From AdAge.com:
Warner Music Group is calling on a startup to help execute the lynchpin in its new approach the web. The company struck a deal with Outrigger Media, a small group spun out of video site Veoh, to package artists such as Madonna, Ashley Tisdale and Green Day for advertisers.
Hmmm… what happened to Veoh? Read more about the story. But seriously, Veoh’s raised $99M, I would not spin anything out of it, I would be cramming things into it. There is an accounting/legal reason to do this, but it doesn’t look good for Veoh if that is the case.
Once in a while, I spot a comment that is either interesting, insightful, intelligent, irreverent… and I post it.
From Tech Crunch’s piece on Veoh Compass
Cut them some slack. IF ANYONE IS OLD ENOUGH TO REMEMBER, VEOH came into being right behind YouTube, along with Vimeo/Revver/Brightcove/now-Crackle/etc. — Yes, VCs threw money at them (bless those days), but, NO ONE IN THIS SPACE has figured out a great business model and they burn through money because they burn through bandwidth. YouTube’s projected to LOSE $470k this year? Without Goog propping them up, they’d be deader than day-old fish.
BRIGHTCOVE abandoned it’s mission and strategy a few times and guess what? They’re alive. Adapt or Die.
The problem with most/all of these ventures is they never learned how to be a “Distributor” in the film industry sense of the word. They are networks without distribution “Rights” (value). They never tapped into the traditional media talent pool to truly converge the Industries. Yes, they could have used their money in a less-geek’d out sort of way and maybe become sustainable businesses.
Hence, we’re stuck with Hulu, which is old media on a new screen and the shining golden child of “newteevee.” Hulu is part of a distribution chain, it’s not a standalone tech network.
VEOH tried (a bit) with their Prom Queen deal, etc., but, there are only so many B. Diller’s in the world and VEOH wasn’t pro-active in more alliances of that nature. And, they didn’t nab ownership in the distribution Rights.
Technology isn’t Content.
$70MM later, there are no tangible/valuable assets. Because they didn’t understand Distribution. That’s kind of sad, because no one has an exit strategy or safety net.
Hopefully, Dmitry’s Twitter quest for a date will end better than his company has.
Read the whole piece here. See our two cents on Veoh and its peers here.
In November 2007, we published a piece called Online Video Distribution: The Race for #3 is On…
Hulu wasn’t even around, so #1 was YouTube and #2 was MySpace TV. Then came the usual suspects: Metacafe, DailyMotion, Break and Veoh.
Since then, Hulu has launched, gone from Clown Co. to media darling, to being called just another big bad media thug… but in the process, it has become a major player thanks to its stash of super premium content.
We define premium content as any made-for-web content that is professionally produced, such as our own content at WatchMojo.com.
We then define super premium content as television and theatrical content that is repurposed or published online. Despite their resistance, super premium content owners such as Disney and Sony are seeing no choice but partnering with YouTube.
Having taken notice, CBS, who initially refused to join Hulu, bought CNET for $1.8B, obtained the TV.com URL and has now set its sights on clashing with Hulu for super premium video supremacy. As a side note: wesupply videos to TV.com, Hulu and YouTube.
Meanwhile, YouTube continues to forge ahead, though rumor has it, its costs are spiraling out of control and turning it into a profitable business is becoming more challenging as every day goes by. YouTube is in a thankless position:
- consumers want free videos
- it has to take on “Big Bad Media” when they file a lawsuit (how dare they, right, it’s their content!)
- oh, we also want someone else to foot the hosting bill for increasingly better quality video.
How do we thank them? By calling them a monopolist. Evil. Or worse, heartless. The last one came from us, but it was actually meant as a compliment. Sort of.
What About the Rest?
Anyway, in the past 18 months since I wrote that first piece, more has changed:
YouTube, Hulu, TV.com have all made life for Break Media, Metacafe, DailyMotion and Veoh tougher and tougher. They made things nearly impossible by launching their own sites, however, and not acquiring them. You see how with content, you can launch a new site (Hulu, Tv.com) and scale quickly if you have the resources. By launching these sites and shooting up in the traffic rankings, they removed a lot of leverage these companies would have had in any M&A talk.
I should mention, we have partnerships with all of these companies as well, and to borrow an analogy from Fred Wilson, like any book/newspaper/magazine publisher wants to see bookstores or newspaper stands do well, we genuinely want these companies to grow in traffic and in revenue, but the truth is, you don’t need a gazillion aggregators, either.
YouTube’s success comes partially from the fact that it stayed one step ahead of the copyright issue and managed to literally aggregate all of the videos in the world (or close to it). Hulu and TV.com will leverage their pedigrees to remain relevant and grow.
But there will be a shakedown amongst Veoh, Break, Metacafe and DailyMotion, unless they shift strategies or get some kind of differentiator.
Some would argue the shakedown has begun:
- Last week, sadly Veoh laid off more people. It will now focus on its toolbar, called Compass. Here is a piece by Tech Crunch talking - and describing - Compass much better than one my one-line “it’s a toolbar” description.
- Break Media, in trying to avoid such a fate, seems to have taken a different strategy: producing, investing and acquiring content libraries… which I personally think makes sense. They just bought HBO’s Runaway Box.
Few of these companies will ever really become profitable businesses, I think, though one or two might cash out and exit, making some money for investors. The challenge they face lies in demand and supply: too many similar offerings.
But by making a play for content, I do think that Break Media differentiates itself from the others enough to have some kind of premium or leverage in potential M&A talks, because a buyer would be getting everything else the others offer (traffic, technology, advertisers and content they not only have rights to, but actually own).
Please note, as a content producer, I am biased. Readers of this blog know this all too well. But the fact is, Break Media does get an edge here, ironic or fitting, since they are partially owned by Lions Gate, who owns a right to buy the whole piece.
Since Lions Gate owns the right to buy the whole company, then logic would suggest that Veoh, Daily Motion and / or Metacafe will also make a bid to own content libraries as a differentiator, as well, since they are actually sellable and “in play”. I am not saying they are thinking of doing so, or will for sure, because the VCs that backed these aggregators were adverse to content to begin with… but the fact remains, in their quest for relevancy, it sure would be a hedge against obsolescence.
You are also going to see this with ad networks, as well. AdConion bought Red Lever, I do expect over time for others to follow suite.
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.
Funny to see web entrepreneurs Loic LeMeur and Om Malik duke it out in the comments section of this entry, on Veoh’s layoffs, which was reported first by Valleywag, and confirmed to varying extent by PaidContent.
Says Seesmic founder Loic:
The first sentence “A Veoh spokesperson has denied a news report published today” with “news report” referring to Valleywag is both hilarious and sad for NewTeeVee.
Is it? Newteevee publisher (and VC!) Om Malik disagrees:
It is a report and it was making the rounds on the blogs and yes it was an incorrect news report. It doesn’t matter where it came from. chris did his job and did it well. I disagree with your read on the situation.
I see Loic’s point, don’t get me wrong. But I disagree with his assessment due to its source (yes, I think who says something has major bearing on the message). That point of view would be a fair criticism from a traditional media chieftain trying to hold on to any vestige of relevance in a new media reality… but for an uber web entrepreneur like Loic to say that?
After all, didn’t The National Enquirer break the John Edwards affair?
I’d argue that Valleywag is eons more news than National Enquirer is, but the point is: just because one does not appreciate or approve of Valleywag’s editorial style does not mean its content is not news.
Granted, it’s not news a la CNN… but it’s not The Onion, either.
For a new media entrepreneur to argue that Valleywag is not news is a bit hypocritical if you ask me… after all, didn’t Reuters build a business on republishing earnings reports?
I digress.
The main reason why I wanted to chime in on this isn’t even the bitching on the comments section, it’s that Newteevee mentions: “Veoh dumped its original video programming“.
Original programming? What original programming? I am rooting for Veoh, but as I tell my friends there, stop changing strategy and business models every other day people! The problems of having too much money. At last count, Veoh has raised nearly $70M.
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.
From TubeMogul:
About a month ago, we launched a “Top 40″ list of the users getting the most views from videos deployed by us (an admittedly biased list, but an interesting one). We will be releasing an updated list shortly, but it’s worth pondering: what is the key to their success? Great content, for one. An additional insight came after we released our recent research on “Online Video’s Short Shelf Life.” A blogger savvily pointed out that most successful content creators already understood that online video fans have a short attention span, and thus put out a high quantity of videos.
Curious if that was actually the case, I tested it using our Top 40 list, and found it to be largely true. In the month of June, Chris Pirillo (#2 on our list), deployed 803 videos. Similarly, WatchMojo.com (#6) put out about 691. Further on down the list, Vlaze media (#35), put out a decidedly humbler 74 videos, and Sony (#40) deployed 32–and so on.
The data shows the brilliance of this. Since average online video viewership tends to peak on day three, putting out videos often allows producers to constantly ride the highest point of the wave. While individual videos rise and fall fast, a given producer can always have a steady audience.
Web video publishers need to balance quantity with quality if they want to be relevant, let alone scale, online. The pro of operating in a hyper-syndication world is that audiences might be splintered and fragmented, but you can reach them on those places if you have an effective distribution strategy. The con of it, frankly, is that it’s nearly impossible to stand out from the clutter.
When people question our strategy of publishing so much content (5,000 videos, 100 new each month), the analogy I use is this:
- Think of the Web as a massive college building… seemingly with no end in sight, as one classroom leads to another, and another, and another.
- Think then of the online video ecosystem as a huge classroom with a number of desks…
- With each online video aggregator (such as YouTube, MySpace TV, Veoh, DailyMotion, Metacafe, etc.) representing a desk. While those desks share some similarities, they are all, in fact, independent and stand alone islands. It’s not, after all, like YouTube links to the same video - or for that matter, related videos - on another site…
- On each desk you find stacks of paper on it, lots of them, with each stack representing:
* categories
* subcategories
* keywords- Each video is represented by a sheet of paper…
What do you represent? You’re a you-know-what disturber shooting spit balls on as many desks and stacks as possible. What services like Tubemogul do is help you get those spit balls on as many targets at once… but that’s just one small part of the equation. Why?
Ironically, while online video content is broadband content and dynamic in nature, currently SEO is utterly ineffective with video (relative to text content), so no one can really see through the sheets of paper, let alone see what’s on each desk.
Individually, no matter how great the content (quality) on each sheet of paper, they get lost in a sea of pulp and paper…
The only way to get your sheet seen by users - who might be landlocked to one desk (by having signed up on that site) - is to ensure that your sheets of paper fall on as many:
a) stacks, and
b) desks,
as frequently as possible… why?
In between the time you upload two videos… there’s a whole lot of papers landing on your sheet after yours has landed… making yours disappear from the top and rendering it nearly invisible to the human eye.
In other words, content companies that can’t scale syndication - and production - will find themselves irrelevant before long.
However, this opens up a new question, which is: is there such a thing as diminishing returns with marginal distribution?
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?
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.
The Misplaced Bet on UGC
Back in 2006, we’d get the occasional call from someone pitching us a turnkey solution to add User-Generated Content (UGC) videos to our WatchMojo.com property, which houses professionally produced videos we have created.
At the time, I thought it was an odd pitch, akin to adding a half liter of malt liquor over graciously aged scotch. Biased no doubt as the producer of these clips on WatchMojo.com, I tempered my prejudice and disdain for UGC and said, maybe, just maybe, UGC is the great next big thing, and advertisers will catch on.
Mind you, having served for 6 years as a VP of ad sales at a Fox Interactive Media-acquired property, it struck me as odd. The advertising ecosystem has long been a tiered on involving marketers, publishers and users. That was not to change in my opinion.
That part regarding advertising is key, for in this free, ad-supported ecosystem we’ve created online, no self-respecting consumer pays for anything; advertisers are supposed to foot the bill for both content and technology.
2008: The Flight to Quality
Fast forward to 2008, and things they have changed. For one, no one calls us with such offers, in fact, the calls are coming in asking for the right to license and syndicate our library of professionally produced, premium content.
While this is refreshing to hear for us, I do believe that it spells a potentially doomsday scenario for many of the aggregators of video content as well as suppliers of the broader video space, namely hosting companies and content delivery network (CDN) firms.
UGC’s Impact on Media, Publishing, Marketing and Advertising
Numerous companies raised a lot of money betting on UGC, expecting the so-called wisdom of the crowds to change the rules of engagement in media. Indeed, social media (of which UGC is a subset) has changed the dynamics of publishing, but advertising will remain largely immune as marketers won’t come near it. In fact, the only real impact UGC shall have on advertising is depress advertising rates as an influx of ad inventory floods the marketplace.However, a solid 5 years into the UGC video “revolution”, it’s clear that advertisers are not impressed. eMarketer just reduced the forecasts for social advertising: The company is projecting that by 2011, advertisers will spend $4.3B worldwide on social networks; it had previously guessed the number would be $4.7B. It also took down its US 2008 estimate to $1.4B from $1.8B. You won’t see that in any investor decks, I’ll tell you that.
This spells a lights-out scenario for many in the space, let’s consider the domino steps to explain why.
Today Chad Hurley, co-founder of YouTube, suggested that affiliate marketing (the low paying, low hanging fruit in the marketing ecosystem) might become a source of revenue for YouTube. This year, analysts have been throwing darts at the board trying to guesstimate YouTube’s earning power. As a professional content provider to YouTube, I can probably add my own two cents, but in this post, that makes no sense… and with an NDA in place, that would be folly. So as usual I will keep the comments to the market as a whole. To read our 2006-era estimate of YouTube’s earning power, potentially the first one conducted on YouTube, click here.
The point is: apart from YouTube’s massive, outlier $1.65B sale to Google, every single YouTube competitor in the social networking file sharing video segment has been throwing airballs and putting up donuts on the scoreboard that matters most: making money, either via income or via capital gain. It seems, in fact, that the only time money is even an issue or in the news is when one of these firms raises a ridiculously high financing amount. As I like to say, success should be measured by return on invested capital, and not invested capital.
Measured by the former, practically all of these firms are flamboyant flops. Measured by the latter, granted, they’re smashing successes.
What Should These Sites Have Done?
In essence, VCs have financed these UGC sites to spend money on hosting. Oftentimes, these hosting firms are engaged in price wars with other hosting firms (or CDN companies) that the same or other VCs have invested in. Then, these companies go public and they flop. Case in point: Limelight Networks, who has put up a disastrous return since its IPO. Limelight raised $130M from Goldman Sachs before its IPO.
Quality vs. Quantity: Are You Better Off?
Well, first off, remember that while social media/UGC is a numbers game where you hope to generate 1 billion impressions; and then sell those for $0.10 CPM. The math is simple: 1B impressions x $0.10 CPM equals $100,000.
With professional content, you can build a lucrative business on 10M impressions and then sell those for $10 CPM, which once again running the numbers yields a revenue of $100,000. This was further discussed in our Hulu vs. YouTube: Quality vs. Quantity post.
As a business person, I much rather take my chances building the business that needs to hit 10M impressions.
But, if you are a VC who invested $10M in a CDN or some infrastructure company, you get far more value by investing in a video file sharing site that can house tens of millions of videos and generate 1 billion streams, even if pound-for-pound, those streams are of lower value. This is especialy true if you’ve never sold a single ad deal, and don’t understand the ad business, as most VCs don’t. Of course, it does not help that VCs have a predisposed bias against content businesses, anyway.
As a result, the bulk of video aggregators essentially spend their VC funding on hosting, CDN, etc., and other non-differentiating costs instead of things that could get advertising money in the doors. Advertisers really don’t care where you house your clips and who your CDN provider is, they do however care about the quality of the content.
In other words, instead of footing CDN charges to host crappy UGC videos that are unmonetizable, these companies should have licensed professional content instead.
Chicken, Meet Egg.
As a content producer, I am biased. But the truth is, it’s the other way around. It is not the fact that I am in the content business that I am biased. I have a belief that advertisers seek professional content, so I am in the business of producing high-quality video content.
In the same vein, content owners are now turning their backs on speculative revenue share arrangements and demanding guaranteed money not because they did not initially believe in the idea of revenue sharing, but because the aggregators loaded up their sites with so much crap that they became unmonetizable.
However, had these aggregators taken a portion of their massive funding and licensed professional content and combined that with their burgeoning audiences, they would have been in a very strong position to profit from it.
But don’t take it from me, take a look at Hulu (for more on this, read Mark Cuban’s post). Admittedly, Hulu had a unique advantage what with being owned partially by News Corp. and NBC Universal. Hulu does not need to pay out for content because it leveraged NBC and News Corp.’s content to come out of the gates.
Hulu came to market 2 years after Google bought YouTube. It also came to market years after the YouTube clones had raised boatloads of cash. But when the dust settles, YouTube and MySpace TV will remain standing, along with Hulu. As per all of the others, I suspect one, maybe two will remain in business. The others might cease to operate not because their traffic is stalling, but because they will be perceived as largely untouchable and undesirable to advertisers. There are way too many low-quality UGC clips on those sites for advertisers to care to bother with. Consequently, advertisers will continue to seek a distance between professional and low-quality (or pirated) content. They’ll have no one to blame but themselves, because they got lazy and arrogant about the value of content.
For the record, WatchMojo.com syndicates content to YouTube, MySpace TV, Hulu, Veoh, Daily Motion, Revver, Metacafe. etc. etc. etc. and genuinely wants every single aggretator to succeed, because marginal distribution - while susceptible to diminishing returns, too - is always welcome.
In the end, sure, YouTube will have walked away with a $1.65B payday, but when you consider that since 2006 the online video has garnered $1B in VC investment, suddenly, you wonder if that’s anything to write home about.
Moore’s Law is Meaningless in an Environment Devoid of Revenues
Back in the day, YouTube’s hosting fees were said to be $1M per month (according to a piece by Dan Frommer in Forbes, he is now at SAI). Today it’s rumored to be $1M per day (according to Fortune’s Yi-Wyn Yen).
YouTube commands 75% market share, Veoh (placed #5) has 1%. In other words, Veoh, Daily Motion, Metacafe et al. are not spending $1M per month, let alone a day, but they are spending alot. Veoh has raised $80M in funding, Metacafe and Daily Motion are at $40M each. I presume the companies are now spending $5-10M per year on hosting fees to house User-Generated-Crap.
VCs are no longer indifferent. Initially, VCs were at best ambivalent about hosting costs because when the technologists who programmed these file sharing sites pitched their vision and business model, they presumed that it would replace the historically expensive cost of creating content. They were wrong.
Their business models relied on the wisdom of the masses and collective mojo to create content that advertisers would want. Why pay for content, was the idea, if content would be created on the cheap? That might very well go down as one of the biggest investment flops ever, when you consider the sum of money invested in UGC with no promise or hope of payoff in the near, mid or long term.
Don’t take it from me, take it from existing case studies:
- YouTube - despite a 75% market share - continues to wonder about monetization.
- Revver sold for $5M after raising $13M in VC.
In both cases, the companies bet on the wrong cost structure: hosting of crap over licensing of quality content. YouTube won, others did not. The”others” camp is far more numerous while YouTube remains the lone winner.
So, What’s Around the Corner
Ultimately, my gut says that many of these VCs who 3-5 years ago placed their chips on these horses will grow wary and tired of burning money while Google’s YouTube continues to galvanize market share. Before long, much like the fate reserved for Revver, VCs will cut off the lines of financing; they will have to sell for pennies on the dollar.
It’s not like this is new, either:
- GoFish has changed business models a few times as it looks for something to hang on to.
- Handheld Entertainment / ZVUE is now worth a whopping $6M, it’s changed its name a few times and paid an obscene $25-50M for eBaumsworld.com, something that left many scratching their heads.
But these have been off the radar. The more visible players are entering a period where they will have to raise $10M or more to maintain their lifestyle… I am not sure those content libraries are worth their weight. I am also not sure if an audience that has been conditioned to watch UGC will suddenly embrace professional content, either.
Once this happens, I expect to see a lot of the videos that are fueling the growth in CDN business take a further hit, too (as a whole, this is a bad market to invest too, as it has become a commodity).
Onto the Next Fad
Of course, this is all moot, because VCs are now chasing the next pipe dream: wireless, clean tech, space travel…
But there too expect a meltdown, and look no further than today’s news where Helio sold for a paltry $39M after raising $650M.
From a general entrepreneurial perspective, the lesson is simple: VCs talk a big game about being in it for the long haul, but their definition of the long haul is unique to their attention spans, which rivals that of a 2 year old’s. When you craft a business plan, build a company based on your gut and your understanding of the space. Generally speaking, you as the entrepreneur has the best understanding of the opportunity and market reality, and not your VCs or advisors.
From a video specific perspective: it’s on. Video is no longer about hype and its potential. With TV audiences now averaging a mature 50 years of age, newspapers declining faster than anyone could have predicted, the Web is the future of media and the future is now. A lot of money was placed on the wrong horse, a horse who is wobbly and in decline. The shakeout has started, it won’t hit overnight because some of these companies have money in the bank… but when VCs come knocking, you won’t know what hit you.
Related: Video
- The race for #3 in the online video space is on.
- Comedy video vertical sites getting cluttered.
Related: Social Media
- Connecting the Dots: Why Social Media Fails at Generating Revenue
- Why Social Media and Advertising = Fail
- Dark Cloud, Meet Social Media. Social Media, Meet Dark Cloud
- Social Media Hype Train Continues
- When Will Social Media Get It?
- Why Social Media and Beacon Are Doomed to Fail and What Facebook Should Do
- Social Media Growing Pains
Is it all negative? Nope. In fact, social networking might be better suited for e-Commerce, but the greed muscle clouds people’s judgment and makes them chase ad dollars, by far the more lucrative slice of the pie.
- Facebook, or MySpace’s, Multi-Billion Dollar Business?
- Are Affiliate Sales the Path to Facebook’s Billions?
- Memo to Facebook Sales Team
What do you think, is UGC going to experience a turnaround and experience a renaissance… or is it on its last breath?
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