The big business of small streamers

0:00What's your favorite streaming service and would you voluntarily pay more for it? Of course not. Who'd want to give more money to Warner Brothers or the House of Mouse? But Dropout's a different story, and Dropout is having a moment. Early this year, one of their shows, Dimension 20, hit the road and sold out Madison Square Garden. 20 ,000 fans. If you've ever woken up on another planet or in another dimension, that is truly what it felt like to be at Madison Square Garden watching Dimension 20 and having no idea what is going on. Six intrepid heroes. One game master. with references you have never heard of.

0:35I mean, some people have heard of them. And it's an extremely young audience, a queer audience, lots of people dressed up, and just a bunch of really earnest people, very genuinely excited to cheer these people, no matter what they did, just playing a game on the floor at Madison Square Garden. Gauntlet at the garden. The big business of small streamers on Today Explained. Turn on. Tune in. And today, explain. Jesse David Fox covers comedy for Vulture, and he recently wrote a big old profile of the smaller streaming service, Dropout. Dropout is an independent comedy streaming service where all the content sort of exists on the intersection between games and gaming and improv comedy.

1:26Are you ready? Go. He was wearing gloves and in a folding chair at the inauguration. Edward Scissorhands. No, no, no. Bernie Sanders! The most popular show is Game Changer, a show in which the game premise changes every episode. Now you all understand how the game works. Yeah, 100%. Did you get an email? What? That's right. Our players have no idea what game it is they're about to play. The only way to learn is by playing. The only way to win is by learning. And the only way to begin is by beginning. So without further ado, let's begin. On any episode, anything could happen. And because the contestants don't know the rules of the game, that is actually what the show's about, which is the relationship between the host, Sam Reich, who's also CEO of the company.

2:09I've been here the whole time. Playing with the uncertainty the contestants have about what exactly is happening at any moment. Your first question is, yes or no? There's not like a, it's just, you don't play a sound effect or anything? The other sort of popular shows is Dimension 20, which is the comedy Dungeons & Dragons show. Our cast of players will assume the role of heroic adventurers embarking on a dangerous quest. Make some noise, which is kind of like whose line is it anyway? Hurriedly dropping your horror movie child off at daycare. Okay, Lucius, you have your lunch? Yeah? Break eye contact with me.

2:53I can't think when you do that. I think a lot of people, that's maybe where they most see the clips on social media is like make some noise clips. I got to go. I will be back. No, no, that's a bad start. That's a bad start. I will be back because the court ordered that I come back. And then there's a show called Very Important People. Today, we're giving this comedian a total transformation. They have no idea who or what they're about to become. That's right. Once they see themselves in the mirror, they'll have to make up a character on the spot and then sit down with me for an improvised interview.

3:27This is Very Important to People. How popular are we talking when we talk popular? So they have about a million subscribers, or they are in swinging distance of a million subscribers. The thing about it, the thing about the popularity, again, they have a million subscribers. It's not like Netflix. If Netflix had a million subscribers, those a million people would be divided up oh this person goes to netflix because they like stranger things this person likes is it cake whatever in many ways all of dropout shows are the same one show it is a cast of characters which at this point is like 50 60 people that you'll see on all the different shows and to subscribe almost everyone i've ever talked to who who subscribes, you find yourself less just picking a show and watching it to the end as much as like immersing yourself into this universe.

4:22Most subscribers, a lot of subscribers are picking and choosing, but ultimately subscribing to the whole family of shows. You're making it sound kind of like the Marvel Cinematic Universe or something, whereas you're going to go to all of the movies because you love the entire world. But you also said it's got about a million subscribers and we know that there are more people subscribing to the MCU. How much are these million subscribers paying for this world? I believe it is now$6.99 a month. So when they raised the rate from$5.99 a month to$6.99 a month, they allowed previous subscribers to be grandfathered in at their original rate.

5:07And so I went to the Reddit page to see if anyone was complaining about the price hike. and not only were they not some people were complaining or sad that they could not be paying the talent more that they felt bad that they were being grandfathered in at a lower rate amazing i think it's high time i asked you who is dropouts audience

5:35from what i understand it is young it's definitely gen z leaning politically very left they oversubscribe in terms of the proportion that is queer identifying diverse like the live shows i went to were honestly much more diverse than i was expecting i say that as a person who's been going to improv shows for the last 20 years and would not say those audiences were particularly diverse and they are people who historically are very invested in dropout they are constantly talking about it on the dropout reddit page there was a dropout discord until fairly recently that was very active they are constantly debating or criticizing if they feel like the shows are not operating to whatever standard they have of morality.

6:26It's well and truly time for Dropout to say something, to stand up and actually make a decision. They raised money for the PCRF after many, many people asked. And since then, they have said absolutely nothing and continue to platform Zionists. So Dropout released a statement reasserting their stance on a free Palestine. It's a good statement, not perfect by any means, but I think it should assuage any bad feelings anyone has towards them as a company. You know, it is a parasocial relationship, but it's almost like a trauma bond related parasocial relationship where they feel a lot of ownership over it.

6:59And they believe Dropout should live up to the standards that they have for it, which causes some conflict. And as I presuppose in the piece, I do think could have the potential of hindering Dropout's growth as it continues to expand beyond its initial passionate fan base.

7:27Tell us about the guy behind Dropout, Sam Reich. Not exactly a Nepo baby, but a sort of famous father? Yeah, I mean, in so much as anyone ever knows any former secretary of labor, they know his father, Robert Reich. For context on the evolution of Reich's politics, we go now to former U.S. Secretary of Labor and Sam Reich's father, liberal icon Robert Reich. If I'm being honest with myself, the trouble started with Sam when he was young. I gave him a toy to put in a charity bin one year, and instead he kept the toy for himself and told the lady running the drive that her tote bag had big NPR energy.

8:10Robert Reich did not get him this job whatsoever, though obviously growing up the son of Robert Reich and his mother is also a law professor. He had access to a very good education, I should say, but pretty quickly he did not do well with that education. He, you know, in the story that I tell, by 14, he was severely depressed. He just could not keep up with the demands of the private school he was attending. He tried a few other things, dropped out of high school. The CEO of Dropout is a dropout. Yes. Is it named after him? I think it's probably named after a few things. One is Dropout grew out of College Humor, a brand that at least probably millennials are familiar with.

8:59It was a – it first started as like a website for party photos for college students. Then it became like a YouTube channel for like – I think I say like beer chugging related comedy. Do-do-do-do-do-do-do-do. You can't hack this. You're the wackness. It's Moe Rockover, Zach Galifianakis. That's right. Leave your head spinning like a dreidel Knock your socks off and the locks off your bagel That's right, see I'm winning Your face looks like mayonnaise, that's grinning Dear Kathy, I believe a good project would be a macrame owl Owls are lots of fun to make I love your show Dear Kathy, I would like to make a macrame owl Can you show me please?

9:41Dear Kathy, every week I ask you to make an owl And you still won't make an owl Now, as I have stated many times on this show. I am deathly afraid of owls. Check it out, check it out. Lesbians, bro. Yes, dude, they are so hot. No! Yo, girls, kids. They're going all the way. Yo, this is more than just a hookup, bro. That conversation is crazy intimate. So after a while, CollegeHumor not working, the company that owned them at the time, IAC, It was like, our last hope is we're going to just do a streaming service. And then so you're like, okay, well, what comes after college? Dropout is kind of like a cool name for a post-college thing opposed to graduate or something like that.

10:32But I think it definitely resonated to Sam, who is a high school dropout. I also think conceptually he liked the idea that a streaming service allowed them to drop out of the sort of business rat race they were in where they're either dependent on advertisers or dependent on Hollywood to give them their success or give them whatever that means. So I think Dropout kind of is all of those things. But yes, he clearly believes in the potential of dropping out because it obviously worked out for him. Sam Reich is currently making more money than your average American will ever make in their life. Yeah.

11:13It sounds like he's a millionaire. His streaming service is making tens of millions of dollars a year in profits at least. Is he content to stay there or does he want to be, you know, improv comedy's Walt Disney? Yeah. So financially, he has almost no ambition whatsoever.

11:37So as I report in the story, the first year he made no money. The second year he essentially made no money. and then the third year he made a million dollars because the company was doing well. He's the owner of the company. And at that point, he was like, I need to be making less money. The people at the top need to be making less money. Then in the following year, they started doing profit sharing. Every single person who gets paid$1 by dropout shares in whatever profit they have from that year. And talking to Sam, he just truly does not feel like he needs much more money. Sam likes running the company and steering the company, but he also mostly likes hosting these shows or developing new shows.

12:19And if a company gets bigger, he has less time to do that. So, like, he does not want to compete with Netflix or HBO. That's, like, not a goal. I think, if anything, he is more interested in creating a model that other people can replicate.

12:42Jesse David Fox has his own show It's called Good One A podcast about jokes Recent episodes feature Jason Segel And Seth Meyers Give it a whirl When Today Explained returns We're going to hear about the other little streamers And ask why they appear to be having more fun Than the bigs

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16:11If you were trying to think of like the polar opposite of a show on Dropout, it might be something like Andor on Disney +, a show its creator recently revealed cost about$650 million to make. And yet its creator, Tony Gilroy, was recently told this about streaming by Disney executives. Streaming is dead. We don't have the money we had before. We asked Hollywood Reporter reporter Alex Weprin why Disney executives might think streaming is dead. You know, streaming is going through a moment of intense disruption, which is kind of funny because I think streaming disrupted the TV industry and now it does feel like streaming is perhaps getting disrupted itself.

16:52They put WarnerMedia and Discovery Communications together back in 2022 with the thesis that they would be stronger together. Now, forget that. It's all being undone. This is all during the time when they were chasing subscribers because Wall Street, that's what they wanted. And then kind of the bubble hit and they're like, no, we actually want you to be profitable. There's such flux in the media land now and it's really separating between the winners and the losers. Companies like Paramount and Warner Brothers still struggling. And I think part of that is driven by the fact that you now have really giant tech platforms in Netflix and Amazon that have just immense scale in streaming.

17:29And at the same time, I think a lot of other players in the space are realizing that they aren't going to be that big. And they may need to settle for something that's a little smaller, a little more modest. And so when he says streaming is dead, it's not that people just want to stop streaming videos. It's that the business model of streaming, the way that creatives create content on streaming and the way that these companies make money in streaming is changing. And that is having a downward effect on everyone in the industry, including him. Is what's going out with a niche streaming service like Dropout part of the change you're talking about?

18:06Because we're talking about the big titans of streaming maybe struggling. And yet over in this little pocket, you're selling out Madison Square Garden. And you've got a loyal audience that wants to pay more than you're even charging them in some cases. I think you can draw a direct connection between what we're seeing at the big streaming services and what we're seeing in the growth of these smaller niche services like Dropout. You know, consumers are kind of settling in on the fact that they're going to subscribe to Netflix. They have their Amazon Prime subscription. They're watching YouTube.

18:39But those big services may not scratch every itch that they have. These services go a mile wide and some of them go a little bit deep. But a service like Dropout or a horror service like Shudder, they can really meet the needs of consumers that really care about a specific genre or type of programming in a way that makes them feel more connected to the creatives. So it's not just that Dropout is a service that has a lot of comedy for comedy fans. It's that they feel like they are supporting comedy creators in a way that they don't when you're subscribing to Netflix. When you pay Netflix your$20 a month or whatever it might be, you're not thinking, oh, I'm so glad that some of this is going to Shane Gillis or some of this is going to Ricky Gervais, whatever, creator of Squid Game, Ricky Gervais.

19:31Right. You know, whoever it may be, you know, you're not thinking about that. You're paying Netflix. And whereas if you pay for Dropout or Crunchyroll, you feel like you're supporting an actual art form and the creators that create it.

19:53Crunchyroll. Perfect. So I imagine there you could name some niche streaming services that at least someone in our audience has never even heard of. How many niche streaming services are there like Dropout or is it impossible to even name them all? Yeah, I mean, there are dozens of services that have a certain amount of scale. You know, typically they focus on specific genres. Crunchyroll is pretty dominant in the anime space. So if you're someone who really loves anime, you probably know what Crunchyroll is and you're probably a subscriber. There are a few horror-themed services, Shudder being one of them, that really cater to horror fans year-long.

20:29And then you've got services like Hallmark Plus, which is a spin-out of the Hallmark channel that just kind of takes those Hallmark movies that you know and love and makes it kind of a year-round attraction. So if you have a specific genre of programming, there's likely a streaming service that caters to it. Whether it's independent film, whether it's horror, whether it's comedy, whether it's British dramas, it probably exists somewhere. And are they all experiencing the kind of, I don't know, small-scale boom that we heard about early in the show with Dropout? You are seeing pretty consistent growth at a lot of these streaming services.

21:05The challenge they have is pretty much by definition, there's a limit to how big they can get. You're catering to a niche. Hmm. We've heard about some of the challenges that Dropout's facing. Maybe, you know, wearing your politics on your sleeve doesn't really function once you hit a certain tier of popularity with your streamers. You know, facing questions about how to grow while remaining true to your mission, what have you. Do services like Crunchyroll or Shudder or even Hallmark Plus face the same kinds of challenges? I think they probably do not face the same kinds of challenges. Partly that's just because comedy is a little bit different.

21:47You know, comedy tends to poke around the edges of politics and culture in a way that, you know, a Christmas movie or a horror movie might not. Not to say that those places can't touch on politics or larger pop culture, but just not what they're naturally inclined to do. You see that in comedy across the board, you know, at Netflix, at big TV networks. It's really tough to do comedy that can cater to everybody. So really what you end up seeing is you end up developing a style of comedy that appeals to a certain part of the audience. It's a niche within the niche. What are the challenges that people like Shudder or Hallmark Plus or Crunchyroll are facing, if any?

22:28So the biggest challenges that a lot of these niche streaming services are facing is, one, people have to know you exist. And, you know, you might take it for granted that people know about these streaming services, but actually they don't. You may have someone who loves Hallmark Channel Christmas movies on TV and has no clue that they have the streaming service that, like, can indulge them in that year round. So it's really a big part of it is just letting people know they exist and also having a value proposition that people feel like they're getting their money's worth. Because, you know, Netflix, Disney Plus, these are not expensive services.

23:03Amazon Prime Video is included in an Amazon Prime subscription. So there's a lot of value at the high end. So if you're kind of a niche service, you can't really have a price at that level. You have to figure out how you can price a service that is appealing to people while also reaching the audience that you hope to reach and engage. And to bring this back to Sam Reich and Dropout, Sam's story feels sort of outside of the entire Hollywood system. Did operating outside that system, if that is indeed what he was doing, sort of help him figure something out that it's harder to figure out within that system?

23:41Yeah, I mean, what Sam did is totally digitally native, right? He's a digital native. He is not from the traditional Hollywood system.

23:52I think taking that ethos and applying those learnings to what he's done at Dropout actually, I think, has benefited them tremendously. So if you think about it, the traditional studios and the big streaming services tend to do things a certain way. And it tends to be very similar to the way Hollywood has done things for years. But, you know, if you come from the world of college humor, if you come from the world of digital video, you realize that the old way of doing things doesn't necessarily have to apply to you. You don't have to do things that way just because that's how people always did it.

24:26And I think he's realized that you can build something taking the learnings from the digital video world and taking some of the learnings from the traditional Hollywood world, and you can build a viable business that can really be scalable and sustainable without necessarily being exactly the same thing that Comedy Central was back in the day, for example.