Studio71's Reza Izad Gets Real About Digital Video's Challenges

all those eyeballs. Has never been easy, but Azad is a veteran of the digital video world who has steered Studio seventy one and some innovative directions that we'll talk about. Thanks for coming in, Reso, Thanks for having me. So let's do some level settings Studio seventy one. It's not as simple as just selling ads against video. No, there's

a lot more to it than that. But um, we're essentially one of the world's largest distributors and producers of short form content, and so you'll see our stuff on YouTube, Instagram, Snapchat, Facebook, and we are essentially a B two B brand, so you may be watching our content so like on YouTube every month, about one and three Americans watch an hour and a half of our content every month. Our brand does not follow. It's a lot of our partners or content or brands that are housed within sort of um

our group. So we're some of those brands are world Star hip hop is a good example. You just listed a bunch that are you know, really powerful. I think you know, the Fine Brothers were producing a show called This Might Get So there's there's a bunch of content. It's coming from a lot of places. I mean, every month we're publishing a little over twelve thousand pieces of video content just on YouTube, and another when it's all sliced and diced, another thirty or forty thousand pieces across

the rest of the web. Um So it's it's a huge volume of content that we're putting out there. So give me your sense of where we stand right now here in mid to late in this digital video ego system, which seems to me to be you know, pretty stormy weather. Absolutely like if you look at it in the the macro, it's all up and to the left, but when you look at it in yearly Micro's it's it's a very very tough business. Um I think a lot of our competitors and ourselves you know as well, have had to

really level set what this business is. So I came from the you know, the management side of the business, as a lot of people who entered in from tech and other sort of traditional players of it. Well, we'll talk a bit about that because the history of TWODO seventy one is interesting. You started as a management company.

We were the collective. There was a management firm. We had about hundred and twenty employees, and we represented Lincoln Park and Kanye West, a lot of music talent plus you know, mainstream actors like Emil Hirsch and Martin Lawrence and a bunch of folks like that. So yeah, it started with that foundation. So it was talent first, was the foundation, and the thesis of the business was that

all this disintermediation that was happening. So when Michael Green started the company after the firm, it's like mid two thousand's and you know, the there was I think my Space was around. I think a lot of these earth platforms that we're talking about today we're just emerging, and it was clear that there was gonna be a way that talented people could go direct to consumer. Um, we thought it was going to happen in music. That's why we had such a large emphasis in music because of

the disruption of Napster and iTunes and whatnot. Um. But the reality is, for us, it happened actually in digital video. That's where we saw the biggest opportunity to sort of grow a business. And once we figured that out, UM, Michael was very clear, um in terms of let's let's make that our core sort of mission. So it was kind of like a pivot at birth. It was a pretty interesting pivot. Yeah, we've been the management firm for about six or eight years. Um, we identified that we

were gonna there was this hyper growth opportunity. Took us about two years to sort of really unwind the management business. But that's essentially what happened. And fast forward to you know, we talked about the stormy weathers. How are you running a diversified business, talk about the different ways you're making money, because diversification it seems like if you don't do that today, you're dead. Um. So look, the irony is last year

it was brand safety. This year, what you're seeing is the impact of all these O T T players that went out of business at the end of last year really sort of choking a lot of the economics of the ecosystem. So when you look at the business, it's you've got to have a very large, scalable advertising business play, which means you have to be good at media and

packaging media as part of what you do. Branded content is an adjacent sort of business that that is, you know, rides alongside that, and those are big parts of what we do and where we've spent a lot of time. And then you have to understand I P UM and and content creation. UM. That's how we actually fell into the business was we co produced the Fred movies with Brian Robbins and then did the Annoying Orange and video game High School, so we started you know, I P

was central to what we were doing. UM, what we've seen in the last year is a shrinkage of that market. So when Go ninety goes out of business and see so and watch a bowl and there's a much longer list than that, UM, you get contraction, which is sort

of what we're seeing here. Last year the struggle was navigating through UM the brand safety issues that we're running havoc that I think still continue to sort of Yeah, talk about the ecosystem, talk about how studio seventy one encountered all that, my guesses, is a lot of technology at work now to make sure that marketers are protected when they're placing their dollars with you. We we built a tool called Studio seventy one context and so it's

not just technology, it's technology and people. So when when you release, you know, we'll call it fifteen. And we're very focused today on YouTube media. I think that will change over time. Um, but when you're focused on on a platform like that, you have that much of a sort of a release schedule, you can't have a traditional standards and practices department. People go insane. So what we had to do is build technology that would actually avoid out videos that we know are not brand safe. And

there's the parameters. I think the market in terms of just brand safety. Maybe this is the big topic is what is brand safety? Is the first thing that's that I think is unclear in this market. And so I think everyone's in agreement that hates speech and you know, things along that line, maybe overtly sexual pedophilia, you know, all the things that are just beyond the pale that that stuff is easy, but when you get into the rest of it is is you know the effort, Okay,

how sexual can the content be? All that sort of stuff, And given the market swung so heavy in one direction, we decided to take attacked with context that we were going to make a sort of PG thirteen and G rated products. So it's very very safe, not unlike primetime network tv UM and in some cases maybe even less

so like less edgy UM. And so what that product does through two means of technology and then people on the technology side, we take all the text data that comes off, including including closed caption, and then we use some image recognition software that Amazon and Google. We prefer the Google product where we scan all our videos for drug paraphernalia, guns and all the usual stuff. And this stuff works. The stuff work is is actually very accurate,

but what drives the accuracy is actually people. So then we so we we discount a lot of stuff. So you say a bad word, there's guns, or there's something that we find objection able, you're already self selected out. So in theory, what what the people that are working for us, since a team of about twenty people are looking at are things that we think our brand sake,

but we don't. Peter doesn't know yet. And so we have about twenty twenty sort of data points that we try to add and and can try to contextualize, so like contextualizing a gun. So there's a radar gun, there's a NERF gun, and then there's a handgun that's been used in a violent act, all very differently different um sort of outcomes in terms of brand safety. And so the people are trying to train the computers what those are, and hopefully they're selecting more and more stuff that's just safe.

So before we traffic in an add a person looks at that's our final sort of step in the brand safety process. And I would imagine this technology has got to be table stakes at this point, for it is table stick and and the interesting thing is there's not that many companies that have the video scale we have in the data we have that could actually execute or create something like that. UM. So it's so we're not the only ones with the product, but I think we're one of one of two or one of three with

this type of tool in the market. But you're making money in other ways besides advertising. I mean, even e commerce I'm hearing is becoming part of the mixed for you guys talk about that. So look, some let's just talk about the core of the business. Right. It's these

talent that the talent that's creating this content. So wherever there's an engaged audience and wherever there are people that care about something, there's an opportunity, if done right, to market and create merchandizing or ancillary product around around that. And so we've been taking advantage of that opportunity for some time. UM, we've kind of found an interesting you know, niche. We've gotten very good at the collectible space, which is

not how I anticipated our business evolving. We have um, we have a we have a channel called Guava Juice where we sell toy boxes every quarter. Um. You know, we've sold almost three or four hundred thousand of these boxes over the last few years, and you know, we've done very well with that. We just put out a mobile app with them that we're about to you know, announce a fairly large license probably you know, a deal around so so that that business has gone very well,

but it's very much um. He speaks to a very young audience, and these are toys every quarter than they get in a box. UM. We have a we have a talent called Sanite and Happiness, where a year and a half ago we did a kickstarter with them we did over three million in sales um and that has that the success of that it was it was a card game, has led us into a number of sort

of gaming opportunities. So just this past month, uh, there's a very famous sort of indie video game called The Binding of Isaac and we just we just completed a massive kickstarter there. We did raised two point six million in thirty days and we expect that to have a fairly long distribution life in retail in a bunch of other places. So we've actually gotten more collectible. I thought we would have been package goods or T shirts. Our business has grown in a in a in a different

niche and it's but it's an unpredictable business. It's hit driven and therefore our hits have been in this space and so that's why you know it's defined that way today. Also, I mean you're working with influencers, which from you know, obviously we've seen them amass some great audiences, but not without a real struggle. There's lots of sort of industry anecdotes about how difficult it can be to work with town like this, how do you insulate yourself? Well, first

of all, let's just talk about this talent versus others. Right, So, the original thesis of the collective is that disintermediation is going to allow creative people to go direct to consumer. That thesis when it plays out in video or in music or in any other sort of form, essentially you end up with a creative class that has not had to go through all the steps and all the collaborations that they that would normally they would normally go through

to be successful. Meaning Roseanne Are does not exist without ABC putting her on TV and so on, right, Um, And so therefore there's a standard there hell too that when ABC canceled the show, it's gone and all of that sort of stuff. On the endverse, Beauty Pie can go around saying whatever he says, Disney can't cancel him, right, right, so Doesny was their impact? Absolutely? But but but you

know he's able to continue on. And so in a world without those business consequences for behavior, you definitely have um challenges in sort of managing and working through that. That being said, when you when you really want to the sort of the cream sort of rises to the top. The reality is those that are super successful, and I

know we use beauty pies an example. The reality for the most part is that the top layers is a fairly professional class because they have been over the last five years working with brands, delivering on time, creating content for third party platforms, taking notes and all of that sort of stuff. I think where the where the tension is is where the biggest tension is when the expectation of the partner is not in line with the reality of the talent. The partner being any at any third

party right. And so a TV example would be, well, we're broadcast, we should have these rights in deal making, or we should be able to control this because we do with all our other on air talent, or however that may be. The reality is you don't get that control because as somebody who's built a massive opportunity outside of you, or a brand that thinks they're making a commercial when what the talent thinks is a brand of content deal meaning you're coming into my show, you're coming

into my environment. I'm the one who's sort of going to be lending you my credibility in the segment. That's where a lot of the friction is um in in in managing this sort of market place. In the branded content side of things. It seems like a lot of people in the industry are complaining about how chaotic that is with regard to representation of this talent. So many different people claiming to speak for you know, influencer X.

How do you deal with that? Oh, it's that. So that part of the market is very high growth and barrier to entry is almost zero, right or very limited, So we we have whereas on the media side, on the content side of the there's there's just much higher barriers to entry. So it's very confusing. On two sides.

You've got I think a buyer market that has not figured out who owns the football and in media or in creative, in strategy and PR, there's firms that actually own the capability and the expertise and the market knowledge. In branded content, it could be the brand, could be the creative agency, it could be the PR firm, it could be some specialist. So so the fact that the

by side is so fractured is one problem. Because r o I, which is what every CMO talks about when they have to ask for budget and all that when you when you disperse sort of the expertise across a bunch of agencies, you end up with with people who don't have the same measurement, the same expectation, the same

quality control, the same standards. So the BY side needs to fix itself, I think first before the cell side organizes itself and the cell side is everything goes right, it's whoever gets the client first, and what the challenges on the for the talent is. You know, some version of pricing is all over the place, multiple people representing you, and when you go back to the sort of the perception problem that this talent may be difficult to work with.

Um nothing like a mismanaged representative in the market to sort of further that to cement that reputation. And so I in talent needs to take a little bit of control in this at the moment, and I think the BY side needs to to sort of clean itself up, which I think over time, as things grow, um, it will have to. So you're hopeful then for change. Well, look two years ago it was a billion dollar business.

You know now that they're saying it's two and a half billion, and it's growing at you know, pretty fast, um kigers and these are you know, McKenzie and analysis of the market. I think at some point cmos are gonna go. You know, I can't put fifty million to work and get like a PR response, a creative agency response, and a media response for the same problem. This is not and so I think everyone needs to figure out what is it and how are they going to measure it?

And once that happens, I think I think the cell side will also clean up. Because today anyone can get to anyone through any door. I think that there's not a lot of vetting going on. What's also interesting about Studio seventy one is your ownership structure. A number of international companies have stakes, and you talk about how that came to be and how that positions you in the market. Right, So this business is whether you like it or not,

or want it to be or not as global. Um. When we talk about I think we're now at nine and a half billion views, that six of them do not happen in the United States, UM and so, and when people complain about monetization of digital, one of the realities is the US market actually even just Google on

their own does a decent job doing it. It's when you add the UK, Germany, Saudi Arabia, the Philippines, all the Brazil, other parts of Latin America where where there's where those numbers just are smaller because the economies and a number of other factors. And so our thesis was if we partnered in local markets with UM law large sales houses who also had a lot of content that was applicable in short form UM, we could build a really interesting global footprint that would lift all boats UM

and so we partner would proceed in UM. There there are the controlling shareholder in the business Germany. In Germany they're the leading one of the leading broadcasters of not the leading broadcaster in Germany and UM they were going along that sort of similar path UM. And I think what's interesting about the model is it's in Germany. In the US, I'm very I'm very digitally native UM with

with few exceptions in Germany. Half my content is actually mainstream prime time television and and day parts and news and a whole bunch of other stuff. But cut down to short form, cut cut down to short form, that's

exactly right. So it's it's the voice in short form, the voice of Germany in short form or Germany's next top model, or you know shows you haven't heard of like Galileo, which is their science show, or their news shows and stuff like that, and we bundle that with the best of the sort of digital creative community and

sell that as an ad package. Um and so over that that business model we sort of you know, are exporting from Germany into France with t F one and to Italy with media set And is there further growth expected there? Can we see yet more partners that get

expected in fairness a lot more speed. The turnover in broadcasters globally has been pretty pretty astounding, I mean in the executives executive turnover at the top where we were having our discussions, so I I would expect in the next year or so we will have further announcements along that way. But what we've done in the interim is, I mean in Germany in particular, we've really doubled down

on that concept. We're we're delivering you know, half the reach on most of the shows in terms of monetize

herble impressions on most of the shows. And I think we're really trying to figure out this notion and it's not it's not Studio sevenyone, it's it's Studio sevenyone really is part of the proceedings sort of entertainment vertical, trying to figure out the concept of you know, one reach number, right, so a single currency for total reach on a on a on a on a program, and and and so if if, if we're successful in really achieving that as a market standard, we believe a ton of AD dollars

are going to flow into the to the proceeding ecosystem beyond just broadcast and oinos. I thought of your company when I saw the news recently on what happened with Awesomeness TV, because you guys essentially emerged from that same corner of the ecosystem what was known as multi channel networks. So many of those companies like your own have certainly

you know, evolved or pivoted since then. What did you guys do right that they apparently, given what you see a drop from valuation to sale price, that is not a company that I think took a good turn. How did what went on here? When you lose Jeffrey Katzenberg and Brian Robbins, That would be one big check. It's just given how much value those two generated for that business, and they were shed when Comcast. I don't know the timing, but but but the that departure was clearly not good

for the business. And you know, I don't know Jordan all that well, but I just think he had big shoes to fill in that in that role. And I think secondarily, they were a little different than us from the perspective of that was a digital media brand and a production business. So they really sold production as their

core capability. Um. They didn't have the scale that we we have at all um, and so they didn't have the diversity so as as go ninety and others leave the market, I think it left a big hole in in there in their business plan, and I think that was that was really I think that was very, very challenging for them to navigate out of. But you guys have a production arm as well, you do some long forms,

some scripted, how is that going? We're seeing the same trends that that is a tough market for companies like ours today. I mean, I thought that for a while, the conventional wisdom was, Oh, there's Netflix, there's Amazon, there's gonna be Apple. So many buyers wanted his long form scripted, maybe not scripted. Is it not that simple? It is,

but but our cork. So if you think about what was the core competency of what we sold and what the opportunity was for us on the production side was Look, when we did the Fred movies, those were massive hits on Nickelodeon. That was a pretty big franchise that was successful. That was that was the early days of what became

Studio seventy one. I think a lot of people thought that was gonna there was gonna be a lot more of that translation where this creator class adds a lot of value for O T T is they can drive tons of subscribers and engagement in those ecosystems, and so that was that was a core capability of ours. What has happened when a lot of the market entrants just decided that you know, folded their their tents over the last year, the other buyers aren't looking for that in

the same volumes. So it's just our capability is still there. It's very applicable where we've actually transferring into businesses like podcasting, where we know we can generate audiences and have people engage with our content in a pretty pretty interesting way. But I think Netflix isn't dying to do a bunch of influencer content would be the answer to that. I don't know that Apple is um and so they're gonna do it in smaller amounts. So I think it just

makes it more challenging. So what instead of being a unique player or one of a small group of people who can execute in this realm, we're now in a long list of producers selling projects, which makes I think the world infinitely more difficult. So we're talking about giants like Netflix and Amazon, but we should really spend more time on the giants you deal with on the ad

support inside. You mentioned you're still very YouTube center centerance company, so you know, give us the status check on them. But Facebook, Snapchat, how are these partners evolving? So so let's let's let's just take YouTube. YouTube is obviously continues to grow and user engagement because I think at some point, you know, I think it's two billion monthly people. It's quite a few people. At some point. I don't know if there's gonna be more users on the platform at

an exponential growth. But the watch time people, the amount of time people are spending on that platform continues to grow in a very very healthy way. And so if you want to reach as an advertiser eighteen to thirty four year old demos and below right we'll call it twelve to thirty four, I think you're gonna be hard pres us finding video inventory of that scale UM on other platforms. I think it's just going to be very, very very challenging UM. So they're for all for for

the long term, they're looking great. And for us, there are great there are best partners. That relates to that. They're ad technology is really good, their content claiming technologies incredibly you know solid. So it works for business like us to be on a on a platform like that where we're seeing other growth in video that we're like super excited about, areas like O T t um we are. We've been publishing a ton of apps, not not a single We're not focused on a single brand because that

that just wouldn't fit into our business model. But we have like sixty or seventy apps, for instance in Roku, ranging from family entertainment to gaming entertainment, animation and things like that, and we've seen a pretty pretty heavy pickup and not only ad revenue but viewership on that platform, same with M with Amazon Fire UM and and other sort of connected devices UM and, so we expect to be selling more media UM through that platform, you know,

towards the end of this year and next year. So we see high growth for us in monetizing O T T traffic UM and probably like we did on the YouTube side, will be part of it will be our own distributed content, and part of it will be third parties so long as it sort of hits that youth culture topic. UM. Facebook doesn't allow us to monetize advertising where we're the seller. We do have brands on the platform. I think, you know, some are doing well, some are

not doing well. I think it's very much hit or miss, by the way, not similar to YouTube. I just think they're not as advanced as it relates to video and video monetization. But we we have high hopes for them to sort of really get that right over the next year or two, which I would assume they will. UM. Instagram TV is super interesting. We're seeing a ton of engagement there. Again, not monetized today, but we really like

the platform. And on Snap you know, Snap is is by invitation only, right, so we've been like the guys in the and I had to describe us like, you know, the guys outside the nightclub, like please get me in, um, But we're finally getting it. So we were just you know, starting to produce a channel with world Star Hip Hop um for for Snap So that'll be our first foray um in there. And you know, again another very highly

engaged environment. Um. Despite all the monthly active user issues and all the growth issues that are in the public market, when you really get down to it, there's just the people that are on that platform are consuming a ton of content. So it's a good place for us to be.

So I mean one last question. These issues that you just cited, uh, any that we haven't talked about yet that are notable that you're saying anyone who's in the digital content game right now is focused on Well, look, Um, if you think about what I think is going to happen, then the question is who When you're starting to see what Viacom is doing, you know they bought who say

they bought vid Kan They've got awesomeness. Now, Um, I think you're gonna see consolidation in this space, um, just because of of all the issues and the variable sort of we've discussed UM and I think that's you know, definitely the drum that is beating the loudest in the market is that this business you know, you know, look, we talked about nine and a half billion viewers views a month and all the stuff. The reality is we're

we're very small when compared to any media company. Right, We're in the hundreds of millions of revenue, not not billions, and so you know, in order to have scale in the market where you're dealing with giants, we gotta get a lot bigger, and still it will be relatively small to add the services are brand partners need the services our talent, you know, partners need and to to service the market. The markets, there's gonna be fewer but larger businesses.

And they may be inside companies like a Vicom, or they may be um, they may be independent that that that I don't know. But you're sizeable enough where you yourself at Studio seventy one could be an acquisition target or do guys, I well, we already have we already been acquired, we already have partners. The question is how do we get bigger faster? Is really the question I think we have as as we get into this space, and we'll see how that plays out in the coming year.

Thanks Reside for coming than for having me again. That's been another episode of Correctly Business. Tune in next week from more interesting conversations with some of the brightest minds and media. Let us know what you think of the podcast. Either drop a comment to the iTunes store or send us an email at podcasts at variety dot com. There