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This story first appeared in the July 24 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.
Walk down a dingy alley in one of San Francisco’s revitalized neighborhoods south of Market Street, step through a garage door and past rows of engineers furiously coding and you’ll find Jason Kilar at his standing desk. The former Hulu CEO’s ambitious, Greylock and Benchmark-backed startup Vessel, which he launched in March with former Hulu chief technology officer Richard Tom, is seeking to upend the shortform online video ecosystem by convincing creators to give three days of exclusive access to their content to fans willing to pony up $3 a month. Vessel’s promise to content makers (including top web stars Ingrid Nilsen and Connor Franta) is that it will improve significantly on ad-revenue splits offered by other platforms — namely YouTube and Facebook. But critics question whether young audiences value shortform (less than 30 minutes) web content enough to pay to see it early, and creators worry about bifurcating audiences. Still, Kilar, 44, has a track record of proving detractors wrong. The Pennsylvania native and onetime Amazon executive transformed Hulu from a startup nicknamed ClownCo (for its “old media” owners 21st Century Fox, Disney and NBCUniversal) into the second-biggest online television service, reaching $1 billion in annual revenue and 5 million paid subscribers by the end of 2013, less than a year after he quit. And after moving from L.A. to the Bay Area to be closer to tech talent, he is growing the 50-employee Vessel. At the same time, his well-earned reputation for sharp industry critiques (he once blogged that TV ads are ineffective, a direct challenge to Hulu’s owners) seems to have softened a bit. Seated at Vessel’s headquarters, the married father of four and avid runner coolly discusses his strategy to get people to pay for Vessel and the value proposition of shortform video.
Three months after Vessel’s launch, how is it performing?
The good news is, there’s a whole lot of fan love out there. The second thing is how we are doing for creators. If you look at what a typical creator makes on the free, ad-supported web, it’s typically between $2 and $3 per thousand views. In the first 90 days on Vessel, those same creators, through early access, are actually making over $50 per thousand views. Granted, it’s only 90 days in, so I remind the team that this is a very long journey. If it goes the way the first 90 days go, we’re very encouraged.
How many people are paying?
It’s a fair question — and I’m sure there will be a point at which we do share how many paid subscribers there are — but one of the things that we want to be careful about is not to build this business in the context of the peanut gallery, week to week. Ninety days in, it’s too early to start chatting about that.
You are missing a lot of big YouTube names. Is your goal to have YouTube’s top creators also using Vessel?
We actually don’t think about it that way. When we built Vessel, we didn’t do it to try and disrupt an incumbent. We looked at web video creators and we didn’t think about a single platform — whether they were on Dailymotion or Vimeo or YouTube or wherever. There are a lot of creators and we think we can serve them in a new and different way parallel to these others. We also wanted to be very careful that we partnered with creators we could be very helpful for. Ours is an early-access business model, and there are some creators who produce video that is consumed over a long period of time. We don’t believe that that’s the kind of creator that we’re going to change the game for. The creators that should be in early access are the ones that have the kind of following that wants to consume it early.
Who are your competitors?
We’re in the entertainment business. We have created a service you have with you in your pocket at all times or on your tablet. The choice can be, “Should I open Facebook or should I open up Vessel? Or should I open Snapchat? Or Netflix? Or YouTube?” So, at a macro level, you could argue that anyone that’s doing consumer Internet-based services is a competitor.
Who in the online video space do you think is doing things in a smart way?
Reed Hastings and Netflix are executing incredibly well. Jeff Bezos and Amazon are doing a tremendous amount of things right through Amazon Instant Video and Twitch. Hulu is doing very smart things by investing aggressively. Facebook is clearly waking up to the opportunity of video. YouTube obviously has a tremendous position and opportunity in free ad-supported video. There’s a long line of folks behind them as well.
Parking is at a premium in Vessel’s neighborhood, so Kilar ditches his car several blocks from the office and rides in on his bike, which folds up so compactly, it can fit in his trunk. “No matter where I go in the Bay Area, I’ve always got my bike with me,” says the marathon runner.
How will the battle among Netflix, Amazon and Hulu turn out?
It’s going to come down to: How good are they as programmers? How good are they at original content production? And if the answer is that all three of them are very good, all three are going to do very well. If one or two or three of them is not good in the long term as programmers, that’s going to be a problem. But one of the wonderful things about original programming is that once you have produced Transparent and own Transparent, nobody can do anything about it. You own it. Kudos to Amazon for producing and owning that.
A few years removed from Hulu, what’s your take on that company today?
I am a huge fan of Hulu, and I’m a huge fan of the team behind Hulu. When you look at the businesses of Hulu and Netflix and Amazon Instant Video, those are businesses that require capital investment. Kudos to the Hulu team and the board for recognizing that and for investing in that business.
You had a unique position there with three owners. What did it teach you?
What I can certainly appreciate during [my time at] Hulu was the value and the importance of keeping people on the same page and investing the appropriate amount of time to make sure that your shareholders understand what you’re doing, how you’re making decisions, what you think is important. When there are tough decisions to be made, make sure that there’s a robust discussion and that you exit the room with agreement after a healthy debate.
Do you think of Vessel as a technology company or a media company?
Neither. Because if I answer one of those two, you put yourself in a box. I spent nine years in Seattle at Amazon.com, which I think most people would consider to be a technology-oriented company. Then six years in building Hulu with an amazing team that was a fantastic blend of media talent and technology talent with very strong media ownership. I would spend half my days on the studio lots in Burbank and Beverly Hills and the other half talking about technical infrastructure and how to think about algorithms and personalization technology. That is the nature of what we do, which is apply technology to improve media.
What have you learned from straddling those two worlds?
People in technology love the idea of winning an Emmy or an Oscar, or getting invited to those parties, whereas people in Hollywood love the idea of the market cap of the technology platform. There’s a lot to love about both sides of the river.
How do you explain to your traditional media contacts the value in shortform online video?
The first thing I say is, “Media is generational.” Somebody who is 55 makes a choice to turn on a remote and sit in front of a big screen and watch CSI, and that’s great. There’s business to be had there. Someone who is 25 makes a decision to turn on their smartphone and click play on something that is not CSI. That’s the difference. We have to step away from our biases based on how old we are and the kinds of media that we consume.
Who in Hollywood is forward-thinking about technology?
The ones that come to mind are [Disney CEO] Bob Iger and [producer] Peter Chernin. Those are two people that grew up in traditional media but have a tremendous curiosity about new things, including technology and the courage to actually wander into those uncertain territories.
Kilar picked up his note-taking habit during his nine years at Amazon. “I’m a big believer in absorbing inspiration in every direction,” he says, recalling that former boss Jeff Bezos also is known for documenting ideas in a notebook.
Because you ran Hulu, it’s logical to predict that Vessel will get into original content with traditional producers.
We’re building a platform such that content companies can build businesses on top of that, as opposed to where we buy an original and we own it. It’s very possible that could mean the creation of new original content down the road, but it’s certainly not our focus, just because there are so many big problems for us to solve still.
HBO, Showtime and others are unbundling with over-the-top apps. What do you think about the trend?
With traditional video, you’re going to see over the next 10 years quite a bit of value created by unbundling. HBO Now is a great example. They’ve done pretty darn well over the last 60 days by selling a la carte subscriptions to people who otherwise would never have subscribed. I did not subscribe to HBO for the past 20 years, but I do now because of HBO Now. What we are doing at Vessel is creating a simple bundle for the Internet, because in a world where you have to make 72 choices about subscribing to services, it can be daunting. You’ll do it for a couple, like HBO or Hulu or Netflix, but I don’t see subscribing to 27 different things. We want to help simplify the world for consumers. We think there’s real value in that.
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