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Jason Kilar’s Vessel Cracks Open Subscription Window for Digital Video Creators

Jason Kilar is promising digital video creators on YouTube and other ad-supported services huge bucks — in return for making their content available to subscribers of Vessel, his new Internet-video company, for at least 72 hours.

Vessel is opening its doors on Wednesday to content partners so the latter can kick the tires on the system, in a beta period ahead of the startup’s planned consumer launch in early 2015. Its proposition: For $2.99 per month, users will get early access to top shortform digital content, while content partners will reap 60% of subscription revenue and 70% of ad revenue.

Kilar, the former CEO of Hulu who exited the joint venture in early 2013, acknowledged that Vessel will be a low-margin business, with operating margins in the single digits at scale. “The Internet compresses margins of distributors,” he said. “It’s not like cable TV, where you’re the only cable operator in a market.”

But Kilar insists that Vessel is not out to kill YouTube or any other existing video businesses. The company’s goal is to create a new, more valuable window for digital content — one that he suggests will deliver phenomenally better revenue for creators. On free, ad-supported sites, creators typically get between $2-$3 per thousand views in revenue; Vessel estimates that it can deliver roughly 25 times that, claiming creators stand to earn approximately $50 for every thousand views.

“We want to empower creators to build unusually powerful video businesses online,” he said. “And we want to be a driving force in raising the bar on the quality of online video.”

In working with Vessel, creators must commit to at least the three-day paid window, but can leave their videos in the subscription window for as long as they want after that, Kilar said. Vessel isn’t requiring exclusive access to the video during that 72-hour period, only that it not be available on a free site. After the paid-subscription window, Vessel videos will be available in a free, ad-supported service.

Vessel — which has the tagline “Watch your favorites here first” — already is working with a variety of video creators and content partners to make their videos available through the early-window subscription offering. Kilar emphasized that Vessel wants content produced for digital platforms, as opposed to after-air TV shows or movies.

Those include YouTube multichannel networks Machinima, Tastemade and DanceOn; YouTube stars like Shane Dawson, Rhett & Link, Marcus Butler, Caspar Lee and Ingrid Nilsen; traditional media companies including A+E Networks and Warner Music Group; and individual series and channels like IconicTV’s “Jay Z’s Life+Times” and “Alec Baldwin’s Love Ride” from Above Average Prods.

In addition, Vessel has landed partners for the free, ad-supported side, including music-video venture Vevo; humor sites Funny or Die and CollegeHumor; sports videos from companies like Major League Soccer; news and consumer videos from companies like Time Inc.’s Sports Illustrated, People and Time, the New York Times, and BuzzFeed; and videos from conference producer TED. For these partners, there is no “early access” window — Vessel is simply another channel for distributing their content on the free ad-supported web.

On the ad front, each video on Vessel will include a preroll ad of 5 seconds — or, in rarer cases, 15 or 30 seconds — according to Kilar. Vessel’s guide interface also will include “swipe-able” motion-activated ads from marketers that let users either click on the sponsor’s message or go to the next video.

San Francisco-based Vessel has raised about $75 million from Bezos Expeditions, the personal investment company of Amazon founder and CEO Jeff Bezos, and venture-capital firms Benchmark and Greylock Partners. Kilar (who won’t confirm the funding amount) worked at Amazon from 1997 until 2006, including running the company’s domestic books, music and video businesses.

Kilar founded Vessel in mid-2013 along with former Hulu chief technology officer Rich Tom. Kilar said the two of them came up with the idea for Vessel’s subscription business during a walk through Santa Monica’s Palisades Park last summer. Kilar declined to comment on his departure from Hulu, reportedly over a disagreement with owners Disney, 21st Century Fox and NBCUniversal on the direction of the company; last fall Hulu hired former Fox distribution chief Mike Hopkins as CEO.

The Vessel management team also includes senior VP of content Kate McLean, former president of social-media publisher theAudience and previously chief of staff for Disney CEO Bob Iger; and head of ad sales JP Colaco, formerly Hulu’s top executive of advertising sales and operations who left Hulu last fall.

It’s worth noting that YouTube CEO Susan Wojcicki has said the video site is considering launching a subscription-video offering, akin to the music-subscription service YouTube launched this fall. Kilar said he expects to see other companies to compete in vying for “first window” rights to digital video. YouTube declined to comment on Vessel.

“I wouldn’t be surprised to if other people tried to do this,” Kilar said, adding that Vessel’s advantage is that it is focused on the subscription-first business model.

Vessel has about 35 employees but is continuing to hire more staff as it leads up to its consumer launch next year, according to Kilar.

According to research firm eMarketer, digital video ad spending is expected to reach nearly $6 billion in the U.S. in 2014 — and is projected to increase 30%, to $7.77 billion, in 2015.

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