Why The Least-Talked-About Aspect Of The Dish Sling TV Is The Most Important One

Editor’s note: Pete Borum is the co-founder and CEO of Reelio, where he oversees the business, creative, and engineering teams that power branded content partnerships on YouTube.

Among the many new technology products and services revealed at this year’s CES, perhaps none has gotten more press coverage than Dish’s new Sling TV service. As multiple outlets have reported, this $20 per month subscription service gives subscribers access to TNT, TBS, CNN, Food Network, HGTV, Cartoon Network, Adult Swim, the Disney Channel, ESPN and ESPN2 — without the need for a separate cable subscription.

While the decoupling of these channels from cable is definitely noteworthy, to me the most interesting aspect of this new offering is one that few people seem to be talking about at all: the inclusion of the new Maker Studios channel.

In my last TechCrunch article, I discussed why Disney and other major media companies have been buying YouTube Multichannel Networks (MCNs) like Maker Studios. I predicted that they would leverage their vast distribution networks, production expertise, and relationships with advertisers to grow the value of MCNs and to create a whole new class of YouTube celebrity.

For content produced by these YouTube superstars, advertisers will finally begin to value their content — regularly viewed by millions of loyal and passionate fans — at the same prices that they would for similarly sized audiences on television. I also talked about how, as this shift happens, it will continue to blur the lines between YouTube and television in a much broader sense: Larger ad budgets from Madison Avenue will attract higher quality production and storytelling talent from Hollywood, and the two will increasingly transition their mutual courtship from the world of television to that of YouTube.

It is in the context of this transition that the Maker Channel on Sling TV is such a big deal. This is the first time that content from homegrown YouTube talent has been bundled alongside content from traditional media icons, as well as the first time that content from so many cable channels has been made available on the same screens that YouTube has thus far dominated.

Before delving into the implications of this trend, a little background.

Over the past five years, TV advertising has seen a 5 percent compound annual growth rate, with blue-chip brand spending hitting $108.6 billion in 2013.

Despite this growth, consumption of traditional TV has fallen 10 percent. Many brands are starting to realize they’re paying more and more to get less and less. Meanwhile, 2013 was the first year digital ad spend surpassed TV advertising, and online video advertising is predicted to continue growing 21 percent per year, with YouTube octupling its revenue over the next 10 years.

With several big brands like McDonald’s and Priceline.com planning to shift up to 25 percent of their TV advertising budgets online, it makes predictions of a $72 billion (that’s billion with a ‘B’) drop in TV advertising more believable.

Television networks and other major media companies see the writing on the wall, and they’re protecting their interests by buying multi-channel networks — aggregators of YouTube producers and talent that can bring in major advertising dollars.

For the advertisers, these acquisitions give them peace of mind: they can work with the same people at the media companies they’ve always worked with, transitioning ad dollars from TV to digital smoothly, while maintaining the ability to shift those dollars back if it doesn’t go as planned.

For the networks, it gives them the chance to maintain control over those ad dollars as brands accelerate their transitions from TV to digital. The addition of of Maker to Sling TV, then, serves as a bridge – attracting young teens and twenty-somethings to the service and introducing them to cable channels that they had long ago stopped watching (if they ever watched them at all), while introducing television advertisers to the content that has so successfully held this valuable young demographic captive for the past several years.

Now that you understand what has led to the integration of Maker into Sling TV, here are a few of the implications:

1. Ad teams at Disney will be able to sell cross-channel packages to advertisers that value Maker Studios content at the same rates as television content – a huge step up from the lower CPMs that have bedeviled YouTube and its content creators in the past.
2. The Maker Channel will become an aspirational destination for Maker’s smaller channels, much in the same way that Second City has served as a talent incubator and funnel for Saturday Night Live all these years.
3. The division between the ad revenues on the Maker Channel and on other content produced by Maker’s talent will deepen the rift between the haves and the have-nots (i.e., Maker’s talent who are large enough to make it toSling vs those who are not yet) and the cans and cannots (i.e. major advertisers like Pepsi that can afford to advertise across Disney’s multi-channel bundles and those that can’t). As Disney focuses increasingly more on these more profitable upper tiers, smaller channels and advertisers will increasingly pursue opportunities outside of Maker and the other MCNs.
4. As networks segment their content offerings, brands will also segment their ad spend across premium bundled content and other unbundled video content at lower price points. This will put pressure on prices for the premium tier, and the growth in quality of online video will dilute the scarcity of premium ad inventory on channels like ESPN and HGTV. Prices will revert toward a lower medium.
5. As this happens, networks will find more and more of their revenues coming from the mid- to long tail of their content than from their flagship programming, and their business models will become much more like Google, Amazon and other pure-play online businesses that depend on long-tail revenues to finance major initiatives and investments.

What this means for smaller brands and YouTube creators

As networks pour money into MCNs, we can expect to see more large brands spending big budgets on content from YouTube stars. Many of these brands will take things one step further, realizing that, now that the media companies don’t control the distribution channels the way they used to, they can eschew networks altogether and become media companies themselves (see AT&T’s recent acquisition of Fullscreen and Verizon’s recent bid to acquire Aol).

This is all exciting stuff, especially if you are a big advertiser, a big network or a big YouTube star. But what about the rest of us?

If you don’t have enough money to advertise on ESPN or the Maker channel, or enough YouTube subscribers to create shows alongside Disney’s premium channels, then this is still great news for you. In the YouTube landscape, there are millions of original content creators with the same talent that made YouTube valuable in the first place.

Likewise, there are millions of small- to medium-sized businesses to work with (e.g. Facebook has more than 1 million advertisers; Google AdWords has more than 2 million, and by definition, these are businesses spending money online). And there are increasingly more options to connect these parties.

The worlds of YouTube, publishing and advertising are large enough, diverse enough, and growing quickly enough to enable all parties to implement their own version of the strategies that Disney, Maker and AT&T are pursuing. This is not a trend for a few brands with deep pockets. Any brand can get a direct path to its audience and replicate big-budget initiatives at a cost that makes sense. The key for brands of any size will be to move on their digital content strategies quickly.