In films, TV shows and books — and even in video games where characters are designed to respond to user behavior — we don’t perceive characters as beings with whom we can establish two-way relationships. But that’s poised to change, at least in some use cases.
Interactive characters — fictional, virtual personas capable of personalized interactions — are defining new territory in entertainment. In my guide to the concept of “virtual beings,” I outlined two categories of these characters:
- virtual influencers: fictional characters with real-world social media accounts who build and engage with a mass following of fans.
- virtual companions: AIs oriented toward one-to-one relationships, much like the tech depicted in the films “Her” and “Ex Machina.” They are personalized enough to engage us in entertaining discussions and respond to our behavior (in the physical world or within games) like a human would.
Part 2 of 3: the business of virtual influencers
Today’s discussion focuses on virtual influencers: fictional characters that build and engage followings of real people over social media. To explore the topic, I spoke with two experienced entrepreneurs:
- Dylan Flinn is CEO of Shadows, an LA-based animation studio that’s building a roster of interactive characters for social media audiences. Dylan started his career in VC, funding companies such as Robinhood, Patreon and Bustle, and also spent two years as an agent at CAA.
- Kevin Gould is CEO of Kombo Ventures, a talent management and brand incubation firm that has guided the careers of top influencers like Jake Paul and SSSniperWolf. He is the co-founder of three direct-to-consumer brands — Insert Name Here, Wakeheart and Glamnetic — and is an angel investor in companies like Clutter, Beautycon and DraftKings.
TechCrunch: Dylan, coming from a VC background, you understand the vision that VC investors have and building billion-dollar companies. Have you spent time with the talent side? What’s the opportunity you see here in building out this studio with virtual influencers?
Dylan Flinn: If you look at the top-grossing animated franchises, the majority of them started decades ago. Many in the early 1900s. Today, with new content consumption methods such as YouTube, Instagram, Twitch and other social platforms, we believe you can create really large audiences really fast through great content. Our vision is to use other people’s platforms to create really valuable IP in the form of a roster of animated characters. These characters are conduits for compelling stories and they can each monetize in different ways.
Kevin, as someone who has managed a number of the biggest human influencers, what’s your assessment of the influencer market right now — is it booming? To what extent are managers intrigued by virtual influencers?
Kevin Gould: This space is constantly changing. What worked three months ago in the influencer space is slightly different than what’s happening now. There are two big shifts as the influencer market has matured though.
Influencers are trying to figure out how they build out long-term careers. The age of the Instagram influencer is coming to an end, particularly when you look at some of these algorithm changes on social platforms. Influencers are focused on building long-term communities that they can build scalable IP and brands around.
On the advertiser side, bigger brands that a few years ago were throwing money around the space and often overpaying for influencers have gotten more data-driven. They’re looking to work with talent that has a real connection to their audience and can actually get them to convert into purchasing something or taking some other action.
Virtual influencers are an interesting addition to the market. The founders of the companies creating them can shape the content in their own way and be more disciplined in building long-term value through storytelling and community building. I think there’s a large opportunity here. It remains to be seen how virtual influencers will most effectively monetize, but if you have great content and an engaged community, that will happen.
Are there certain categories of content where virtual influencers could dethrone human influencers and dominate the audience in that space?
Flinn: We’ve made a very concerted effort to not recreate what humans do. We ask ourselves, “what can an animated character or virtual influencer do that a regular human cannot?” We avoid the uncanny valley and everything that comes along with that, mostly because that’s just not where our experience and interests lie. Leave the human stuff to the human creators and think outside of the box of what’s possible for animated characters to create.
Gould: I agree. You really can’t fully replicate an authentic human and so it doesn’t make sense to try that — you want to focus on where you can differentiate. Virtual influencers are additive, not competitive.
Flinn: We’ve discussed collaborating with human influencers many times and they often ask that we animate them. That’s not of interest to us. One, we’re in the IP ownership game and we’re not going to own an animated version of them. Two, creating an animated version of a human influencer doesn’t fulfill a real need for them.
Do you envision any of the traditional big IP owners in Hollywood getting into the virtual influencer space? Will Disney decide to take some of its characters, give them social media profiles, and have them interact with real humans?
Flinn: Only recently have these big studios figured out how to use social media effectively for marketing. It’s going to be a while until they can turn their focus to telling stories over social platforms. They’re too focused on creating content for subscription streaming platforms like Disney+. I do think it is a missed opportunity. They should put some of their characters online to capture more top of the funnel engagement, then redirect that audience to their streaming platforms. I think it will happen eventually, but I’m just not sure when.
Gould: There’s a big opportunity for some of these brands to use this as an opportunity to reinvent who those characters are and bring a stronger voice to the brand. Some will leverage virtual influencers to grow the community around their brand.
Flinn: If you think about some of the most successful marketing campaigns of the last few years, it’s “the most interesting man in the world,” It’s the Old Spice guy, it’s the Geico gecko…many brands found success in using characters to personify their values and their mission.
What are the main revenue streams for the average influencer right now? How much usually comes from sponsored posts and brand collaborations versus selling their own merchandise or other endeavors?
Gould: It depends on the phase of their career and the predominant platforms that they’re leveraging. A mid-tier YouTuber makes most of their money from YouTube AdSense and brand deals. A big streamer on Twitch is monetizing on that platform differently, given the memberships and tipping.
When they get big enough, merchandise is the low-hanging fruit. That’s the first step into commerce, then maybe it’s a licensing deal, then eventually, depending on how that goes, they want to launch their own brand. At 10 million or more subscribers, they can really start thinking about what long-term consumer brand or IP they can build off that fan base. Done right, it should be a scalable asset that earns much more money than anything they have done previously, but it takes a massive amount of work and dedication from the influencer in order to make this jump, and there will be very few who can do this.
Dylan, how central is merchandise sales in your vision for Shadows? Obviously that is a big part of Disney’s business as a traditional Hollywood studio.
Flinn: It’s hard to scale revenues just with brands and programmatic advertising and YouTube AdSense and whatever the platforms will allow. So you have to look at consumer products.
We first started Shadows, we were thinking about what types of characters will fill a hole in the entertainment market. Now we find ourselves more focused on what the monetization strategy of an influencer will be from Day One. You can create compelling influencers that never monetize. The long-term goal is to create as much content as possible to build as deep of an audience as possible and then to launch unique digital and physical products for the fans.
Kevin, you’ve founded three direct-to-consumer brands that leverage influencers as business partners. How do you view this landscape of virtual influencers in terms of the ability to build direct consumer brands off of them?
Gould: Whenever you’re building a brand with an influencer, you leverage that influencer’s reach to consumers at the launch of the brand, but the goal in the next 12 months should be for that brand to become bigger than any one influencer.
Outside of Kylie Cosmetics, which is an anomaly, you need to build the infrastructure for a sustainable brand long-term and you’ll eventually tap out of the organic reach an influencer can drive, regardless of how famous they are. In picturing what you could do with a virtual influencer, the DJ Marshmello comes to mind. He’s not a virtual influencer per se, but he and his team created a character and IP around that character and continues to experiment with ways to leverage that IP like the concert within Fortnite that 10 million people attended. He’s pursuing a playbook that virtual influencers will follow.
How much of the excitement around virtual influencers is the control and risk reduction of having a celebrity who is scripted rather than a real human? Human celebrities disagree with content ideas, they have scandals due to their behavior, they are risky to partner with.
Gould: There’s a benefit to having complete control. There are no surprises. But that’s also problematic. Sometimes the benefit of influencers is specifically that they are a bit unpredictable. In a world of corporate advertising, they have a personality that’s authentic. That’s what people buy into.
Flinn: I totally agree. Boring is actually the worst thing you could be, because then you’ll never even get off the ground.
Since the virtual influencer business centers on content and community building, what, if any, role does technology really play? Are Shadows and its peers technology companies or just media companies that use the same tech tools every other digital media company uses?
Flinn: There’s a whole technology side of our business that we’re pushing into with our recent fundraise that’s focused on driving down the cost of content creation. Different machine learning tools for things like automatic line coloring or automatically turning a rough sketch into a polished sketch. That technology backend is part of what made Pixar successful in the early days — it equipped its artists with really impressive technology. That’s our goal.
We’re also looking at how we can use technology to scale engagement with consumers. How could thousands and thousands of people have daily conversations with Astro that feel like personal conversations? Automated conversation through chatbots is still very early. Open-ended conversations are very difficult, but that’s the stuff that we’re pushing towards and I think every company in the area should be.