Cord Barelys

News this week that MCN Fullscreen is launching a SVOD service. The $4.99/month offering will launch on April 26 with AT&T (which partially owns Fullscreen via its Otter Media JV with the Chernin Group) as the launch partner. The core of the service will be original TV shows built around Fullscreen’s stable of YouTube stars.

What’s going on here, and what does it tell us about the future of TV? Two Points.

1. The YouTube MCN Model Has its Limits
Fullscreen was founded in 2011 as a YouTube network and became a subsidiary of Otter Media in 2014. Fullscreen now has hundreds of YouTubers under contract and generates billions of monthly views across all of its channels. While not as large as MCNs like Maker Studios or Machinima, Fullscreen undoubtedly has “scale” in YouTube terms. And yet. The overwhelming majority of YouTube channels remain ultra-low-budget talking-head webcam offerings, in which a (sometimes) very entertaining star riffs on a particular topic for several minutes. That’s it. Really.

The reason is simple. YouTube monetizes. It just doesn’t monetize very well. Granted, YouTube, a few of the top YouTubers and MCNs like Fullscreen all make some money off of advertising, but we are several years into the MCN era now and it would be hard to argue that the resulting content is the be-all end-all of video production in the 21st century.

Fullscreen obviously agrees, which largely explains its motivations for the new SVOD service. The revenue stream from $4.99/month subscribers will be able to support the development of actual TV shows (you know, the ones with actual actors, wardrobe, locations, maybe even the occasional script) around YouTube stars like Grace Helbig.

The irony of this is that the first show slated for production is a remake of Elektra Woman and Dyna Girl. As a child of the 1970s, I love me some Sid & Marty Krofft, but let’s be serious. These Saturday morning live action mini-episodes (which also included such classics as Dr. Shrinker and Wonderbug) were seriously low budget productions. The costumes were youth theatre quality and every episode used the same three sets. The meta-message from Fullscreen here appears to be: “We’d love to remake some cheesy 1970s schlock starring your favorite YouTubers, but we could never afford to do that on YouTube. So pay us $4.99/month.”

2. Pay-TV ARPU has a tough road ahead.
Price points matter. The most popular Netflix plan currently costs $9.99/month. Hulu brackets this with a $7.99/month plan (with ads) and an $11.99/month plan (without ads). Sling TV has tried to carve out a spot for a skinny bundle starting at $20/month, with optional $5/month packages on top of that. In every case, the idea is to keep prices well below the $60-100/month price of traditional pay-TV services.

In this context, Fullscreen’s $5/month price makes good sense. Fullscreen clearly recognizes that there is no way their initial offering can compete directly with Netflix (or Hulu or Amazon). The library content (consisting mainly of old seasons of Full House and Dawson’s Creek) seems like pure filler designed to buy time while they build the library of new, original episodes.

At the same time, the difference between Fullscreen and Netflix may be more fundamental to the industry than just $5/month. Netflix built a very large business by supplementing pay-TV. In other words, most Netflix customers today also have a pay-TV subscription. The ranks of true cord-cutters and cord-nevers among Netflix subscribers remains relatively modest. Fullscreen is targeting a younger demographic, and potentially a different customer altogether. Today’s Fullscreen viewer on YouTube generally does not have their own pay-TV subscription, whether due to age, income, living situation, or a combination of these factors. The new Fullscreen package at $4.99/month could represent the first paid video service that some of these folks have ever purchased.

The idea (from AT&T’s perspective) seems to be to create a bottom rung on the pay-TV ladder that young millennials both want and can actually afford. Having a video customer at $5/month is a whole lot better than not having a video customer at all. The notion of a “cord-barely” offer is a good one, but also reveals a huge economic gap between the young-and-struggling and the comfortably-affluent. There is a big difference between paying $5/month and $100/month for video entertainment and it’s neither obvious nor inevitable that today’s young adults can or will cross that chasm anytime soon. My own view is that video ARPU among this group is more likely to remain permanently “stunted” at lower levels.

The grass is always greener on the other side of the fence. Legacy pay-TV providers envy the engagement and passion of the YouTube audience, while MCNs long for a stable revenue stream that can support higher production values. Fullscreen’s new SVOD service sits right on top of this metaphorical fence, hoping for a bit of the best of both worlds.

Stick with TDG and stay ahead of the curve.

Joel Espelien is a Senior Advisor for TDG and serves as an advisor and Board Member to the video ecosystem and technology companies. He lives near Seattle, WA.