Hollywood’s Inevitable Pivot to Vertical Video Is Here

0:04Matt Belloni:This episode of The Town is brought to you by Starz's Outlander. Everything has led to this. The final chapter of the time-traveling drama and cultural phenomenon starring Sam Heughan and Catriona Balfe is only on Starz. Vogue declares Outlander one of television's greatest love stories, and the rap raves Balfe and Heughan have perfected this on-screen relationship. Industry voters can access all episodes at starsfyc.com. This episode is brought to you by Holiday Inn by IHG. Everyone knows Holiday Inn, right? Or they think they do. Because though they have the same name, they've got a whole new energy.

0:42Matt Belloni:They kept the global icon status and upgraded pretty much everything else. We're talking modern rooms with real reset mode vibes. Spaces that feel like your living room. Just a little more low-key chic. And dining done right, from breakfast to dinner and drinks. Whether you're traveling for work or getting away for a minute, it's comfort that hits different. So yeah, Holiday Inn. It's a new day and a new stay. Book your next day at HolidayInn.com. It is Wednesday, May 20th. In the past month or so, Netflix, Disney, Paramount, along with Google and Meta, they've all promoted their vertical video products during earnings calls.

1:18Matt Belloni:Amazon, TikTok, and NBCUniversal, they announced new products as well. Many of these offerings are in the very early stages, but the genre of short-form content conceived and produced to be watched vertically on a phone is definitely a hot trend right now. By some estimates, it's a$100 billion a year business, about half of which comes from Reels, the short-form video product that runs on Facebook and Instagram. Reels is making as much revenue as Netflix these days, and everybody is chasing that engagement time, the holy grail of streaming. usually with user-generated content like workout videos or conspiracy theory talking heads, but also from some professionally produced original shows.

1:57Matt Belloni:And our guest today thinks it's only the beginning. Hernan Lopez is an analyst and former TV executive. He's been on the show before. He believes vertical video is not just a new format. It's a third separate audiovisual language distinct from television and film, albeit with much lower budgets. And that debate over vertical video is the same one we had about streaming video more than 10 years ago. He's hosting a vertical media summit in LA on June 3rd, so I thought I'd have him back on The Town to discuss this growth area, the genres that work beyond soapy microdramas from China, and whether people in Hollywood should be jumping on this bandwagon.

2:31Matt Belloni:From The Ringer and Puck, I'm Matt Bellany, and this is The Town.

2:39Matt Belloni:Okay, we are here with Hernan Lopez, who is the founder of Owl & Company, the consulting and data firm, former founder of well you're never a former founder but you are the founder also of Wondery which you sold to Amazon and before that a veteran TV executive welcome back Ernan a returning champion thank you for having me I'm very happy to be a returning champion okay so I wanted to have you on because wherever I go people are talking about vertical video and it's become this kind of catch-all. It's a way I feel like it's for Hollywood people to understand what the current state of mobile video is.

3:21Matt Belloni:And micro dramas are thrown in there and social media content is thrown in there. And when you add it all up, it generated a hundred billion dollars in revenue last year. That's according to your stats. And that's not even including China. And just to put that in perspective, that would be double Netflix. Am I correct? That is correct. The data point that really made me land on needing to size the total opportunity was when Meta said that they were making$50 billion run rate revenue in 2025, the third quarter. And that was up five times in two years and a quarter. So in the same two years that all of streaming grew profits and grew revenue and pivoted to profitability, Reels went from$10 billion to as big as Netflix all by itself.

4:18Matt Belloni:And that's just Reels. That's just the videos you see on the meta platforms. If you go on Instagram and there's a video that pops up, it's just short form video. And that does not include YouTube shorts as well, correct? That's right. When you zoom out to the vertical video category, the way I start to think of all of it as one audiovisual language is when I realized an analogy. Many people were conflating microdramas with vertical video or TikTok videos with vertical. And the reality is all of those are part of vertical video. Think of it if you had been watching a soap opera in the late 40s.

5:02You probably would not have imagined that the same box would give you the Super Bowl, Game of Thrones, The Simpsons, South Park. So the analogy is really soap operas are microdramas and vertical is television. There was film, there was television, and now there's vertical. They're truly three separate audiovisual languages with their own talent systems, their own business models, their own aesthetics. A vertical is the newest.

5:29Matt Belloni:But why is this a new what you call audiovisual language? Isn't this just a fancy way of referring to social video and clip culture and YouTube and everything that we've been talking about for 20 years since YouTube became popular? Like, why is this a whole separate category? The way I started to think about it in those ways as a separate category is when I realized that around the world for the last four years, the premium streaming apps, the Netflixes, the Disney's, the Amazons of the world, all around the world had been losing time spent on mobile, just as they were still gaining subs and they were gaining time spent on television.

6:13Whereas the apps that were leaning on vertical, either because they were vertical first, like TikTok, or they were incorporating more vertical video, like Reels into both Instagram and Facebook, were gaining time spent. And it really made me realize that this is not like a transition from black and white to color or from standard definition to high definition. This is a new language that includes today, yes, microdramas on all those short-form videos, but also includes vertical news, vertical sports, vertical comedy, vertical reality. For example, when the New York Times launches after many different attempts to get into video, the Watch tab, which is native, originally produced in vertical, all of a sudden, people start to engage.

7:05There's this app called WhatNot that pioneered vertical live shopping. It was making a billion dollars in revenue in 2025 on over$11 billion in valuation. All of those are different formats within the major category, which is vertical video. And that category is just getting started. It's not even 20 years old.

7:28Matt Belloni:So you're saying the mirror orientation of the video is separating it from the competitors in traditional video. The fact that it is vertical is what makes it appealing. That is correct. But why? I mean, this is like saying that, you know, something that has a different aspect ratio is going to be more popular. Is it just that we are so ingrained in the use of our phones that it has to conform to what we are used to on our phones in order to become popular now? Yes. The short answer. When I was at Fox, I kept telling people that just because we were able to convince people to watch movies on television screens, we thought we would be able to convince people to watch TV shows and movies on this tiny screen.

8:16And for a while, we did. People were watching television shows and movies on a small screen until they started to come up to find alternatives of quality that made the job of getting them entertained. And all of a sudden, today, you don't see people flipping their phones unless they're on a plane or unless they're watching a sports event or unless they're playing again. This is the natural way of holding a phone. And that, by design, it's easier. It feels more natural. Your phone is more balanced. So when people started to capture first photos, then videos that way, that gave rise to the new age of vertical as its own language.

9:01And now what we're seeing is the professional layer where studios, where creators, where entrepreneurs are coming together and are putting that format that was initially a consumer discovery into a business and an aesthetic and a new language.

9:19Matt Belloni:So obviously this is not new. There was Quibi, there was Go90, there was a previous generation of these vertical video apps. Those failed. And I believe you believe that it's not that they were bad products, it's just that they had bad business models. I think Quibi, it's been fairly talked about how they spend too much money per minute of production relative to what today vertical apps of all kinds are spending. And they also happened to launch just at the time that TikTok was going viral in the U.S. and taking all of that enthusiasm from consumers who are discovering something new. Go90 and other apps that have tried to go into both vertical and horizontal, they're finding that it's not as easy to convince somebody to turn the phone around for a number of reasons.

10:18The apps that are gaining the most time, in fact, this year I looked at the Sensor Tower data again last week, Instagram, number one, then TikTok. They're the ones who are vertical first or are leaning more of their time spent on the product into vertical.

10:34Matt Belloni:Yeah, but what's interesting is that those failed and you point to the cost of the content. And obviously, Reels and YouTube Shorts, they are heavy on user-generated, quick, cheap, almost no cost to make the content. But you also believe that there is a place for originals on these formats, that vertical video could give rise to the Netflix of vertical video or some version of a Quibi or Go90 that does make economic sense. How do you reconcile those two trajectories? Primarily because the business case has been proven first in China, but also globally. There are two apps, Real Short and Drama Box, that even though they don't report numbers, they're on track to make a billion dollars in revenue out of primarily vertical videos of several genres, including microdramas.

11:32There's a second universe of apps, TikTok being the latest example that is going to get into, has already commissioned their first original and launched first original microseries, a show called Screen Time, produced by Issa Rae's company. And in the last five weeks alone, you got Netflix, Disney, Amazon, NBC, TikTok, Paramount, all those companies either announcing new vertical products or launching new ones or talking them up in their earliest release. So you'll have three different layers of apps that will support professionally created at different budget levels, but professionally created scripted content.

12:24Matt Belloni:Yeah, that's the question, is what costs? Because the micro dramas, we did a whole episode on this. You can find that episode we did with Real Screen. But the cost of those shows is minuscule compared to what Netflix traditionally spends. So what is the cost structure going to be for the vertical video product produced by these traditional streamers? I think they're all getting very carefully into the space, realizing that they cannot make the mistake that Quibi made and other apps made of trying to spend their way into relevance by throwing big budgets, a project that were originally created for the television or screen of the movie and then got adapted into vertical.

13:12I think you're going to see an evolution very much like in streaming. We did not see the$20,$30 million per episode at the high level that we're seeing today 10 or 20 years ago. There's going to be a different level of appetite for spending by the different kinds of players, depending on what the goals are. And I think what we haven't yet seen is how the market is going to evolve while most of these apps migrate into a hybrid model of advertising supported and subscription. Today, most of them are selling shows individually through in-app purchases. What you're going to see in TikTok is that their model is primarily ad supported.

13:58and so is in a number of other apps that they own around the world. And for the Netflixes and the Disneys, when they do get into original production, I would anticipate that their shows, obviously without knowing exactly what a strategy, but I would anticipate that their shows are going to be included in their overall subscription.

14:20Matt Belloni:Oh yeah, of course. They're going to want to do what Reels did, which was bolt on to an existing addictive social media app and then become the video component of that app. I mean, that seems to be what the other players are looking at and saying, okay, if you're watching Netflix and Disney at home with your family at night, well, maybe we can follow you around all day and you can watch the vertical versions when you're on the subway or you're waiting at the dentist. And then we will capture more of your viewership time. I think not only time, they also are trying to capture frequency. All the apps are realizing that in order to deepen the level of engagement, it's not just about sheer watch time.

15:06Netflix has spoken about the quality metrics. Spotify has spoken about number of days per month. Getting more days per month requires a mobile strategy and to win in mobile, you really do need to have vertical. And another example, Peacock has announced that they're doing vertical live NBA broadcasts. They're just running some tests now. If you go to the app, you have to catch the game. But those broadcasts are produced like, which is one of the most difficult things to do. And they're exclusively created for the vertical experience.

15:45Matt Belloni:That's interesting. They should do a vertical version of SNL and other live events where you could watch it on your phone, same version, but just a different presentation. If you watch Instagram feed, the clips are actually adapted to vertical, right? The way that they organize the screen. Oh, right. Yeah, you're right. Okay. They're already doing it. This episode is brought to you by Hulu. Emmy nominees Steve Martin, Martin Short, and Selena Gomez are joined by Meryl Streep, Christoph Waltz, Renee Zellweger, Diane Wiest, and more to crack the case of their beloved dead doorman in the latest season of Only Murders in the Building.

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17:51Matt Belloni:That's what our audience wants to know. Who can I sell a show to? TikTok is already doing it. In fact, at the Vertical Media Summit, Don Yang, the head of Media Entertainment Partnerships, will be joined by the head of production of Issa Rae's company to talk about how they're inviting creators and Hollywood producers to submit projects for production. And they want to be the place where people go to get shows screen-lit. But all of the other apps, from Realshort to Hollywater to DramaVox, they're all commissioning shows. Fox just made an investment into Hollywater, the parent company of MindDrama.

18:34And as part of that investment, Fox itself is making 200 microseries. And again, they use the word vertical series because they're not all dramas. So you're going to see a year from now a much bigger universe of buyers. Peacock just announced two vertical reality shows. They're going to premiere in the summer. I think the number of buyers is going to increase very quickly. The question is how quickly the genres expand and to what levels the budget get to and what are the business models.

19:13Matt Belloni:That is interesting. The monetization is the big issue here because you have talked about this and others as well. Meta monetizes the viewing hours on their platforms at five times the rate that Netflix does. At least that was in the fourth quarter. of last year. That's correct. Why? Is it just the volume play? Because we're taught to believe that premium can command higher advertising rates. And Netflix has the subscription element. So why is it so much more profitable? Is it just the content cost is nothing? I'm talking about revenue before you even go into cost. But on a revenue per hour basis, Meta monetizes, as you said, five times the rate of Netflix, according to our estimates, because they have more ads per hour of engagement than anybody else.

20:13And those ads don't always necessarily feel like ads. They don't feel like interruptions. And they pair that with an ad stack that allows tons of clients who, advertisers who have never been able to create video ads, and now through the suite of tools and targeting, they're able to produce video ads. Those$50 billion run rate come from over 2 million advertisers that are using the generative video tools. But again, that's just meta. YouTube is also monetizing very effectively they're not uh in the they're monetizing and youtube actually does have a partner share program that pays directly to the creators a share of the revenue uh generated by the ads as as well as the music um owners a share of the licensing uh revenue yeah we had kareem

21:09Matt Belloni:rama on last week the subway takes guy and he was specifically explaining why he's taking his new show from TikTok to YouTube and making it longer because of the economics. It's just so much better on YouTube. But that's YouTube's kind of push into the originals space. They are now promoting this concept of there being shows on YouTube that you can buy into as an advertiser, just like the NBC primetime lineup. And they are kind of seems like they're trying to have their volume cake and eat it too with the more premium and more bespoke market of selling directly into shows. Do you think that that will find its way into the vertical universe as well, where you will be able to, as an advertiser, buy into particular shows?

22:01Matt Belloni:And as a content creator, you'll be able to have something distinctive on these platforms where you are not just joining the millions of people producing content, but you will have a specific show with maybe even some marketing, maybe even some guaranteed push alerts or something that can help you find an audience? We have a YouTube speaker at the summit, and that's one of the questions that I'll ask him. I don't know how much of their... I think that the announcement that they just made is specifically about television, that they're pushed, very successful push to get into television sets and get advertisers who already see them as the number one platform on mobile to also see them as the number one platform on television.

22:49But they have lots of optionality by being multi-platform, multi-format, from playing from short form to long form. For example, they were able to leverage their position in everybody's algorithm. The fact that they know what you're watching in the morning and during the day so that when you come home at night, the algorithm is likely to serve to you something that they know you're interested in. And I think that's one of the reasons why they've grown so much in total time spent for the last several years.

23:24Matt Belloni:And that's the holy grail here. It's all about time spent now. That is how these services are judged. That is the competition between Netflix and YouTube. It's not, do you have a hit show? It's what percentage of overall video usage are you capturing? And when that becomes the metric, the entire ecosystem changes because you have to think volume. You have to think, what am I going to put on my service that's going to be like a strong middle reliever and just eat up innings? And it feels like all of these services have now recognize that and they're going to podcasts they're going to these short form low-cost vertical videos it seems like the loser here is high-cost professionally produced traditional film and tv am i wrong i don't think that they're the loser because the if you hear netflix talk they are very deliberately now talking about the quality metrics and about how not every view and hour is the same.

24:32Something I predicted they would start saying partially because it is true. An hour of an NFL game is not worth the same of an hour of short form necessarily produce video of any quality.

24:47Matt Belloni:Oh, if you talk to Ted Sarandos about this, it drives him absolutely crazy that he's getting his butt kicked by YouTube because so much of that volume is literal garbage. It's people listening to ambient noise on YouTube. It's dog videos. It's nothing. They are being judged against a service that will put anything on. It's really tough. I think it's tough to compete. A lot of videos on YouTube, I think everyone will agree, are pretty good. And they do a very specific job for you when you want to watch it. And they are great at serving consumers throughout the day. Something that I think Netflix and all the other streamers are recognizing.

25:31Part of the push to get podcasts on the platform is precisely so that they can get people to start thinking about Netflix in the morning, whereas before they used to think about it at night. I know you guys talked a little bit about that yesterday. All right.

25:46Matt Belloni:So I'm Joe blow TV producer. Do I drop everything and try to get into vertical video right now? Or are the economics not quite there yet? It is one of the most difficult questions about when to get into something. The timing has to be right. If you're in too early, you will bang your head against the wall and you'll feel that the market, the budgets are not for you. If you're too late, you'll miss out on learning, you'll miss out on experiment, you'll miss out on being the first reality show, the first sitcom, the first mockumentary. There are so many firsts in Vertical that have yet to be created.

26:28And at the same time, there are so many incredibly talented production companies, producers, directors, writers, actors in Hollywood who would love to have their next project, see the meat consumers. And I think there's so many different business models that anybody who's even a little bit curious about vertical as a new audiovisual language should try to experiment, should at least try to learn.