The video streaming platform Vimeo is kicking off a new subscription service for customers, which is part of its plan to compete more heavily in the video streaming market. They believe this move will increase their market share while differentiating themselves from their non-subscription competitor, YouTube. Given holding company IAC’s earnings report, Vimeo clearly has plans to aggressively scale up and grow its network, which is exciting for Vimeo and for consumers, as competition breeds a better end product for the user.
Most people are excited by the proposition of self-driving cars, but have you considered what will happen when talented developers get their hands on the new tools? Read this article for a sneak-peek of the future.
Forging a Premium Service
Founded in 2004 by a group of filmmakers, Vimeo has grown a community of engaged creators and consumers, having built some solid network effects. Its community is relatively placid compared to the oft-abusive environment seen in YouTube’s comment section. Additionally, Vimeo has put a premium on generating original, exclusive content, including concerts, specials, films, and series.
What sets Vimeo apart in the streaming field is its variety of monetization strategies. To date, content can be purchased á la carte for viewing or consumed as part of a subscription. Creators could also elect to release content for free to grow their audiences. Additionally, Vimeo has zero ads, which enables a more pleasant user experience and necessitates that the content it hosts (entirely in HD) be of a high caliber to compete for attention and dollars.
Even though Vimeo’s viewership is much smaller than YouTube’s, their built-in monetization tools attract a slew of talented producers, directors, editors, and other creatives to organically produce content for the platform. This keeps Vimeo’s overhead for content production low, in the millions, which seems like a steal compared to Netflix’s $5 billion budget for making original content.
The Industry Needs Vimeo
In the at-large content landscape, however, things aren’t looking so good. We’ve seen multi-billion dollar mergers and acquisitions between multiple-system operators (MSOs), like Comcast, AT&T, and DishNet, and multi-channel video programming distributors (MVPDs) such as NBC, HBO, CBS, et cetera.
Put simply, the traditional operators in the industry still standing find themselves in decline, thanks to disruption by the likes of Netflix and YouTube and the rise of cord-cutting. The MSOs aren’t in a good state and are trying to double down to survive.
The MVPDs aren’t sitting very pretty, either. As MSOs consolidate, checks written to MVPDs for distribution rights will start dwindling since the shrinking MSO oligopoly will be able to name the price against a plethora of content providers.
Meanwhile, Vimeo, which has always been a paid content platform, is growing healthily and is aiming for higher ground. Compare that to YouTube, whose year-old subscription service has only captured 1.5 million paying subscribers, floundering against the high expectations it set, and it becomes clear that Vimeo’s future is bright.
Vimeo may be smaller and have a lower market capitalization, but it has achieved a difficult feat: getting millions of users to pay for content in the digital age. Vimeo acquired VHX back in May to absorb a successful over-the-top subscription model and boost its video-on-demand business.
Building from this success, interim Vimeo CEO (and permanent IAC CEO) Joey Levin will work to
“fuel this system with marketing, programming acumen, product innovation and the raw energy and unbridled ambition of a disrupting start up.”
Why an Acquisition Makes Sense
An advisable move for both MSOs and MVPDs would be to investigate an acquisition of Vimeo. IAC felt out a potential sale of Vimeo in 2012, giving it a $300 million price tag, but ultimately passed on offloading the streaming site. Since then, Vimeo has grown its network, earned three oscar nominations and one Emmy nomination, and even saw one of its original shows picked up by HBO, which suggests its value has significantly increased.
IAC has a long pattern of buying and selling companies like trading cards. If AT&T came to the bargaining table, it could likely walk away with a rising platform business and scale it up to transform the industry in its favor. Hypothetically, AT&T could drop $2 billion on the deal and IAC wouldn’t bat an eye at letting go of Vimeo, a much cheaper deal than AT&T’s $67 billion purchase of DirecTV and the $109 billion acquisition plan it has for Time Warner.
At this point, acquiring Vimeo would be the most strategic move, not only due to costs, but also because building another streaming service from scratch won’t be easy since the field is already relatively crowded.
For MSOs, buying Vimeo would give them a low-cost platform for creating content it can then distribute globally without navigating the pain of regional distribution rights. Additionally, this would enable the acquiring MSO to keep MVPDs under its thumb with a scaled-up online network for content production and consumption.
MVPDs should also look at purchasing Vimeo from IAC. Again, it would give them a low-rent model for generating content, a dedicated audience that pays for ad-free content, and an opportunity to gain some independence from the MSOs, who they typically rely on to deliver the content to viewers.
In addition, larger streaming services such as Netflix and Hulu should seriously consider such an acquisition, too. Since they don’t currently employ a platform business model, they don’t get to enjoy the benefits of network effects and lower marginal cost. Buying Vimeo would help them build a more scalable business model. While Twitch and Vimeo are vastly different, Amazon’s launch of Twitch Prime proves that acquiring a content platform can be potentially lucrative.
While Vimeo hasn’t given out a ton of specifics on its new subscription model, it has certainly become a force for reckoning from the bigger players, all thanks to its genuine platform approach and curation of a highly engaged audience and network of creators. For the rest of the industry, the smart money will go toward an acquisition.