1 - “Content is king” was coined by Viacom Chairman Sumner Redstone, who argued that “as new distribution channels emerge, the need and value of content rises”. I agree with the theory, in general.
2 - But I also agree with the premise that any one variable yields diminishing return at some point, though the the marginal return remains positive.
3 - However, my experience suggests that when one gives something away, you drive the perceived value into the ground and if your timing is off, you lose out.
These three tenets drive many of the decisions that forge WatchMojo.com’s syndication partnerships efforts.
Houston, We Might All Be Wrong
Yesterday I read a quote that struck me, because I am starting to think it’s wrong. Alley Insider was talking about the Adobe Media Player (whom we supply content, to, by the way) and saying that Adobe was looking for more content and was facing some challenges beyond that (ie. to paraphrase: Adobe was not offering anything unique).
To quote Michael Learmonth:
The TV world is moving to ubiquitous distribution online. It’s not there yet (see: Viacom v. Google, Fox and NBC’s exclusive with Hulu), but it’s getting there. See, for instance, Warner Bros.’ mega deal with Joost, Veoh, etc — which also did not include Adobe. If Adobe — or any new video service — wants to convince consumers or investors that it’s for real, it’s going to have to offer what you can see everywhere else.
I think Michael (and everyone else including me) who has been pushing for Ubiquitous distribution online might be playing it wrong, presuming the goal is to generate money and not go broke, of course.
Ubiquitous distribution online is a function of two case studies: MTV and Google
The former because record labels capped their revenues by licensing videos to MTV and letting MTV keep 100% of the ad revenue. The latter because Google built a $200B business via revenue share.
I outlined why Adobe might become successful when it launched here, with the key takeaway being:
- flash video (which Adobe inherited via the $3.4B Macromedia acquisition) is ubiquitous, this move is a play to leverage that, basically. Publishers might be more willing to open up their libraries if there is no transcoding need.
- if you can watch videos without being connected to the Web, that’s a plus for users, for sure.
When Adobe approached us about a partnership, we decided to participate as a content provider in the launch because Adobe is a strong brand name and it added validation to our editorial programming quality and overall business strategy. I also have a lot of confidence that Adobe can augment downloads over time, and as a big content provider, namely:
- 5,000 videos produced - 4,000 published, we publish about 100-200 more each month (2,000 video syndicated across 100 or so locations; looking at getting all of our clips across all of our access points).
- 12 categories: Automotive, Education, Fashion, Film, Food, Health, Music, Politics & Economy, Space & Science, Sports, Technology, Travel, Video Games
- 30 or so subcategories.
- 100 to 200 hours of programming; 500 hours filmed in 2 years.
- Average length: 1 to 3 minutes.
- English, with content being rolled out in French, German, Mandarin, Spanish, etc.
It seems like a given that as Adobe grew, we’d grow steadfast. While Adobe was a partnership I welcomed, I am becoming wary of every marginal distribution opportunity that now lands on my desk, or inbox. Marginal in this case connotes both a literal and figurative meaning, by the way.
The truth is, I cannot speak for all made-for-web content owners (definitely not traditional content owners who have very different concerns), but I think the window for “ubiquitous distribution online” is closing, fast.
I’m not saying it won’t prevail down the road if and when online video advertising matures, but right now, that window is closing.
How so and how come? If you take a look at successful video advertising revenue stories, it’s usually closed and not open.
Sure, YouTube is tops in size, but in revenues, I doubt it (disclosure: YouTube is also a distribution partner of ours). Let’s go to the extreme with regards to premium and scarce content and exclusivity:
MLB Online Hits a Homerun; league says a million and a half people watch a live game there everyday, paid content accounts for 40 percent of revenues. (Variety)
MLBAM has the kind of revenue (running at least $450 million annually) and profits that most internet firms would drool over (it helps, of course, that it has monopoly access to a league with a monopoly on the national pasttime), so there’s been talk in the past of a possible IPO. (PaidContent)
Will Anyone Ever Pay for Content?
Now I’ve always felt that apart from these extreme cases, consumers don’t want to pay for content (previous posts here and here), be it audio, text or video content. But what about businesses? Would businesses pay for content? When Joost struck a deal with MLB, I can only presume that it did so by guaranteeing revenue to MLB. I hardly doubt MLB took the promise of a speculative, revenue-share deal to give up its content (disclosure: Joost is a distribution partner of WatchMojo).
After all, if lord of monetization Google has yet to crack the monetization code on YouTube, then how could Joost have done it despite being smaller and younger?
But while consumers don’t want to pay for content, businesses do, either via:
- licensing deals where the client is a distributor OR
- via advertising deals where the client is a marketer.
Sports is in a world of its own, so it’s not limited to baseball. With the Euro on this year, I’ve given this a lot of thought. With Beijing 2008 around the corner, other media moguls are giving plenty of thought - and talking about it, too - to NBC’s strategy, via Paid Content:
The man who once predicted a television universe with 500 channels isn’t too thrilled with the internet version. Liberty Media Chairman John Malone, also now the chairman of DirecTV told the FT: “I think the idea that they’re going to put television shows and movies on the internet, bypass their traditional distribution and have no way of collecting [revenues] is absurd.”
He predicts failure for NBC’s plans for hundreds of broadband hours of live Olympic coverage from Beijing: “Very expensive events – expensive to buy and expensive to produce – are not going to have adequate underwriting through advertising.”
And, once it’s been provided , Malone doubts the ability to get people to pay: “You’ve got to be very careful what you promise to the public on the internet. They’re going to have a very hard time getting anyone to pay them for their content.”
I sort of see Mr. Malone’s point, however:
- With sports content, the owner of the content ends up distributing it on its own site; it can generate advertising (but not enough relative to offline revenue) but the only fees it can charge are to consumers (who despite some cases usually are not interested) and tend to be immaterial.
- With non-sports content, the content tend to live elsewhere on third-party sites, so the content owner can generate either advertising or licensing fees (ideally both). While subscription fees from consumers are almost non-existent, an aggregator moght pony up and pay for exclusivity or out of necessity (to satiate their own advertisers’ needs).
My conclusion is that unless you are a MLB-type of content owner, neither extreme is particularly healthy: ubiquitous distribution online is a bad move as is exclusivity clauses, because limiting this content to one site will never get the kind of reach to match TV’s reach (not to mention that online ads are a $25B market in the US whereas TV ads are a $60B business in the US).
Let’s look at some of the reasons that should drive syndication and partnership decisions:
#1 - The Not So Fragmented Video Distribution Market
With YouTube commanding a greater and greater percent of market share in the video space, I am not even sure how useful it is and will be in 1, 5 or 10 years to care where else you are. Of course, being on YouTube is no guarantee that your content will be seen, but by the flip side, YouTube is so massively large that the propensity of stumbling onto one’s connect is much higher on YouTube than elsewhere.
Even on an average month, WatchMojo.com generates more streams off YouTube than any other partner. Sure, massive social networking sites such as MySpace TV or even video file sharing networks such as Veoh can put a dent in our streams, but by and large, YouTube is the market maker… for streams.
For revenues, YouTube is trying to crack the code. But if YouTube eventually has 75% market share, do you really need to be elsewhere? Moreover, do you want to be?
Ask yourself: as a content producer, why bother putting your video on a 100th site if said site generates 100 views per day for you? Sure, if you have 5,000 videos then each stream counts… but this is hitherto a theory.
At some point, honestly, ask yourself as a content producer: relative to the distributor, who is helping who?
This last question takes on a greater significance when you realize the number of new distribution sites popping up each day even though existing ones face challenges:
Reporting from the front lines, trust me, there are more services popping up every day: Hulu is backed by News Corp. and NBC Universal (disclosure: Hulu is a distribution partner of WatchMojo). I love what Hulu has done and is trying to do, but traffic-wise it has a way to go. Then again, as we outlined in Quantity vs. Quality, Hulu is an apple to YouTube’s orange. But in that vein, as Mark Cuban recently echoed, it can generate revenue off each video, page and stream, something that YouTube (or its peers) could never dream of doing.
But beyond big names, there are a myriad of smaller players looking to bite into the pie. Not a day goes by where we don’t get a distributor - large or small, new or established - email us asking for content.
#2 - Should Video Really Be Advertising Based?
Moreover, on the flip side, with online video advertising revenues remaining small, I think over time many content producers won’t necessarily welcome an “anything goes” philosophy with regards to distribution. Those who can will be able to exert pricing power and command guarantees. For more on this, click here.
The overall online ad pie is growing, and online video is steamrolling, too, from $1B in 2008 to $7.1B in the US alone, but let’s face it, right now, it’s very hard to generate revenue from advertising alone if you are a video producer or even aggregator.
More worrisome is that some experts are calling for flat CPM rates, which isn’t good news, but customary as markets develop.
So this begs the question: does the law of diminishing returns apply to the theory of content is king?
I think so, because:
- while the marginal value of distribution remains positive in the short term,
- to maximize distribution you have to give it away (no licensing revenue and accept ad share alone) and
- this means you effectively reduce the price of your the content at $0, which means you lose pricing power and leverage.
After all, I think that when you give something away for free, you tend to make its perceived value approximate zero.
My Dilemma: What Would You Do?
I have a chance to take our streams now from 7-digits per month (1-9M) to 8-digits per month (10-99M)… but to do that, I have to give the content away almost as frequently as I charge for it. Do I want to do that? It depends. There are arguments supporting both strategies, in fact, my experience at one company provided an argument for and against it.
In 2000, I was part of a search engine company called Mamma. We were offering our search engine under private label agreements. Initially we charged, soon afterwards we opted for revenue share deals. We did all of this before Google was even a contender. Ultimately, while we knew we had to give away the technology to win business, we effectively drove down the value of the product. Frankly, the advertising revenue wasn’t initially material. Of course, over time it became (case in point: Google’s market cap). But as I say now, you have to remain in business long enough to find yourself in a position to make the potential a reality.
Right now, online advertising just isn’t there if you don’t have an offline sales team and relationship to leverage (see how much revenue does Disney make from online video here). For that reason, content companies should begin to change the market dynamics. Why?
Unlike Technology, Content is Not a Zero Sum Game
There is one major difference between content (what we produce now at WatchMojo) and technology (what we were developing at Mamma): technology tends to be a zero-sum game. In other words, you will either use our search engine or someone else’s, or, you will use our payroll system or someone else’s. But with content consumption soaring and video becoming more and more omnipresent, I want people to consume other producers’ content, and I want other content producers to develop successful strategies and business models.
Leverage in Action
Mind you, at the risk of sounding ballsy, amongst made for Web content libraries, I don’t know too many producers who have the traits that clients look for when it comes to actually paying for content.
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