Everyone is freaking out over the fact that YouTube is trying to monetize but 4% of its massive inventory.
Truth is, I thought that number was lower. But whatever the number, it’s a good thing.
YouTube is much bigger than its competitors. I do not think it’s easy for an outsider to realize just how much bigger YouTube is than Veoh, Daily Motion, Revver, Metacafe, etc.
We syndicate clips to a lot of places, and trust me, relative to its peers, YouTube is eons larger. We also syndicate clips to MySpace TV. MySpace is unique, in that MySpace.com is gargantuan, so if and when a clip gets a push off MySpace TV, it can spike your traffic.
Anyway, we love all of our partners… but the point I am making is that YouTube has so much inventory that even if it could sell ads across 100% of its inventory, all that would do in the short term is pummel ad rates because supply for video ads would shoot up but demand won’t change.
The problem is that the TV companies are generating the bulk of online video ad revenues, but they control their content, so you are seeing a bottleneck of video advertising revenue on a few major sites, such as the portals and the traditional media companies (and judging from the list below, the lines blur due to partnerships and joint ventures):
- Yahoo!
- MSFT and NBC’s MSNBC.com,
- Disney’s ESPN.com, ABC.com and Disney.com
- Viacom’s MTV.com, Atom.com, Spike.com, etc.
- News Corp.’s FOX.com, and MySpace TV (despite what the denigrators say, the much vilified MySpace did do $750M of Fox Interactive Media’s $900M in revenue, people)
- Time Warner’s AOL.com, CNN.com and related properties also probably generate meaningful revenues…
- CBS - who until its recent $1.8B acquisition of CNET was out of the Top 10 properties - has embraced a more open distribution strategy, but I suspect that will tilt to a more closed (or balanced) as it owns a larger web audience where it can keep 100% of revenues (this is why, I think, you will see CNET and CBS start to get more serious about web video, something that, well, both companies should be stronger in).
Then, of course, there is market darling Hulu, who reasonably and fairly can do no wrong. Hulu - whom many miss the point about its raison d’etre - can generate revenues off 100% of its inventory, but its inventory will always be relatively small compared to Veoh et al., let alone YouTube.
The problem is these high quality sites already charge an arm and a leg in ad rates for traditional placement (banners, etc.). Then for video, they want you to take out a second mortgage. Technically, new players like YouTube, Veoh, etc., would be ideal places for more cost effective video ads… but with these, the problem is UGC. In this case, UGC stands for User Generated Crap, or User Generated Crime (as in piracy). So net-net, advertisers balk and the entire inventory (or in YouTube’s case, 96%) becomes untouchable.
But here’s the thing, in YouTube’s case, this is a Godsend, anyway:
YouTube commands a 75% market share… maybe more. So even if it can generate revenues off only 4%, well 4% x 75% is still a meaningful chunk of the ad dollars up for grabs. Trust me, Google might refer to the 4% as a problem to get Wall Street off its back, but any self-respecting ad sales man will tell, it’s the inventory, stupid.
I am not saying that ceteris paribus (did we just break out the latin?), YouTube would not prefer more sellable inventory… of course it will… but that is over the mid and long term, when advertisers come on board and embrace online video.
Right now, they just ain’t.
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WatchMojo NewsletterThey won’t admit it, they will blame the economy, Al Qaida, whatever is the worry du jour, but the anemic confidence levels of VCs are actually explained by a few simple factors:
- Investing in flash over substance (”that’s cool” doesn’t pay the bills)
- Being out of their element in advertising and media, which makes it hard to pinpoint successful models versus flash in the pan ones. Listen, VCs are smart guys, but they really are clueless about the inner workings of ad agencies, media, publishing etc., yet we live in an ad-supported ecosystem.
- Draconian deal terms: if you can avoid VC money, you do. If you are a service provider - and VCs are - that’s not a very good position to be in, at all. I want a few things when I look for funding, I am flexible on a few if the overall deal is fair; VCs? Nope: “This is the way it’s been done for years”. Yeah… that explains aplenty. A few of my favorites include taking the founder’s shares away, making them vest over time? Really? Why don’t we take your shares and vest those puppies over time… let’s see how often you pass by the office to sat hi.
- Running before walking: successful entrepreneurs and businesses need to crawl, walk, then run… occasionally slow down, only to repeat. VCs come in wanting to run before the company even knows what direction to look in, let alone head. This is a recipe for disaster.
- M&A is the only viable exit… and that means that most exits will be in the less than $1B range… because if they get too big, it’s harder to obtain a liquidity transaction.
- Arrogance: Let me share with you what 99.9% of entrepreneurs think, we very well might love you VCs personally… but if we could have your money without your baggage, we would take that any day… it’s nothing personal, and it’s not that we don’t value what VCs add, it’s that…
- Lies: VCs lie about wanting to roll up their sleeves and build companies by your side. That’s a blatant lie. Look, VCs have worked hard to find themselves in the position to be investors. If they wanted to be entrepreneurs… guess what, they would be entrepreneurs, on the other side of the fence.
- Greed: Worst off, VCs want control, and subservience. They won’t come out and say it, but it’s all a part of the ego and fiber of the investing mindset. VCs want control, the more of the company they own… the more money they make for the level of investment and time they are putting in. The very nature of the VC/entrepreneurial relationship is confrontational.
- Incestuous circle: Silicon Valley is crazyville… Manhattan money is just as bad. If you are in, and part of the inner circle, you have access to unlimited funds. If you are not, then you can go pound sand.
The truth is these days, you know you don’t need VC money. Hardware is cheap, software is largely free. Moreover, with decent credit you can finance everything… and if you are a smart entrepreneur who can capitalize on trends and does not suffer from herd mentality, then you can recruit talent.
Am I missing anything?
Some time ago I published a post called Financial Engineering: How to Triple Your Market Cap. I was referring to Marchex, a publicly traded company now worth less than $500M and founded by Russ Horowitz, founder of Go2Net, which merged with Infospace back in the day. But the strategy would apply to Marchex, as well as Name Media and any other owner of large domain name portfolio.
Anyway, the gist of that post was that Marchex - who was sitting on countless URLs and using them mainly for search marketing purposes - should bring those URLs to life by actually creating businesses, you know, websites with actual content and a purpose, instead of the kind with no content but only links to paid ads. Don’t get me wrong, the domain navigation business is lucrative, something I covered in Domain Parking Ecosystem here.
Marchex has not done that to date, neither has Name Media. One company that has, of course, is Demand Media. Demand was founded by Richard Rosenblatt, funded by big name investors, including Gordon Crawford (who is a major owner in Yahoo!) as well as Goldman Sachs. If Rosenblatt’s name is familiar, it’s because he was the executive that Intermix’ board brought in after Brad Greenspan was booted from the MySpace parent. It was Rosenblatt who struck the massive $580M deal with News Corp., creating Fox Interactive Media. Previous to that, Rosenblatt started iMall, which sold for an eye-popping $565M to Excite @ Home. You have to give a lot of credit to Rosenblatt who got into this particular space later than Marchex, Name Media et al., but has managed to build a company that in 2 short years has gotten interest from players like Yahoo! to the tune of $1.5B - $2B, according to Tech Crunch, who pegs Demand’s revenues at a healthy $250M and suggests that Rosenblatt is gunning for a $3B exit.
For the record: I am not arguing the merits of Demand Media’s business plan on a stand alone basis. The company is too complex, diverse and fluid for me to do that. I am, however, saying that relative to the Marchex or Name Media strategy, I prefer Demand Media’s. Then again, I am a content/sales guy, though I did work in the search industry back in the day.
I’d be surprised if Yahoo! acquires Demand Media, mainly because it is undergoing turbulent times and Yahoo! does not have that kind of cash on its books (as of its most recent quarter, it had $2.61B) and its stock is fairly volatile. Moreover, I see Demand actually as a buyer more than a seller. I can think of 3-5 more acquisition targets for the company.
With $250M in revenues a paltry two years after launching (though in all fairness, technically Rosenblatt’s crew has bought many businesses that pre-existed Demand Media’s incorporation), then the company’s path seems to be an IPO, though those are as rare as companies with revenues these days (oh, wait, see a connection)? In fact, while Rosenblatt has long been a proponent of social networking, he’s attacked the market in a very smart, methodical and wise way.
In other words: sure, social networking tools and applications are powerful, but devoid of any high quality, premium content, packaged and editorialized in a way that consumers and advertisers can digest, social networking can kill a brand and property, too.
It does go to show, however, that it takes money to make money: Demand Media has raised a dizzying $355M… and while that seems like a breakneck amount, Rosenblatt is on pace to create enough value, fast enough, to make the numbers add up. After all, few companies will be able to step up to the plate and pay $1B - let alone $3B - for the company. So for investors to get back their money, then an IPO seems like the likely route.
But enough from me, here’s an interview Kara Swisher did with Richard:
According to WSJ, Google’s YouTube might open up the site to pre-roll and post-roll ads.
From CNET:
YouTube has been plagued with inefficiencies in its ad-sales department and Google is apparently ready to abandon its policy of keeping preroll and postroll ads off the video-sharing site.
• Google has identified 105 problems with YouTube’s ad sales.
• Advertisers aren’t willing to post their ads on many YouTube videos
• Because of legal questions, Google is only selling ads against video clips that have been approved by media companies and other partners, which, according to the story, is 4 percent of the total clips on YouTube. Think about the significance of that. Every minute more than 10 hours of video is uploaded to YouTube and only about 20 minutes is worth anything to the company.
And we’re in that 4%, baby. Look at one of our videos… see that 3-second pre-roll bumper saying WatchMojo.com? If YouTube (or any site) ran a 3 second - 5 second tops - video pre-roll… it would, could work. If they go crazy and run a 30 second, even 15 second ad, then yeah, they will lose users.
YouTube has enough sway and market maker status to get away with telling advertisers:
- 3 second
- 5 second
- 7 second
- 10 second
- 15 second
are the only options - not even sure you need all of those options, why? When you have too much choice, you tend to take too long to decide, and YouTube needs to move and move fast on this front.
And yeah, sure, they can run 30 second spots before longer programming, but good luck with that, especially with the otherwise fickle YouTube audience (oh, fickle is usually described as “passionate” online - another pile of PR BS).
Anyway, it should impose stricter frequency caps in inverted order, as
- 3 second - capped at 1 ad per 2 videos
- 5 second - capped at 1 ad per 3 videos
- 7 second - capped at 1 ad per 4 videos
- 10 second - capped at 1 ad per 5 videos
- 15 second - capped at 1 ad per 10 videos
- 30 second - capped at 1 ad per session
Something like that… as per rates. All right, I have an NDA in place with YouTube, but I will say this… last year when YouTube began to monetize the site with its partnership programs, they threw out a CPM rate. No one in the room said enough, but everyone probably knew it was a tad ambitious. I know what WSJ, TheStreet, CNET, etc. charge for video ads. YouTube is no WSJ, if you know what I mean.
So I would make this a no brainer for advertisers:
- 3 second - $10 cpm
- 5 second - $12 cpm
- 7 second - $15 cpm
- 10 second - $20 cpm
- 15 second - $25 cpm
- 30 second - $30 cpm
Again, not saying it should have ALL of those lengths… but that kind of scale would work. Another thing YouTube (and MySpace, Veoh, crpsrt, etc) could/should do is lure more users from UGCrap towards better paying, premium content. Hum… yes, I’m biased in saying that, but net-net those distributor sites would win more than we would.
I got news for you YouTube/MySpace/etc.: even your users want to see better quality stuff, but finding quality content amongst the crappy clutter quickly becomes cumbersome. Holy crap that’s one heck of an alliteration.
As per rates:
Add $5 to those rates if they take the companion 300×250 ad
Add $10 to those rates if they take the companion 300×250 ad and the overlay, which Video Egg, BrightCove all allegedly invented, in between their Series Q and R rounds.
Just my two cents. Hmm…YouTube, you can send me my consulting fee along with the WatchMojo.com partner program revenue check, thanks.
All right, it’s 5:40am, back to sleep.
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