Vertical Temptations

The latest media industry narrative making the rounds in fundraising decks and conference panels is the growing excitement around "vertical video."

The term blurs two different concepts. At times, it refers to micro dramas: serialized, made-for-mobile shows with short episodes and low production costs. Elsewhere, it refers to the broader format of social video that dominates TikTok, Instagram Reels, and YouTube Shorts. Most of the major Hollywood studios have begun referencing vertical formats on recent earnings calls as a growth vector. In our view, the hype conflates the format with the underlying economics.

In a recent interview, industry veteran Hernan Lopez sized the category at roughly $100bn of annual revenue, with Meta's Reels alone contributing $50bn. He also noted that on a revenue-per-hour-of-engagement basis, Meta monetized its viewing hours at roughly five times the rate Netflix did in Q4 of last year. The takeaway should be a reminder of how good Meta is at advertising, not that vertical video has necessarily become a TV-grade ad medium.

However, Hollywood has a recurring habit of mistaking distribution characteristics for content economics. Netflix worked and everyone launched a streaming service. YouTube scaled and everyone became enamored with having a "creator strategy." Now that Meta, TikTok, and YouTube have built large businesses around short-form vertical video, the temptation for traditional content producers is to assume the answer is to make more vertical content. We think the closer parallel is the wave of digital publishers who chased Facebook's News Feed with clickbait: a few thrived, but most became overdependent on a distribution channel they did not control.

Micro dramas may turn out to be a real format on their own merits. Production costs are low, testing cycles fast, and serialized cliffhanger storytelling pairs well with habit-forming distribution. The soap opera analogy Lopez and others have drawn is fair: cheap, repeatable programming built around frequency and audience habit. The open question is who captures the economics once the model depends on paid user acquisition, platform algorithms, and constant content refresh.

A handful of good businesses will be built here. The durable ones will share two characteristics: content that audiences actively choose and engagement that repeats without dependency on an algorithm. While the format will continue to get the headlines, ultimately the majority of the economics will accrue either to existing platforms or to the content that fans come back for.