This includes games, social media, live streaming and more. In this intensely competitive ecosystem, consumer companies are beholden to fluctuating customer acquisition costs on paid channels. Additionally, engagement & retention can be extremely difficult. Marketwatch recently reported that video games are now a bigger industry than sports and movies combined, highlighting the level of competition for attention in online mediums.

Consumer preference is also generally shifting towards more engaging online experiences. The rise of NFTs, online communities, and gaming as a standard consumer behavior exemplify the demand from consumers to participate in their online experiences. In a recent research collaboration between Facebook and The Governance Lab, 77% of respondents to the project’s survey indicated that the most important group they're a part of now operates online. Today, streaming content seems relatively static compared to what is offered broadly across online entertainment. Consumers have limited ability to socialize with one another on-platform, little say over what content is created, little ability to participate as fans and/or supporters, and little ability to control the data that is provided to streaming providers to inform content creation.

Theoretical Models for Content Creation, Production and Distribution in a Web3 World

So what might the future of content look like in a world where (1) consumer preference is shifting towards more participatory online experiences and (2) creators are gaining more control over their own creative projects, distribution and monetization?

First, we’re already seeing the democratization of content creation through technology such as new video editing and creation tools. Creating “films” no longer requires expertise from multiple stakeholders; a single TikTok creator can use their iPhone for video and editing to create a “show” on TikTok that garners hundreds of thousands of views. One example: FourFront Media, which manages online shows from TikTok content creators.

Second, content creators have begun to experiment with the ability to leverage their following to distribute and monetize their content without going through intermediaries, and a new wave of tools is emerging to facilitate this. For creators with large social followings on platforms like Twitter and Instagram, they are able to distribute projects created through video-creation software platforms like Kapwing (and even editing on iPhone video) directly to their followers on those social platforms.

Distribution is also moving from web2 social platforms to games themselves. An oft-cited example is the success of concerts held in Fortnite. One could imagine a future where all movie launches happen in Fortnite or in a metaverse platform like Decentraland. An example: BVP portfolio company Makersplace recently partnered with Decentraland for the release of Break the Bars, a film from director David Bianchi. Additionally, for creators who have followings within communities, they could utilize community-building tools like Discord (a BVP portfolio company) to distribute projects to their most engaged fans.

For monetization, there are a whole class of tools enabling creators to get paid for the content they create. For example, NFT video platform Glass Protocol enables video creators to upload video content as an NFT which can be purchased by viewers. Glass has already been used by musicians looking to monetize on music video launches, and could potentially be used for larger use cases such as movies. For other creators, platforms like MintGate allow them to release NFTs to supporters and fans, and then gate access to content like movies to those NFT-holders.

Third, consumers are looking for more participatory ways to engage with the online content they consume. Recently, two creators (Alice Ma and Devin Lewtan) launched an NFT-based crowdfund for Mad Realities, the so-called “first web3 interactive TV channel, starting with a dating show anyone can participate in.” Participants of the crowdfund, hosted on publishing platform Mirror, are supposedly able to “vote and interact with the show,” buy lifetime membership, gain “special governance powers” and support the funding of the first season. The show concept has already raised $280k of a $511k fundraising goal from supporters through publishing and crowdfunding platform Mirror.

Lastly, new forms of organizational structure are enabling creators and community members to join together to collectively incentivize the creation and production of video content. DAOs (decentralized autonomous organizations, or groups with a shared treasury and decentralized governance structure) represent a way for creators to fund large-scale projects without needing to work with centralized streaming providers or studios. A few have already emerged with the goal of creating and funding Hollywood-level movie productions. For example, Hollywood DAO was recently formed by former Hollywood executives and creatives to create a community-based financing platform for films and shows. With eleven initial community members, the idea is to raise money to fund new projects through NFT drops, expand the community to 5-10k members, do token sales and form a community-based governance structure.

While the DAO has reported that they already have a project in the pipeline, in the future a content creator could present a proposal for a project which would be sent to the community. After reading and considering, the community could vote on whether or not to allocate funds to the project.

Hollywood DAO also plans to help launch what could be one of the first NFT-based crowdfunding marketplaces for new content and films. David H. Steinberg, one of the group’s contributors and members, discussed the concept in this tweet thread. Steinberg, a Hollywood Executive Producer who is currently working on a Netflix show No Good Nick, describes the platform as a “Kickstarter but instead of rewards fans are getting access to creators and talent, and building a direct relationship with the creative team.” Ideas for fan interaction in his thread include the ability for token holders to vote on the narrative direction, fan participation in the actual creation of the project, or the ability to vote on character design. But, according to Steinberg, essential to the platform will be the ability for fans to buy and keep IP from the shows they support.

In recent months, a few other DAOs have launched with similar goals, including SpiceDAO which recently purchased Jodorowsky’s Dune book, a concept for a Dune movie that filmmaker Alejandro Jodorwsky tried to produce in the 1970s. While DAOs looking to revive existing IP might face uphill battles (a take on SpiceDAO’s purchase here) against copyright issues, DAOs like Hollywood DAO are for the most part looking to identify or create new titles.

Future Films: Production, Creation and Distribution Blend

In conclusion, both creators and consumers could have increasingly participatory roles in the future of film and show-style content. Over time, the definition of project creation, production and distribution could fundamentally blur (credit to Jonathan Dunlap of MintGate who discussed with concept with me).

For consumers, this could mean participation through the funding of early projects, as well as through an increasing ability to vote on or have a say in the content that is created. Additionally, consumers might be able to literally become more active holders of content IP in a way that was never possible before. One could imagine a character being released as an NFT that a fan could purchase and use for fan-related experiences. Imagine being an NFT holder of an original animated character in a show, which could unlock early access to new content fan experiences, serve as your avatar in metaverse experiences, and act as proof of your early participation in the show’s narrative universe!

For creators, this means a more open and accessible ecosystem for content creation and funding. A creator could spin up a project and auction it through an online marketplace to gain funding from DAOs or other fans, and even manage the project as a mini or sub DAO where other project creators share ownership in the project and proceeds with the early community members. DAOs could be crucial to this ecosystem, as they represent a fundamentally new way of receiving funding for a project at an amount that was previously inaccessible to a creator without securing a production company and early investors, or by working with a streaming provider.

Distribution could increasingly happen through the community or through other marketing efforts funded by the community. For smaller projects, creators could also launch mini shows on platforms like TikTok, which could then over time garner the attention of a broader fanbase that then is willing to support the project by paying for additional gated content or through an NFT crowdfunding.

Another critical note: the ability for more creators and consumers to become active participants in content creation could in theory also help combat the urgent need for more diversity in traditional Hollywood productions (see more data about the lack of diversity in this UCLA report), with DAOs like Hollywood DAO noting this problem as one they hope to help solve by focusing on funding more diverse creators.

We are just seeing the beginning of creators and consumers experimenting in this space. As tools improve, more funding sources are created, and consumer preferences accelerate, the barriers could become even lower for creators and consumers to participate in the film & TV space. Our notion of “creators,” and “consumers” could fundamentally change, as more internet users become stakeholders and participants in their own online experiences.

If you’re thinking about the future of show and film production, creation, and distribution, or building something in this space, I’m excited to chat at asukin@bvp.com.

Alexandra

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* Gaby Goldberg has a great piece on this concept!

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