Hulu’s growing pains are emblematic of old media’s challenges and symptomatic of its pedigree.
Hulu is the free premium video site that was launched by News Corp. and NBC and today also includes Disney/ABC as a third parent. A bit of a disclaimer: WatchMojo supplies Hulu with a plethora of videos across multiple categories.
Let’s first look at Hulu’s pedigree to understand why this script ending should not have come as a surprise to anyone.
Too Many Cooks in the Kitchen?
According to Mediaweek: “Observers predict that the already complicated arrangement is likely to become more so, particularly given the prospect that NBC Universal may be sold to Comcast—which already operates its own online video site (Fancast) and has a markedly different philosophy regarding just how free TV content should be on the Internet.”
I’ve always feared that what led to Hulu’s quick ascent - access to great content - would in turn mean that its media owners would eventually bicker and have divergent opinions on strategy. After all, while Google’s YouTube is Big Media’s frienemy, over time, Big Media’s biggest enemies are one another as they vie for market share.
That is half of the equation.
Market Timing Never Works, You Have to Stick to Your Guns
Old Media makes decisions based on today’s conditions, which ensure that in a few years time, when the project has taken off, the conditions might no longer be conducive to their strategy and execution.
Case in point: Hulu decided from Day 1 to go free, this helped the company’s traffic take off: Hulu has soared from 12.5 million unique users in September 2008 to 38.7 million this past September, per comScore.
When the site launched, the decision to go free was smart. After all, the challenge was to change consumer behavior and thwart piracy.
To put things into context, in the summer of 2007, Rupert Murdoch’s News Corp. was seeking to acquire Dow Jones and there was talk of making Dow Jones’ Wall Street Journal website - the most successful paid content website in the world - go free to capture more advertising dollars.
At about the same time, Hulu was moving from an idea to beta to launch. Never was there talk of making consumer play, not because Hulu’s media owners (which included Murdoch’s News Corp.) cared about user preference, but because it was an advertising play.
The Economic Meltdown Changed the Script
With the 2008 economic meltdown came a slowdown in advertising. This slowdown affected traditional media and advertising more than online. As a result, the downward pressure on media companies’ share prices accelerated and this forced them to reconsider the free, ad-supported content model.
Incidentally, there is no more talk of converting WSJ.com into a free site, in fact, Mr. Murdoch today talks of serving less users on his web properties but charging them to access the content.
Yes, times they change.
Hulu is a great partner of ours. We really wish them well. The CPMs they command are so much higher than the industry standard that we wish that they grow as a site so we grow with them. But the story twists we read in the press should come as no surprise because media companies are impatient and desperate.
Have We Seen This Movie?
What they fail to realize, ironically, is that no matter what plan they hatch today to get users to pay, by the time these plans are implemented, the advertising market will return and they will find themselves on the inside of the pay wall looking out, once again finding themselves going against the grain.
Some time ago, online media professional Dave Haber (and reader of this blog) emailed me an article from MediaPost, titled “How Can Independent Video Producers Compete In The Super-Premium Era?”
The article was written by Lewis Rothkopf, who is vice president of network development at BrightRoll, one of the pre-roll networks out there. As a side note, I really admire Brightroll’s CEO Tod Sacerdoti. Unlike most of the pre-roll intermediaries who seem to be either in denial or out of touch about that the pre-roll format, Sacerdoti is realistic about the pros and cons of the format, not insulting people’s intelligence about why his firm focuses on the unit.
Anyway, for some time, I was considering writing a related piece on indeed how independent video producers (such as WatchMojo.com, the company where I am the CEO) can compete in the super-premium era. It was the first time I’d seen someone else use those terms, because for some time, we’ve separated “premium content” (what new media producers like WatchMojo.com produce) from “super premium content” (what TV networks and film studios create).
Rothkop’s three tips included:
1) Compete on quality.
2) Compete on price.
3) Compete on advertiser-friendliness.
As proud as I am about WatchMojo.com’s content, I don’t think that economics permit premium content quality to surpass that of super premium. It won’t happen. After all, with text content, a kid in a basement can pass off for a Pulitzer-prize winning journalist. In video, that is pretty darn hard.
So while his ideas are good, I would add that you should also compete on:
4) Rights: giving partnerships the opportunity to go global and multi-platform
5) Frequency: the drawback with traditional media is that it does not really update as frequently as online consumers of media (be it listeners, viewers, readers) are grown accustom to.
I could list a few other things, but the purpose here is not to give away too much of our secret sauce.
The purpose of this article, in fact, is to look at how traditional media companies can avoid the music industry’s fate by understanding how new media companies fit in their strategies and ecosystem.
Tenet 1: The Web Shrinks Traditional Media
Due to the economic meltdown and subseqent slowdown in advertising, a lot of cable companies are regretting putting their shows online for free.
It’s not just the cable companies, though. From Michael Lynton, the CEO of Sony Pictures, via HuffPost:
I actually welcome the Sturm und Drang I’ve stirred, because it gives me an opportunity to make a larger point (one which I also made during that panel discussion, though it was not nearly as viral as the sentence above). And my point is this: the major content businesses of the world and the most talented creators of that content — music, newspapers, movies and books — have all been seriously harmed by the Internet.
Is that true? I think the Web shrinks the traditional media business (producers of super premium content) by giving an enormous opportunity for new media creators like WatchMojo.com (producers of premium content) to disrupt things.
Tenet 2: Amongst Traditional Media, With Online Video: Those Who Can, Won’t. Those Who Want, Can’t
As I’ve long argued: online video can be a salvation to print media, at least they should care about online video. The problem is that print media lacks the DNA - be it in terms of asset or people - whereas TV-centric media firms have the DNA but lack the financial incentive.
Either way for traditional media, it does not look good. Those who can, won’t; those who want, can’t.
Tenet 3: Super Premium Content vs. Premium Content
On the traditional media video company side of things, you have companies who slant towards scripted entertainment, news and sports (CBS, ABC, NBC and FOX) and then the non-fiction ones, such as Discovery Communications, Liberty Media (who owns the Travel Channel), Scripps.
The advertising budgets in television are massive. As such, these companies spend what it takes to produce “super premium content”.
Memo to New Media Guys: Know Your Role
I don’t think new media producers have the budget or financial incentive to create super premium content. Startups who raise tons of venture capital money to do so end up making mistakes because they borrow traditional media’s inefficient and wasteful ways and burn a lot of money early on, before the web video market (be it in the form of ads or subscriptions) materializes.
This is why, I think, you have seen companies like Mania TV shut down. I am not saying they were producing “super premium” content but by attacking the music category, they ended up adopting traditional media’s bad habits.
At WatchMojo.com, we made a counter-intuitive decision to avoid focusing on one niche and produce content across the main verticals: Automotive, Business, Education, Fashion, Film, Food, Health, Music, Politics & Economy, Space, Sports, Technology, Travel, Video Game categories. A lot of accomplished people thought I was crazy to do so, but we are one of the few media companies (traditional of new media) that gets guaranteed, recurring licensing fees. Judging by our revenue breakdown, the bet paid off:
The proof is in the pudding: our content is of high enough quality to merit getting licensing fees, but in the really grand scheme of things, I am not delusional: I don’t pretend that our travel content is going to trump The Travel Channel’s, or that our Science videos will put the Discovery Channel on the brink of collapse, or that our cooking videos will put the kybosh on the Food Network.
Of course, that is not the point. Right now, our content beats 99.9% of the content out there, and the 0.1% that traditional media’s super premium content represents is still only being tested online. I think Discovery’s CEO David Zaslav is 100% right to say:
“I’ve spent a lot of time looking at the economics. If you take out a pen and you add it up, there’s not a lot of economics there [of putting full shows online]. The business model is not that strong…we get substantial value by distributing our content on dual-revenue-stream platforms, domestically and around the world. We’ve been able to take the best of our content and use pieces of it through HowStuffWorks.com or on our other sites..there’s no reason for us to take a fire hose and take a fantastically valuable library and make it available on the Web for free.”
He’s right. The web right now, and potentially never (yes, I am saying never), will grow large enough to become bigger than TV is today. However, I think that TV will shrink enough and online will grow enough for the Web to surpass everything else.
I’ve compiled the experts’ projections and ran the numbers myself, it is highly possible that online video advertising will surpass search ads by 2018 as online ads altogether take over television advertisings by 2021.
Tenet 4: Is The Objective Not Maximizing Value?
If and when that happens, the television business will have shrank by so much and online video companies will have grown so much that the disparity in market value could very well be in the favor of new media players.
Right now, it is a given that Netflix is worth more than Blockbuster. Netflix is worth $2.25 billion; Blockbuster all of $135 million. That’s right. But ten years ago, that seemed impossible and 13 years ago, Netflix didn’t even exist.
Mind you: in 2008, Blockbuster lost $375 million on revenues of $5 billion; Netflix earned $83 million on revenues of $1.3 billion. Ultimately, it’s about each company’s prospects.
Don’t get me wrong, in 10 years, traditional media companies like Walt Disney (parent of ABC and ESPN), CBS, GE’s NBC unit and News Corp.’s FOX division might make more money each year than any new media outfit, but mark my words, some of the new media outfits involved in the production and distribution of premium content (such as our own WatchMojo.com, but also the Revision3’s and Next New Networks and countless others who get less coverage) will be worth more than some of those venerable traditional media brands.
I know, I sound crazy now, delusional. But you judge for yourself:
In all likelihood, there will be an enormous amount of consolidation and an outfit that amalgamates the pieces will be worth a lot. If the traditional media guys get it right, they will outright buy everything in sight now, and leave them alone for a while.
I respect the hell out of the CBS brass, but while they made a prescient bet on acquiring Wallstrip, they dropped the ball in the market meltdown of 2008 by rushing to shut it down. Again, this is not about CBS or Wallstrip per se, it is about the interaction between traditional media and new media content companies as one market shrinks rapidly and the other balloons faster than anything else.
Tenet 5: Actually, TV Can Avoid the Fate of the Music Industry
I came across this graph by Magna Insights via the GrowYourBusiness blog. If we were to extrapolate it to the video business (all filmed entertainment, be it theatrical releases, home entertainment, or television programming), you’d think that television is as doomed as music, but it need not be that way.
Regular readers know that I don’t think anything will “kill” television outright, but this graph does suggest that online video will shrink traditional video, as was the case in music. There is a rationale to support this argument:- if the traditional media companies don’t legally make their content available online, then there is the threat of piracy. Think of music labels.
- if they do publish their content online, then they shrink their businesses via the threat of cannibalization. This is what happened to print companies, the more aggressive ones actually shrunk much quicker than those who weren’t very aggressive (think NYTimes, or the Chronicle).
But, I think it doesn’t have to be this way.
Here’s my thinking:
Music is one-dimensional in every sense of the word: it’s just audio, meaning that despite what the crack-smoking analysts seem to think, advertising-supported music is dead on arrival. For music to generate revenue online, it would require subscriptions, and consumers don’t want to pay. Media companies might pay record labels for the right to distribute music, but record labels want such massive fees that this becomes killer, too. So ultimately, because of music’s limited scope, there is really no viable business model to support it.
This is why music is increasingly seen as promotional fodder to drive merchandising, ticket sales, etc. The artists get it, the labels are adapting to it.
Video content is different. Ad-supported economic models won’t replace offline revenue streams, but they can grow to become material over time. Of course, this isn’t enough to offset the losses in traditional revenue streams, I get it, but in music, the independent artists that used the Web to promote themselves did not generate any revenue for traditional record labels per se, however, in video, new artists can represent new revenue streams for traditional TV and film companies. As such, to illustrate the point, in addition to digital sales off traditional libraries (represented by the purple), there would be additional incremental revenues from new media studios (represented by the green), as I’ve tried to demonstrate in the make-shift graph below:
But the same way that music has become promotional for other, related activities (merchandising, ticket sales), I would argue that if traditional media companies use the promotional card righ, they can actually stop the pace that traditional television is shrinking. Notice I didn’t say reverse it. I don’t think anything will reverse it, but with the web, they can optimize their inefficient production processes:
- You know what will be a hit and won’t be a hit without having to burn tens of millions of dollars in production fees.
- You can advertise your television and theatrical releases online, which is cheaper than offline media.
- etc.
The point is, even if revenues get clipped, costs should fall too. If this is managed right, then the traditional media companies’ can technically preserve their profit margins.
I think it is sheer lunacy to take a $1M production made for TV - where the economics are sound - and put that online and get nothing. But using the examples I outlined above, since audiences are increasingly online, I think there’s an argument to be made for:
- the Travel Channel to partner with us on our travel content;
- for Discovery Channel to partner with us on our science content;
- for the Food Network to partner with us on our food content;
- etc.
Tenet 6: Gobble, or be Gobbled
Eventually, though, I think traditional media companies can use new media companies for much more than just promotional vehicles. In fact, they can use the CBS/Wallstrip example and outright acquire new media ventures and commercialize the new media library while protecting the core value of their offline stuff, which can be showcased online, but not in its entirety.
Does this open the door for some piracy? Sure. But Wolverine was pirated but in the end, it probably helped augment buzz for the movie.
CBS is working now with EQAL, for example. Eventually it might outright buy them. It might not, of course.
Tenet 7: It’s All About the Multiples
Ultimately though, as the traditional media companies become more digital, via
a) the acquisition of new media companies
b) the digitization of some of their traditional assets
c) the convergence between shrinking offline revenues and growing digital revenues
their price-to-sales and price-to-earnings multiples will grow… meaning that the companies can remain very valuable, avoiding Blockbuster’s fate.
Tenet 8: Print Shall Strike Back
Of course, because print media companies lack the DNA to dive fully into video, and because online video is purely incremental, I suspect a lot of the print companies (both newspapers and magazine ones) will put the new media video companies in play on the M&A front.
It is possible that the current wave of managers in print still likes to stay within their comfort zone (behind a typewriter/computer) and not behind a camera, but the economic argument over time will be too great to overlook. To clarify on this point, it is not that I suggest that in 2009, online video revenue can make up for print loss of revenue. Rather, I suggest that print revenue will do dry up in the next decade and online video will so grow that these two will converge, and unlike for TV companies, this revenue will be incremental.
Tenet 9: The Reality Remains the Same, Though
But despite all of this, the reality remains the same: old media is fundamentally inefficient in today’s digital and connected world. Perhaps the carnage of the past 6 months has forced traditional media companies to cut back, but many have not. The NYTimes has a staggeringly large newsroom, its relevance and survival is at risk by leaner new media outfits.
Tenet 10: History Repeats Itself
A decade ago, a lot of savvy media folks didn’t quite recognize the full extent of online media’s risk to print. Today, the writing is on the wall.
Ultimately, if television wants to avoid the fate of music labels, then maybe it can dive in to the history of newspapers.
While 2008 finished off with companies doing their best to cling on to anything to avoid from being sucked into the maelstrom, I think - despite the continued stock market meltdown - that many companies are seeing some stabilization in their core business. In other words: yes, 2008 Q4 saw a rapid evaporation of booked business, but 2009 is not looking as dire as some expected.
Online Remains a Beacon of Growth
Let’s face it: online media remains a growth area regardless of the fact that growth targets have been reduced. If you are CBS, News Corp., GE’s NBC, Walt Disney, Viacom or Time Warner, you have to look at ways to spruce up your online assets and acquire new ones. If you are Yahoo!, Microsoft, Google, Amazon, Apple, Cisco, Comcast, or IAC, you are looking at online assets as more reasonably priced relative to the previous couple of years.
A couple of companies that remain wild cards are print-based media firms Conde Nast and Hearst, who unlike their newspaper brethren (Tribune, NYT, etc.) are not on the verge of banktrupcy, but whom might fare a similar fate if they don’t take action soon.
This, I believe, is what explains the latest report by JP Morgan analyst Imran Kahn, who (Via Paid Content) in a new report, says:
“Mergers and acquisitions among internet companies could grow significantly. Since most companies cannot look to the economy for growth (JP Morgan estimates GDP will decline 2.2 percent this), Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.
Small is Beautiful
I’ve mentioned for some time that microdeals are the wave of the future:
- companies just don’t have the financial wherewithal to go for grand slam deals, and
- integration becomes a nightmare.
Lowered Expectations
Where things get interesting for big media companies is that VCs have been blindsided by their own investors inability to meet capital requirements, so many will accept lesser exits… though truthfully, heavily-funded VC companies are going to get sidelined in the M&A song-and-dance because entrepreneurs might be more realistic whereas VCs will never be able to pull their investments “in the money” when they agreed to nosebleed valuations for some of these bubbly Web 2.0 fares (Digg, Slide, Facebook, Ning, etc.).
Kahn seems to agree:
“Kahn believes healthier internet companies will turn to acquisitions, and that they will target inexpensive smaller internet companies.”
Build vs. Buy
The other variable we’ve touched on Big Media’s Buy vs. Build dilemma for some time:
Large internet companies may re-consider the “build vs. buy” strategy—they’ve been moving recently toward the “build” side of that continuum, which resulted in only 45 acquisitions in 2008 versus 94 in 2007, according to Kahn. While he predicts large internet companies will still increase their R&D spending by 8 percent in 2009, that is much less than the 25 percent increase in 2008. As they spend less on innovation internally, large internet companies will probably be on the hunt for smaller companies.
Balance Sheet vs. Income Statement
This plays into the nuance between balance sheets and income statements. A company’s income statement captures the revenues and costs over a period. Right now: revenues are going down (or at best flat) whereas costs remain high. Yet companies do have cash on their balance sheet, which captures a firm’s assets and liabilities (and shareholder equity) at a given time. In other words, even if companies revenues go down, their cash remains idle. But if revenues are flat or going down, a company cannot justify adding to costs (and thus “building” in house) because this will push the company into a money-losing status, which in a tightening credit market might mean lights out if the company’s financing and credit facilities dry up.
As a result, while cash is king, too much cash on a balance sheet is inefficient.
“Finally, the large internet companies have stockpiled a ton of cash as they grew significantly the past several years, and they will be looking for ways to make a solid return on that money.”
In case you are wondering who is going to be taken out, here are some of Kahn’s picks:
As for which public companies are most likely to be acquired? Kahn evaluated them according to brand strength, product leadership, ease of integrating the smaller company into the larger company, and barriers to entry to determine that Omniture, the online analytics company, and MercadoLibre, the Latin American e-commerce company, are the most likely to be acquired. Shutterfly, The Knot, and Expedia were also attractive candidates, according to the report.
There are a few others I can think of… but we’ll leave that for a separate post.
From NYTimes:
After college, Michael Eisner briefly sought the life of a playwright before settling on the corporate media world, working his way up through ABC and Paramount. He became chief executive of Disney in 1984.
Today, without shareholders to worry about, he is driven by his creative impulses and an almost messianic belief that movies and TV shows and videos are more valuable in the long run than the pipes over which they are delivered.
“It’s always the content that defines the platform,” he says. Now the platform owners are “being arrogant and saying, ‘we’re it,’” he adds. “But eventually exclusive content wins out.”
Then he gives an important caveat: The content must be professionally produced as well as exclusive. “How many skateboarding cats can there be?” he says.
After nearly 3 years, 700 hours of filmed material and over 4,000 videos, here are the two things I think are most important about a media company’s video content strategy:
- the cost of creation has to be kept in check;
- the content needs to be evergreen, or at least have a long shelf life.
Everything else is a detail that can be tweaked to make the content a winner… but if either one of those two is off, it won’t succeed. Then again, I don’t have $333M to finance my content company (what Eisner had when he left Disney), but I digress.
Regarding the following:
Like his counterpart, Mr. Diller, Mr. Eisner is at pains to offer a unifying vision for the different companies he has in his portfolio.
“There is a method to my madness, but it’s hard to define,” says Mr. Eisner, who explained that eventually the assets would fit together as one media company.
I don’t think it needs to come together in a grand unifying theory. What matters is some kind of synergy where some of the parts help others. Within our company, the core focus is on WatchMojo.com, for sure. So using Mojo Supreme as an example, we use every other unit to reinforce WatchMojo.com’s leadership position in the marketplace.
- The number of media professionals that got to know about WatchMojo.com via this blog or other blogs in our blog network BloggerMojo.com for example is considerable. It also helps us in other ways, like aggregating or linking to content that we want to cover, promote, mention or reference without actually spending the resources to create a video for. Other blogs, be it SoundMojo.com, ArcadeMojo.com or FlickMojo.com also helps us establish ties with record labels, movie studios and gamemakers respectively that in turn help make WatchMojo.com’s music, film and video game videos of much better quality.
- We can better serve marketers who promote contests via StreetMojo.com, and in turn cross promote pertinent videos alongside those contents…
- Search was a bit of a different story. I’ve covered that quite a bit on this blog back in the day. Click on the MetaMojo.com tag if you care to learn the method to the madness there.
The point being: I don’t mind sharing all of these “trade secrets” because, well, they’re not really secrets, and to quote Vince Lombardi (alright, I am not sure he ever said this, but it sure does sound like something he would say), knowing something isn’t what counts, it’s actually doing it.
Connecting the dots, when it comes to doing it, I don’t necessarily agree with everything that Mr. Eisner is doing - I don’t understand most of it - but I do commend him for being one of the few - along with ourselves - who is producing video content instead of relying on skateboarding cats. As I said all along: we’ve seen an underinvestment in video content and this probably explains why online video advertising estimates were reduced this year (before the subprime/housing/financial meltdown went into turbo).
Back to Mr. Eisner: one thing is for sure, he’s having a helluvatime funner time than his peers who stayed on in traditional media, considering the meltdown there.
I’ve never bought this notion that viewers who consume video content online watch more TV. I am not saying that people who watch a lot of Web video don’t watch TV content… but I certainly think that the numbers of media one consumes is finite, so the more you get it from one media, the less you are bound to get it from somewhere else.
- From Broadcasting & Cable:
According to IBM, more than half of online video watchers say they watch less television as a result, with 36 percent watching “significantly less.”
- From eMarketer:
Between the shaky economy and the growth of online video, U.S. ad spend will decrease 4.2 percent next year to $66.9B.
- From Fortune:
The consulting firm ABI Research predicts more than a trillion videos will be streamed worldwide in 2013, up from 32 billion in 2006. Meanwhile, a recent IBM survey shows that web-video viewers around the world are watching less TV.
The problem, if you ask me, is that web revenue isn’t going to make up the falling TV ad market… and the ones who will garner the lion’s share of ad dollars online aren’t the TV companies… so you have to ask yourself: will the future of TV media firms look much different than the future of print media firms? Which takes us to the brunt of it all, when it comes to traditional media firms and web video: those who can (TV), won’t… while those who want (print) can’t.
What, on earth, has happened to the media companies’ stocks and market caps?
In early summer 2007, we looked at media companies to determine who was the king of digital media and then used the multiples and figures from each of the publicly traded companies to forecast the value of NBC…
Yesterday Marketwatch ran a piece on how much media stocks have fallen off their highs. You can’t blame them for not trying, though.
I decided to compare values to see what has happened in the past 18 months and folks, it’s a disaster:
Question: “As far as your business goes, which is proving the bigger challenge monetising existing content or increasing views?”
Answer:
One year after launching our syndication network, we’ve become one of the largest syndicators of video content online (for more on this, read a press release we issued or check out one of many sources backing this up). The focus now is on monetizing it, either via advertising or licensing deals… frankly, due to the lack of traction in the former (advertising) we’re now focusing on the latter (licensing).
As a result, on our end, we’ve stopped giving away our content for free (in the hope of speculative revenue share deals) and now demand minimum revenue commitments (so basically, ask for licensing fees). If I had plenty of money in the bank, I might be more willing to give it away… but even then, to be very honest with you, with YouTube commanding such a large market share, just because you sign a distribution deal with a new company does not mean it translates into incremental views, let alone revenues… I won’t name any names… but I do wonder how most of the other sites competing with YouTube (be it directly or indirectly) will stick around and be relevant - let alone competitive.
So since we are financing the company with debt (money I am fronting the company, basically, since we launched) and revenue from operations, we demand minimum revenue commitments to keep the lights on, so to speak, though we’ve kept the costs low by being smart about things, ie. not raising VC so having to spend it on expensive fax machines and cutting edge coffee machines, along with the latest deflingers.
What does this mean practically?
For purposes of illustration, out of 10 leads for syndication partners that we talk to:
- probably 5 balk when I demand for minimum commitments because “it’s not in their budgets”, but with all due respect to them, they’re the ones who made a mistake not to allocate any funds for content acquisition and instead prefer to burn money on non-differentiating things like servers etc. More f’n power to them… honestly. If I could get content for free, I would too…
- 3 consider it but balk, saying the timing is not right… it’s their loss… because their sites remain hollow ghost towns while YouTube continues to gather audiences and content… to see why these companies make a mistake, see this.
- yet 2 agree. But guess what, content is king and those 2 sites have something that differentiates them… unlike the 8 that sit on the sidelines with oodles of servers waiting to handle the load but have little to serve other than UGC or not-frequently-published video libraries of yesteryear, or content from our peers who publish a clip a week, maybe. I won’t name any names… but you be the judge.
Honestly, I don’t mind losing out on the 8 because there is so little good content being produced that invariably they come back at one point or another… and the 2 that do pay make it worthwhile. I can add up some of the revenue share checks from the smaller players and honestly, I can use some of those checks as coasters because the cost of coasters is greater than the amounts on those checks. Yes, the initial analogy I was going to use was R-rated… I cleaned it up.
The reason why advertisers are staying on the sidelines with online video is not a lack of streams, but a lack of trustworthy content… what has not helped is the backwards investing targets of VCs who have plunked down $2-5B in more platforms, file sharing sites, CDNs etc., all things that become commoditized and don’t differentiate anything that advertisers look for. Coca-Cola does not care about your back end, they care about the content, demographics, reach etc. That all starts with content…
We’re living in a very faddish, hype-driven world… and thanks to the souring US economy and abysmal VC investing in video (quick: name me a successful exit in video other than YouTube) the noise is going down, fast. Digg was fetching $300M last month… now it’s $200M. Honestly, in 3 months, it will be $100M and in 1 year, $50M.
Why? The US economy will make things change very quickly: growth will be less sexy because non-monetized growth will mean more costs and costs alone… and VCs will become more fickle about financing clunkers. Companies will have to compete for every inch (especially with a US Greenback that is puny relative to global currencies) so money losing ventures become losers, quickly.
Of course, this weakening economy also means that companies won’t want to foot the bill for content creation…
But what won’t change is the rush of users and audiences online… with voracious appetites for content, particularly video content.
So day in and day out, our content is worth more and we have more pricing power and leverage… but the fact remains, until we’re breaking even and laughing all the way to the bank… yes, it’s a constant struggle because the Web has trained us that content does not pay, apparently, aggregation pays… frankly, I think that is nonsense and as the Web develops and matures, this will come back down to reflect the real world.
Distribution is easier to come by than good content, largely because aggregators and distributors have been over-funded, but content has been under-funded, but additional distribution is not valuable because it dilutes your product. We’re awfully idealistic with online media… but ask yourself, if the Olympics really were on all networks (CBS, ABC and FOX in addition to NBC), the Olympics would win, but NBC would not. But the reason why NBC agrees to foot the licensing fee is because the scarcity forces advertisers to pony up. Right now, we don’t have any of that online.
So instead of following the institutional imperative, we’re going against the grain and now protect our greatest asset to make it worth something.
But distribution is meaningless if people are on YouTube and “the latest aggregation site that will reinvent everything” isn’t even being visited. Look at the latest stats: it’s brutal if your URL is not YouTube.com, and if your URL is YouTube.com, you are monetizing 3% of your content because only 4% of it is monetizable to begin with - yikes.
Bottom line: if you give something away for free, it’s impossible to come back and price it at something other than zero.
According to eMarketer, the size of online advertising revenue is $1.35B in 2008.
Since launching WatchMojo.com in 2006, I’ve had some questions about that figure… so here goes:
Definition of Online Advertising Revenue is Unclear
I’d be interested to know what falls into the category: if it’s only video pre-rolls, post-rolls or mid-rolls, then we leave out companion display ads… which on a site like YouTube account for the vast majority of revenue. Moreover, accounting departments need to standardize this definition. Conclusion on this item, we need transparency and clarity in Accounting definitions and guidelines, I’d be curious to see if an eMarketer spokesperson can address this.
Rich Media vs. Video Ads
When I was running sales for a mid-sized publisher, I recall that rich media ads (Unicast, Eyeblaster, Eyewonder, etc.) were bundled in with video ads because many rich media ads contained video… is this still true? I am not sure. Why?
Because…
In-banner vs. In-stream
Video ads can be in-stream or in-banner. In the latter case, it would be a video ad in a 300×250 that is rich media, YHOO has loads of these; then there are in-stream video ads, which go before, during or after video content. MSNBC has oodles of these. This is a very important nuance.
Double counting for partnerships?
Say FOX Sports has a partnership with MSN, who books that revenue? This kind of stuff is fairly standard, think of all ad repping firms who collect and remit ad revenue… but in MSN’s case, for example, it also has a partnership with NBC Universal on MSNBC.com. It’s somewhat useful to know how that is all booked. Is it case by case or is there an accounting rule that is actually respected industry-wide?
Ad Networks
Say an ad network such as Tremor Media, Brightroll, Video Egg, Broadband Enterprises etc. place some of these ads, they need to be accounted somewhere. The questions is: where are they accounted? My take is that like it was with display ads’ networks, video networks will touch 15% of the video pie.
Here’s our breakdown:
Using the figure from eMarketer for total US online video advertising revenues at $1.35B, up from $750M in 2007, as a benchmark.
- Yahoo.com = $200M
Yahoo did over $7B in total sales… with over $5B coming from ad revenues. Yahoo! has a lot of video content along with plenty of rich media on its site. As the world’s largest property, I could easily see Yahoo! doing even $250M in video-derived ad revenue, but when you consider that video accounts for less than 5% of the online video advertising pie, then we will assign a 4% share to online video for Yahoo! total ad revenues.
- Viacom = $125M
I think Viacom generates a larger than normal share of its online advertising revenues from online video ads. Last year I noticed MTV.com running a good dosage of video ads when my wife was watching The Hills on their site (I swear she was watching it). I also think that between Nick.com, MTV.com, NeoPets.com, iFilm/Spike, Atom.com and Comedy Central.com, one reason why Viacom is making a big deal about piracy on YouTube is that it sees just how good the online video advertising business can be.
- AOL Time Warner = $120M
Time Warner’s sources of revenue from online video includes AOL.com, TMZ.com, CNN.com, Time.com and many other prominent places. In fact, while TW does have the cable assets, if AOL TWX had more video assets, I think it could generate $200M per year from video, easily.
- News Corp./Fox Interactive Media = $100M
This is seemingly bullish, but note a few things:
Fox Interactive Media did $900M in total revenues… with MySpace.com doing $750M alone. Of that, it’s worth noting that MySpace is #2 behind YouTube, with MySpace TV making a push to get lots of premium content… leveraging News Corp.’s sales team, to boot.
Moreover, between AmericanIdol.com and IGN Entertainment (which includes IGN.com, GameSpy.com, RottenTomatoes and my old stomping grounds AskMen.com), this is actually quite feasible.
(disclosure: WatchMojo.com is a content partner to MySpace TV)
- NBC Universal = $100M
When it is not hosting the Olympics, literally, I think NBC Universal does about $75M from online video, when you consider that NBC’s online portfolio includes its namesake assets including NBC.com, MSNBC.com and the recently launched NBCSports.com. However, bear in mind, NBC also owns iVillage and Healthology, both sites that use a decent amount of video, and thus, generate online video ads. I think one reason why eMarketer pumped up its estimate to $1.35B is precisely because of the Summer Games in Beijing, which should generate loads of revenues for NBC and parent GE, I would put the 2008 take to $100M.
- MSN.com = $100M
Depending on the accounting, MSN.com can be making anywhere from $100-250M… but seeing how NBC and Microsoft remain 50-50 partners in MSNBC.com, but Microsoft has reduced its stake in the television network to 18%, I suspect most of the accounting revenue falls to NBC, who then remits a cut to Microsoft’s MSN unit (I could be wrong on this). Anyway, between MSN.com and MSN’s video assets, I think MSN does $100M in annual revenues from video advertising.
- Disney = $100M.
Disney consists of ESPN.com, Disney.com and ABC.com. That is a lot of video inventory.
Moreover, Disney is actually quite the king of online media. Well, at least it was, before News Corp. and CBS spent $2B in 2 years to accelerate their efforts. But the bulk of Disney’s $1B+ digital sales come from ticket sales at its themed parks, as well as merchandising… however, you know online advertising figures prominently, and video advertising growing quickly.
I had done an analysis previously, with Disney’s range coming in at a monthly low of $1M to a high of $7M.
Is it right? Who knows… Do I look like Nostradamus? Unless you have a better idea, let’s assume the math makes sense… however, given a few factors, I now put Disney on the higher range, and give them an annual revenue from video advertising of $100M.
- Hulu = $75M
Using AlleyInsider’s range of $45-90M in revenues, we’ll peg Hulu’s revenues at $75M this year in revenues. Hulu is now a top 10 video site, according to both Nielsen and comScore.
Disclosure: Hulu is a distribution partner of WatchMojo.com, as well.
- Google/YouTube = $65M
The bulk of that $200M comes from display banners. The only part I would attribute to “video advertising” is the sum of revenues from promotional/commercial videos that YouTube runs off its main page. At an run rate of $65M per annum, that is $175,000 per day, times 365 days. It comes from Forbes’ analysis. I should state, all the way back in 2006, one month before Google bought YouTube, I said “YouTube should be making $15M per month, or $180M per annum”. No comment. Disclosure: WatchMojo.com is a content partner to YouTube.
- CBS = $60M
CBS made $24M from March Madness… mainly from banners etc., but some videos, too. And CBS has been growing very rapidly, of late, launching its syndication network. I am not sure if CBS was doing much more than $5M per month on video ads because its reach was largely on third party sites that consisted of the Syndication Network, and let’s face it, once you embed ads, no one embeds your content on third party sites…
So if CBS was doing more than $60M in online video advertising in 2008, then more props to Quincy Smith and his team.
CBS only recently cracked the Top 10 list of largest web properties, thanks to its acquisition of CNET, which takes us to:
- CNET = $40M
CNET probably does $40M in video advertising, which out of a revenue of $400M is 10% of its total. Considering that on your average site online video accounts for less than 5% but CNET was an early mover here, I think that sounds about right… and yes, I am guessing here.
- The clones (Metacafe, DailyMotion, Veoh, Break.com, Joost, etc.): $50M
I use the term clone affectionately, but I suspect that combining all of the players looking at becoming #3 in the online video distribution space would give you a figure north of $25M but less than $50M. Why? Too much UGC content holds them back…
To really avoid double counting, I am omitting all video networks, such as Brightroll, Yume, Tremor, Broadband, etc.
- Rest of Web: $220M
Doing the math means that the rest of the Web is fighting for just under a quarter of a billion dollars.
What do you think? Does this breakdown make sense? Who are we missing?
Hmm. Two and a half yars ago when I started WatchMojo.com, media companies didn’t bother replying to our overtures… looking down at us. When I say media companies: read all of them, but put a particular emphasis on print and TV companies.
Pretty quickly,
- print companies looked at us as potential lifelines, because they looked at online video as a brave new world that could save their dying print franchises (I could insert a hyperlink for each word in that sentence).
- TV companies began to feel the way print and music media firms did in the late 1990s-early 2000s.
Today, in our private talks, they “admire our vision” and “respect our foresight”. Translation: their businesses are about to join print, music and radio in the toilets.
More from our vault:
- Understanding TV executives Angst and Envy
- Web Video Represents $150B market cap in 2011, but not for TV companies
- Digital Revenues are Never Incremental for Old Media
- Will TV companies face same fate at Print Companies?
- If You’re Old Media, What Would You Do?
Advertisers aim for the 18-24, or 25-34, or 35-49 segment. SAI is right that no one really ever aims for the 50 and over crowd. That can’t be good news to networks.
Average age for live-only viewing:
CBS: 54
ABC: 50
NBC: 49
Fox: 44
The CW: 34
With 7 days of DVR viewing factored in:
CBS: 53
ABC: 49
NBC: 48
Fox: 43
The CW: 34
PLAY
