With $120M now in the bank and an ex-Hulu CEO at the helm, Vessel is a video startup that might just work
As the streaming content space becomes more and more crowded -- with new offerings from Apple, YouTube, and Tidal (LOL) joining existing players like Spotify and Deezer -- many platforms have looked to differentiate themselves by offering exclusive content.
After all, this is basically the entire value proposition of Tidal. And it would be very surprising if Apple, which has already created huge windfalls for artists -- and itself -- through iTunes exclusives, did not incorporate a similar model for its upcoming revamp/overhaul of Beats Music. Meanwhile, YouTube has taken a different albeit related tack, requiring that its partner musicians not offer exclusive content through any other services in order to kneecap these efforts by competitors.
But for artists, exclusive distribution deals aren't always so attractive. Take Jay-Z's Tidal, for instance. In return for gaining exclusive access to certain content, Tidal promises higher royalty rates (though it's unclear how artists with the same crappy label deals across every streaming service will make more from Tidal) and in some cases startup equity to artists willing to strike these deals. But with no free option and without the cash needed to launch a big and sustained marketing push, Tidal is going to have an enormously hard time attracting users. That's why Kanye West, whose biggest ambition at this point is achieving ever-greater cultural relevancy, is never going to limit the listenership of his next album solely to the 200-or-so people -- likely all industry insiders -- who end up signing up for Tidal.
And as a result, the only exclusive content Tidal's been able to convince artists to offer are oddities and outtakes, like Daft Punk's 2006 "film," Electroma -- which really gives new meaning to the word "exclusive," considering anyone can easily find the experimental bore-fest on YouTube for free. It's a vicious cycle: The "exclusive" content isn't good enough to attract users, and there aren't enough users to attract truly exclusive content that anybody wants to hear.
But Vessel, a video platform launched by ex-Hulu CEO Jason Kilar to compete for YouTube's eyes and talents, may have found a solution to this conundrum in a practice that's as old as home video: "Windowing." And with a new $57.5 million funding round announced today led by Institutional Venture Partners (IVP), one of the most prominent investors in digital media, Vessel has everything Tidal doesn't: A proven startup founder, a ton of cash, a seasoned investor base, and a strategy that isn't dead on arrival.
"Windowing" simply means offering content through exclusive -- usually paid -- channels for a limited amount of time before making it available across every platform imaginable. This practice is hardly new or novel: It's used with the most familiarity by movie studios who have historically released films in theaters for a few weeks before making them available through on-demand marketplaces, home video, subscription streaming services, and finally cable TV. And while windowing is receding in cinema as more and more high-profile films are released directly to iTunes or Amazon, it's become more common than ever for musicians. Both Taylor Swift and Beyonce made millions by selling their records exclusively through iTunes for two weeks before making them available on streaming services.
But Vessel is perhaps the first service to launch with a business model focused entirely on windowing. Its ambition is to convince YouTube stars -- who are considered more relevant among teens than Hollywood movie stars -- to make their videos available exclusively on Vessel for 72 hours before posting them to YouTube or other video platforms, at which point they can reach those huge audiences that Tidal-style "exclusives" will miss. In return, Kilar promises video-makers higher payouts and, unlike Jay-Z's pitch for Tidal, cites concrete numbers, telling the Guardian in February that while YouTube only generates about $2 or $3 per 1,000 views, Vessel projects that it will offer more than $50 per 1,000 views.
How? Because Vessel users will be required to pay a $2.99 subscription fee each month. And while one of the most oft-repeated memes of the digital age is that "no one pays for anything anymore," that's not exactly true. Sure, very few people pay $120 a year for Spotify or Rdio, but that's because the average consumer never paid $120 a year for music, not even in the days of $17 CDs. For a better indication of how much modern consumers are willing to spend on content, Apple claims that the average iTunes account spends $48 a year on music, which is more than the $36 a month Vessel charges. Furthermore, thanks to video rentals, cable subscriptions, and now Netflix and Hulu, American consumers of all ages are more accustomed to paying for access, as opposed to ownership, when it comes to video than music.
That doesn't mean users will definitely pay for Vessel in droves. First, the company has to secure deals with the hottest YouTube artists -- which may be easier said than done considering YouTube recently introduced stringent new rules that bar partner-creators from releasing a piece of content on any platform before it hits YouTube. And while Netflix and Amazon have proved that tech startups can be just as capable of finding and fostering talent as Hollywood studios are, audiences are notoriously fickle and there's no guarantee they will respond to what Vessel puts in front of them.
Nevertheless, Vessel has a lot going for it -- like having now raised over $120 million in venture funding from huge names including Benchmark, Greylock Partners, Jeff Bezos, and IVP, which has invested in Netflix, Snapchat, Dropbox, and Twitter. Meanwhile, not only has Kilar already proven himself as an online video pioneer as CEO of Hulu, he also has experience and connections in Hollywood, serving on the board of directors at DreamWorks Animation. Sure, startups with even more funding and higher pedigrees have failed colossally. But with an overarching strategy and price point that make sense in the digital age, there could be exciting things on the horizon for Vessel.
[illustration by Brad Jonas]