BUSINESS BLOGS
BUSINESS BLOGS
category: business
07 Aug 2008

The formula to make money off online video is actually quite simple:

Option 1: Secure licensing fees. For more on this, click here.

Option 2: Generate advertising revenue, share with others, when applicable (you can put product placement here to simplify things, since that is a form of advertising).

Technically, you can also simply be a producer (create clips and then sell them), but we’re talking about publishing and syndication, which imply you own the rights and are not creating custom clips per se.

We’ll start by looking at Option 2, given TubeMogul’s recent study that suggests a $12.39 CPM ad rate for online video producers who are monetizing their video. Those last three words are important, as not everyone is monetizing video yet.

In case you are wondering, yes, WatchMojo.com is monetizing its video streams.

In case you are wondering what our eCPM is, read on.

First, let’s look at what drives online video advertising revenues.

There are tangible and intangible variables to consider.

The tangible variables that determine revenue are the following:

The formula for Advertising Revenue is =

Number of Videos (simply, how many clips in your library)
x
Views per Video (how many times is each video viewed)
x
Distribution Partners (your own site, YouTube, Myspace, Hulu etc.)
x
Distribution Platforms (web, wireless, television, out of home digital networks)
x
CPM (how much you can charge for each 1,000 monetized streams)
x
Revenue share percentage (from 0 to 100%, basically)

- There is a multiplier effect, and that is Frequency of publishing. The more you publish, the higher the likelihood that someone stumbles on your content. On this, no one beats us: we publish 3-5 clips per day.

We also have one of the bigger library sizes.

These are very important attributes that create obstacles that make content creators remain irrelevant and incapable of generating meaningful revenues. By irrelevant, I don’t mean that in a bad way, I mean unable to cut through the noise and clutter that is online video.

The intangible variables that determine revenue are the following:

- How ad friendly is the content. Ours is extremely ad friendly, whether it’s our automotive, entertainment fashion or travel content. But, it remains informational and entertaining, so we please both viewers and advertisers. This is key and more art than science.

- How evergreen is the content? If your content is relevant today but useless tomorrow, I have bad news for you, your eCPM will be lower than if the content is evergreen.

Put all of these variables into a big blender, mix, shake, stir and what you get is your eCPM.

So what is WatchMojo.com’s [net] eCPM?

Our total eCPM taking into consideration all revenue is $16.67 (using July’s figures). But this is from both licensing and advertising revenue. Advertising eCPM is $10. Mind you, we don’t have a sales force, technically. If we did, it would be much more.

But here’s the thing:

Few content companies can command licensing revenues, and if I am admitting all of this, it’s because I sincerely want others to do so, because it forces aggregators/distributors who are armed to the teeth with millions in VC money to share some of that loot with producers of quality content… which is what will make advertising revenues in online video meaningful.

Over time, however, I fully expect online video advertising eCPM to be bigger than video licensing revenues, but we’re not there, yet.

Related:

Does the Law of Diminishing Return Apply to The Theory of Content is King? - read more.

For more on licensing fees, click here.