Odd how last week I penned “Liquidity vs. Solvency” and in two days, we hear of two high profiles companies shutting down to lack of solvency.
Case 1: Flagship Studios.
Case 2: Monitor 110.
These things usually happen in three’s, so who’s next?
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WatchMojo NewsletterI’ve become reluctant to post much on online video… because invariably if I am not talking about a partner or competitor (of WatchMojo.com’s), it seems as if I am talking to a partner or competitor… truth is I never am, but it’s hard for the post not to be read in such a manner…
But, the feedback I get is that people like the angle of an insider’s take on online video… so here goes nothing.
Here’s a simple post called “How to totally own the video market”.
The Hypothesis
Google was the first really successful ad-supported technology company. By now it should be obvious the money will not be made via CDN, platforms or that kind of crap, but in ad supported video. Google won’t really win, because they too will suffer from innovator’s dilemma. It’s nothing against YouTube… but YouTube needs to be a separate unit from Google and not a spoiled child withing Google. Google did $17B in revenues in 2007; in 2008, YouTube might do $200M. Before you know it, Google will sit on YouTube and suffocate it.
Anyway, given YouTube’s massive exit - from $10 for a URL to $1.65B in two years - VCs have sought to emulate it and failed furiously, frankly.
The Problem
The problem right now in online video is that unless you are a traditional media company with a sales force selling to big advertisers and a big audience, you are not really generating much by way of online video advertising dollars. YouTube, for example, owns 70% of the streams with 35% market share and does $200M in total revenues (with about $65M coming from actual video ads by my count). Total ad revenues from online video in the US market in 2008 are clocking in at $1.35B. Not bad, but when you realize that online ads are a $20B business… $1.35B is rather girlish. No disrespect intended to the ladies in the house.
The Methodology
Anyway, how can you kick ass?
Well, from my vantage point, I can tell you the problem from online video ad revenues (OVAR) is simple:
- not enough good content online; YouTube - the barometer of online video - has 96% non-monetizable content
- not enough frequency of new premium content
- even if the content is made and out there, it’s lost in the clutter, I just covered this point earlier tonight. Go find it. Hyperlinking back to my own posts is so 2007.
So… what would I do? Simple. I would borrow a page from Hulu - who raised $100M on a $1B valuation to license only professional content (hum… pardon me, but it’s worth noting that WatchMojo.com is a content provider to Hulu) - and sign exclusive deals for content.
Get Into A Media Planner’s Shoes
An ad buyer wants to know why he is going to make you rich.
Rule #1 - You have to be unique. If your content is everywhere, it might be a good thing, but it also sucks ass. Why should he call you, when he can call YouTube, for example, and get placement next to it. Obviously he can’t, cause YouTube sells categories and not partner channels… but YouTube is still searching for the sweet spot… (don’t hold your breath).
Rule #2 - You can’t live in the ghetto.
If right next to your content is a link to crap, advertisers will walk. It’s that simple.
Rule #3 - Ad buyers are not VCs, social media gurus, etc., they’re smarter.
Trust me:
- when ad revenues are bountiful, people are resistant to exclusive deals… but the truth is, unless you are Disney, CBS, News Corp., etc., you are not really generating much OVAR. And even if you are those guys, it’s puny relative to your offline ad revenues… so YOUR strategy has to be different than theirs… but your strategy must understand why TV became a $70B ad industry… which means 10x larger than online video. Sure, online video is less than a decade old… but at this rate… it won’t ever become as big as TV if the arrogance does not dissipate.
In fact,
- when ad revenues are scarce, people will give up exclusive rights for guaranteed revenue… again, not everyone would, particularly the media companies who make much more offline to begin with…
but…
- the bulk of traditional media’s content is actually abysmal for OVAR anyway. I would get into all of the ways but that’s for a separate post (or a consulting mandate, frankly),
- talking about “made-for-web content producers”, they will gladly give up exclusivity for revenue.
The Game Plan
If a company comes around and secures a large financing round - say $100M - it can basically take $50M and secure rights to content, exclusive content. I know conventional thinking is that exclusive is bad and no one will accept to it, but that is BS. Trust me. We own one - if not the - largest library of high quality made for web content… and we’d consider variations of an exclusive deal. We would. It’s very uncool to say that online… but cool is passe. Substance is the new cool… and will be over the next two years as the American economy continues to tank.
So with a war chest of $50M set aside just for content… you can create an environment with a lot of monetizable content. As crazy as it sounds, apparently (I won’t comment as a partner, but I am using SAI’s figure) Hulu will make $40-90M in revenues in its first year… and while the content on their site is good… I reiterate, it’s not formatted for the Web and not optimal for web advertisers anyway…
That hits at the core of another problem: 99% of the aggregators in the video space have raised billions (in aggregate) but have not earmarked anything for content licensing. Their business plans call to obtain free content but yet spend billions (in aggregate) spent on hardware, hosting, bandwidth, cocaine, etc. So what happens is that the masses line up, upload crappy content but rightsholders of quality content sit back, knowing that speculative revenue share deals won’t lead to meaningful revenue.
I know much of what I say seems counter intuitive… after all, the Web is all about open and sharing joints… but trust me, the OVAR aren’t crappy because there’s an abundance of high quality, premium, professional content all over the place… OVAR figures are crappy cause the content out there is largely crappy.
Conclusion
I’m not writing this for someone to come along and sign me a check for exclusive rights to WatchMojo.com’s content (though I’d listen, frankly, so go ahead and email us at ash@mojosupreme.com). But, since News Corp. and NBC are in bed backing Hulu… maybe the powers that be at CBS or Viacom or Disney or Time Warner or the big private equity firms, or frankly, a European or Asian media company looking West, might be interested in ponying up $100M and helping me help them build a real video business.
Hello… I think my phone line is not working properly. Is my email down, too? Yeah… thought so.
I don’t subscribe to Fortune anymore (though Business Week and The Economist’s third world rates got me back for one more fix), but I do need to read this artticle on Kleiner Perkins… the legendary VC firm that backed Google, and many others before it. Venture Beat adds:
The firm’s fortunes have emerged as the subject of discussion in Silicon Valley, now that the firm has largely abandoned the Internet investments that made it famous. “Several Valley investors who monitor startups tell me they don’t bother sending Web-oriented entrepreneurs to pitch Kleiner anymore; they say the firm just doesn’t seem interested,” writes Fortune’s Adam Lashinsky, citing one off-the-record source. “If they’re wrong, it’ll be the end of Kleiner Perkins.”
Excuse me, but Kleiner can invest in all of the clean tech crap and bio nonsense they want… that at least seems to have some kind of meaning and impact down the road. Besides, let’s consider the horrible track record of VCs that invested in the skata that permeats most dot com VC’s portfolio. Give me a f’n break. We’re now bashing a bunch of investors for taking a rain check of crpstr.com to invest in things that actually mean something and make a difference?
More power to Kleiner. One virtue of being richer than God is not having to put up with the institutional imperative. Most of the VCs that now ride Kleiner’s coattails in the VC game have nothing but misfires and strikeouts to show for their efforts anyway.
File under “Assuming You Care” - WatchMojo.com’s channel now has over 1,700 clips.
Wow, that title rhymes.
Om Malik hits the bull’s eye: Yahoo!’s audience is their main asset… in fact, while a lot of people bash Yahoo! for diving into content… the truth is that Yahoo!’s golden days encompassed the period where Yahoo! aggregated, packaged and editorialized content from all over the place, and pleased advertisers.
In other words, while Google built a $200B business by sending people away to websites during the search era, Yahoo! can build a greater business by encapsulating great, premium content, putting it under the Yahoo! umbrella and selling that to advertisers. Of course, those who say this won’t work have never sold an ad deal, don’t know what advertisers, etc.
Anyway… this got me to thinking: THIS is YouTube’s problem.
YouTube really needs to get a clue with regards to their main page packaging. That’s where media companies make 10-25% of their revenue - not the BS long tail that the cluelessati are enamored with.
And noooooooo, I’m not saying this as in “YouTube, feature us more often on your main page” - they do that more than enough… but YouTube’s main page has 1-part ad-friendly content… nestled in between bucketloads of ass.
For example, they just notched Lions’ Gate’s content… big f’n deal. What’s the point of that news if Lions’ Gate will have to live alongside shitty content that advertisers won’t want to touch? Is “keeping it real” worth it if it means alienating advertisers and burning a hole through old man Schmidt’s wallet?
Not sure it is… again, it’s not like you are protecting “artistically worthy content” - you are basically giving real estate to crap in favor of what advertisers (and trust me, users) actually want to see. YouTube’s problem - if it can be called that - is that every video lists two things:
- “related videos (from other producers)” - so usually something from the 96% of crap that it hosts;
or
- “recent videos (from the account holder you are watching the clip)” - again, given the huge pile of shit that lives on YouTube (and yes, awesome - but pirated - stuff too), then the chances of there being something non-kosher linked off the content you are watching is high. Moreover, since more often that not (try 96%) the content you are watching is unholy… then the link off that video is illegal too.
Trust me, don’t underestimate the “one click away from factor”. At my old job, my cohorts and I used to joke that online, you were always seemingly “one click away from a clit”, ie. porn. I hate to say it, but on YouTube, you are always one click away from shit.
Oh, look it rhymes again.
If YouTube wants advertisers to actually spend money on the site, perhaps they need to understand how main pages of ad-supported properties are programmed. Hint: not like YouTube is!
Well… there goes our main page placements, I guess…
Oh no, what will I do without that $20 check now?
In the time it took me to post this, a clueless VC just funded a YouTube clone to allow more crap from infesting the Web and pushing advertisers away.
All right, I feel better.
Editor’s note: PG-13 programming shall resume after this post.
First Round launches Funding Sleuth, seems like an attempt to track all equity sales, from what I understand.
It’s a good concept, and once more step in opening up the financing process and industry.
Check it out and let me know what you think.
GM is cutting advertising dollars, and that is affecting TV, print and radio most. But what about the Web?
As a category, carmakers are big spenders everywhere, including online. However, the truth is that a lot of car advertisers tend to spend money largely on endemic sites and major portals. But even on endemic car sites, they do a lot of lead generation type of deals, though those revenues are lumped into online advertising expenditure… those won’t be scaled back, because they are performance based bounty expenses.
However, like anything else, advertisers do return at some point, but those dollars won’t be going back to TV, print or radio. Rather, it will go online. Take CBS, for example, whose average viewer is now 50. I know, baby boomers are swelling the 65 and over ranks… and sure, they got lots of money… but if you are an advertiser hawking gas guzzlers, do you spend to market to a 65 year old or a 25 year old?
Obviously you spend money to reach the 25 year old… and that consumer isn’t watching TV, reading print or listening to radio.
What is happening with traditional media is a perfect storm that will exasperate its inevitable shrinking.
Looks like I was right and wrong about Hulu and the Summer Olympics creating some kind of issue between News Corp. and NBC. A couple of weeks ago I said that Hulu would want to carry the Olympics but NBC would balk, and it would cause some kind of friction… turns out indeed NBC won’t give up that content… but Hulu seems to be fine with that…
PLAY
