Dropout - a streaming model delivering growth and profit
The tale of the streaming wars reads like a high-stakes drama – an epic saga of bleeding balance sheets and escalating content expenses, all in search of a soaring stock price. Yet, this narrative took a sharp turn in the past six months. The plot shifted as many streamers, in a sudden stroke of pragmatism, recoiled from the endless money pit that was customer acquisition and retention.
In this high-octane battleground, the industry titans – vying for the average global viewer's attention – waded through a sea of red ink. Investors, once enamored by the promise of endless growth, grew weary, signaling a change in the tide. (For a deep dive into this sentiment shift, check out my previous piece here).
Enter Dropout, the streaming phoenix rising from the ashes of CollegeHumor. They're playing a whole different ball game: zeroing in on their niche audience, keeping the purse strings tight, and crafting a business model that's built to last. For those uninitiated in the Dropout saga, I've got you covered here. Sam Reich, the man behind Dropout, paints a vivid picture: "if you look at our size relative to Netflix, it's laughable. But you look at a behemoth like Netflix and you go, 'well, even if we carve out the tiniest little sliver of that whale, we can live on the blubber for a long time.'"
And feed they did. That "sliver" grew 100% in 2023, not just keeping Dropout afloat but thriving enough to share profits with the entire cast and crew. Crunching the numbers, Dropout's sitting pretty with an Annual Recurring Revenue (ARR) north of $30 million, and that's not even counting the cash flow from merch and other tertiary sources of income.
Subscriber estimate based upon interviews where Sam Reich cites “mid-hundreds of thousands” subscribers
Their 100% growth trajectory is stellar, especially when paired with a non-existent marketing budget.
In a symbolic move, Dropout bid adieu to the CollegeHumor brand on its 5th anniversary in September 2023. To mark this milestone, Sam Reich spilled the beans in a series of interviews, offering a peek behind the curtain of their strategic playbook. Below, I've cherry-picked some excerpts from these interviews that shed light on their unique approach:
On serving the audience
“On subscription it's just an entirely different ball game where we can focus so much more on creating something that feels special to a small group of people”
“This version of the company is the most successful one that there’s ever been, by just about every metric - except maybe for total audience, since its a subscriber audience and not a general YouTube audience”
“We’re gonna be radically boring from a business perspective so that we can be as creative as possible onscreen”
“When we set out to do Dropout, there were two different kinds of content on the platform. There were shorter-form, more premium scripted series, and there were longer-form, less premium unscripted series. We had assumed that the former would bring people into the platform, and the latter would keep them there. Then it turned out that the latter did both, and the former did neither, which was a big lesson for us."
On dealing with social media platforms
“You need to have something to offer that’s off of those platforms. There’s lots of ways to do that. One of them is to create a subscription offering like on Patreon and try to drive people to it. Another is to try to leverage your online presence into opportunities in traditional Hollywood… I think for us, the heart and the soul of what we do is on on Dropout. We are very lucky, very lucky, that social media has turned out to be such a good way for us to market this platform. And we are also gleefully no longer beholden to it.”
“We did no paid marketing until end of last year (2022). It turned out, especially with Game Changer, we were creating content that could be sliced up and shared really well”
“At least half our shows get put up on social media in some way, and that window-shopping experience is basically our marketing strategy”
On talent
“We just did our first ever profit share, which is something we’re really proud of. We took a portion of our profits for the year — which, we were profitable for the year, it was a privilege to be able to do this — and we redistributed it among anyone who had ever made $1 with us over the course of the year. So that includes cast and includes crew, includes folks who merely auditioned for us, because we pay folks to audition for us. But we had this sort of like minor moral crisis where we were like, we really don’t want to promote the fact that we did this too loudly. Because the point is to do good by these people. It’s not to turn it into a PR stunt.”
Great content + profit
Dropout focuses on dazzling the audience with a set of core properties (Game Changer, Dimension 20, etc.) that rely on the extraordinary improvisational capabilities of its talent while backstage, they adhere to what could be aptly described as a "radically boring" business model. This duality isn't just for show; it's a strategic choice underpinning their entire operation.
They initially thought that high-end scripted work would be the marquee attractions meant to draw crowds while the unscripted, more rough-around-the-edges content was expected to be the glue that kept viewers sticking around. The unscripted content ended up stealing the show, both luring in subscribers and keeping them hooked, upending the company's original plan and reducing operating costs.
Their marketing playbook is efficient at its core. Shunning the siren call of hefty ad spends, they leaned into the power of social media. It's an ironic twist of fate, considering CollegeHumor's downfall was partly due to the very same social platforms that drained away its traffic and ad revenue. Yet, here they are, turning the tables with shows like Game Changer, which have found a second life as viral social media fodder.
But the real showstopper? Their commitment to their people. In an industry often critiqued for its cutthroat nature, they've scripted a different narrative – a profit-sharing model that rewards everyone from main cast to the folks who just showed up to audition. This isn't just about sharing the wealth; it's a statement of Dropout’s values.
As of now, Dropout isn't just surviving; it's thriving in its unique niche. This isn't just a win for the platform; it proves that the streaming industry's model isn't inherently flawed. Rather, it's the growth at all costs mindset of industry giants that needed a rewrite. Dropout's success and recent profit distribution are a testament to a sustainable approach to streaming media. The message is clear: sometimes, the best way to stay ahead in the game is to rewrite the rules.
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