Vessel subscription service looks to reshape economics of online video

Vessel subscription service looks to reshape economics of online video
Vessel, billing itself as the "first window" for video built to live online only, expects to deliver bigger payments to content owners through a mix of subscription and advertising revenue. (Vessel)

The teenagers and twentysomethings whose devotion to the stars of YouTube has forged a new class of celebrities will soon encounter a new way to support their favorite video creators.

A growing contingent of videomakers plans to post videos to a new subscription service at least 72 hours before the same videos go live on YouTube or elsewhere on the Web, the well-funded and much-anticipated start-up Vessel announced Wednesday.


Whether the key demographic of 14-to-24-year-olds sees $2.99 a month as being worth that early access to fresh content could determine what video built for the Web looks like for years to come.

Vessel, founded by Hulu's founding chief executive Jason Kilar and its former chief technology officer Rich Tom, is banking on a mix of premium advertising and subscription revenues to pay video creators at least 20 times more than they typically make from advertising revenue alone on YouTube. Vessel calls itself a "missing piece of the puzzle for content creators," and one that's not going to displace nonsubscription video services.

But with fattened wallets, the content creators could afford to splurge on fancier equipment, locations and crews to make the quality of online video more competitive with broadcast television and films.

"We believe Vessel can empower creators to build unusually valuable video businesses online," Kilar said.

Kilar, Vessel's CEO, pointed to a precedent for people paying a premium for early access to content: Movie ticket prices exceed the cost of the DVD that follows, which costs more than watching something for next to free on television much later.

"There are many fans across the world who want early access and they are willing to pay for it, and there are many fans who'd rather wait and that's totally fine," Kilar said. "The film industry was very savvy to provide different products for each of those types of consumers."

Dozens of YouTube stars have built sustainable businesses off their online personas, Kilar estimated. Sponsorships, event appearances and other outside revenue often drive their financial success. Others are "graduating" to traditional TV or movies in search of bigger paydays or wider stardom.

But tens of thousands of hard-core YouTube uploaders who are rely mostly on a split of advertising revenue face a challenge in creating enduring businesses, Kilar said.

On Wednesday, Vessel began inviting that group to apply to be part of its service. The company has already struck deals with a number of online video networks, including Tastemade, DanceOn and A&E Networks, as well as with individuals such as Marcus Butler and Ingrid Nilsen.

There's also an exclusive deal for a new series, "Alec Baldwin's Love Ride." Notably, Warner Music Group artists have the option to publish music videos as a temporary exclusive on Vessel. The start-up will have music from Sony and Universal Music and via Vevo.

"Whether it's big-wave surfers in Indonesia, 'Monday Night Football' recaps from Sports Illustrated, someone who wants to appeal to a 14-year-old with makeup tips or Alec Baldwin with a comedy for a broad audience, we've built Vessel for all of them," Kilar said.

The plan is to make Vessel's website and mobile app available to consumers early next year, giving content owners a chance to polish their pages in the meantime. Subscribers will have access to all content, not just their specific favorites. The initial focus is on English-language viewers worldwide.

The app, as seen in a demo on an iPad on Tuesday afternoon, appears slicker than Hulu and has a focus on personalization. Short display ads appeared between links to videos, and five-second video ads ran before videos. The advertising offering is commanding higher rates than normal for online video because advertisers are "very excited" by the premium feel of Vessel, Kilar said.

Like Hulu, even subscribers will see ads, but Kilar promised the majority will remain in the "modest" five-second range, unlike the situation at his former employer. The exclusive window also promises to improve the level of discussion in the comments section -- another selling point for fans, Kilar said.


After the exclusive window, content will remain supported by advertising but it will come available to embed on any website. Without the subscriber revenue though, content owners won't get that same 20-fold spike in revenue.

Sixty percent of subscriber revenue will be split among video publishers based on their share of the overall minutes of viewing on Vessel. They'll get 70% of the revenue from advertising run against their videos, about 24% more than the split offered by YouTube.

Vessel has raised $75 million in venture capital from Benchmark Capital, Greylock Partners and Amazon founder Jeff Bezos' Bezos Expeditions. Kilar, who strained to bring talented engineers to Hulu's headquarters in Los Angeles, said he based Vessel in San Francisco to tap into a wider network of potential employees.

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