Viacom - still mired in a $1B lawsuit against Google/YouTube - believes it has cracked the online video ad code:
Want to make Web video watchers and Web video advertisers happy? Do it with a short ad at the beginning of the clip, and then another ad that pops up while the clip is running.
So says Viacom’s MTV, which reached that conclusion after testing various ad units in more than 50 million video clips it ran across its various sites. Viacom (VIA) says the intro-and-overlay package works best for advertisers’ “brand lift,” which it defines via metrics like unaided awareness, aided awareness and purchase intent.
Read more. I’ve always liked the idea of a short 5-second ad at the beginning… I can’t imagine the 30-second pre-roll disappearing but if you do the combo of a shorter ad at the beginning and then the longer ad in the middle, that does seem like a better combination. The problem is most of Viacom’s content is suitable for that 5-30 kind of format (5 second upfront, then 30 in the middle), whereas YouTube’s content… less so.
Disclaimer: YouTube is a distribution partner of ours.
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.
Do we need a stimulus for advertising? Former MTV and AOL executive Bob Pittman makes the case for YES:
The government’s stimulus plan won’t work as planned if we don’t get consumers spending again. But in the nearly $800 billion package, there is one thing missing that would surely help accomplish this: advertising. To get people spending again, and the economy moving, the government needs to provide help for businesses in America to advertise their products and services.
(…)
There’s a reason that America is the largest consumer market in the world: It also happens to be the largest advertising market in the world. Advertising works — and it has been proven again and again for over a century. Every successful business spends money on advertising, everything from public relations to TV to Internet-search advertising.
But today’s businesses have responded to the economic crisis by radically cutting payrolls and other expenses, which includes advertising budgets.
We are now at the lowest levels of consumer spending in recent history — it fell at a 4.3% rate in the fourth quarter of last year, the biggest drop in nearly three decades — and the lowest levels of advertising spending as well. There is a connection. Maybe, just maybe, some of the current drop in consumer spending is the result of cuts in advertising.
Read more here.
It’s easy to call MTV’s decision to restrict third party websites from embedding videos as a media company thinking within the box, but that’s unfair.
Last year, many criticized the WSJ for not canning the paid subscription strategy, but then as the ad market tanked (along with the economy), preserving the $120M paid business proved to be a wise move, especially with competitor NYT itching to find a paid content strategy.
The dichotomy runs across many levels:
1 - For traditional media, in boom times they can allow themselves to think “open up and give away”, whereas in bad times it’s “close up and batten down the hatches”.
2 - There is also a very distinct strategy between upstarts and established brands. MTV doesn’t need to allow others to embed videos to build a brand or augment its audience. Of course, it would get more reach, but at the expense of revenue (at least in the short term). In this environment, Viacom (MTV’s parent) can’t allow itself to think too long term, what with traditional revenue streams being decimated. This is the key nuance: We at WatchMojo.com allow users to embed our videos in blogs, but we need to do things like that to build distribution, but even we don’t totally give away our content, generally opting for licensing deals with media companies that want to distribute our content. MTV is doing the same thing: users will continue to be able to do this, but developers can’t ransack MTV’s library in exchange for more visibility alone.
This begs the question: even if individual users cannot embed the videos from MTV, would they get them elsewhere or be forced to go to MTV? Not sure what will happen. A site like Imeem might allow the embedding, but when you consider that Imeem was forced to cut costs and looking to shop itself, you have to ask if that is any better of a strategy? Imeem, after all, is trying to become a destination, and MTV’s decision means that it just doesn’t want third party sites building destinations on the back of MTV’s licensing deals.
Ultimately, as crazy as it sounds, you need people to engage with you on your terms.
3 - Those who push for the embeddable strategy don’t actually produce or own the content. YouTube is the company that made embeddable videos an explosive growth strategy, but let’s be fair here: YouTube was trying to run ahead of the piracy issue avalanche, and since it did not own the content, it didn’t care to see other sites host the content, be it if the other site is a blog or a massive social network like MySpace, which helped fuel YouTube’s growth.
So the point in all of this is: with the economy tanking and the whole Web 2.0 buzz fading, what used to be considered crazy is turning out to be good old common sense. Running WatchMojo.com, I would not disable the option to embed our videos, but if I were running Viacom’s video strategy, I would consider it…
This also reinforces what I’ve been saying all along: the value of videos isn’t simply the sum of what you charge for the content via ads, if you build an audience around video content, there’s a lot of value there, and MTV is trying to reclaim it.
Fascinating tell-all book on MySpace, found via Tech Crunch. Worth noting that MySpace’s position on the matter is: “This book received zero participation, zero access, and zero fact-checking from MySpace.”
The major tidbit is that in February 2005, Facebook founder offered to sell his new social network to MySpace for $75M. As obvious as this “error” might be today, at the time, MySpace was a subsidiary of Intermix (formerly called eUniverse) with little cash on the books, so even if MySpace’s Chris DeWolfe wanted to pursue the offer, I doubt they could. More importantly, I’d say, was DeWolfe’s decision to cash out when the company raised $11.5M from Redpoint (thus limiting his upside) and mainly, his decision to cap the value of MySpace in any sale of Intermix to $125M. But, you know what they say about hindsight.
On my end, something else stood out:
June 2005: Viacom and News Corp vie for acquisition of MySpace. Viacom too slow, News Corp. does marathon weekend deal to buy company for $580 million. Ross Levinsohn from News Corp. leads deal from their side. Tom Freston leads from Viacom.
It’s interesting to see that companies don’t change or learn from mistakes. Months after News Corp. bought MySpace, it also bought IGN, which Viacom was also chasing.
At the time, I was VP of sales at AskMen, who was just acquired by IGN a few months before in June 2005. The day the deal was announced, I happened to be in NYC. You’d think that Viacom would have learned from losing MySpace and moved faster on IGN, but it didn’t. IGN had filed for an IPO, but ultimately, News Corp. paid $650M for IGN. IGN had given options to us at AskMen after they bought us in a cash deal, so I ended up making 50% more from the IGN/AskMen deal via that acquisition. I always had a soft spot for Rupert Murdoch, even when his leutenants piled on and sued me the next year.
Note: my new company WatchMojo.com currently supplies MySpace with videos, so it’s nothing but love now.
YouTube vs. Hulu? That is the question record labels are asking themselves as they look for options to tackle declining offline sales and piracy.
Actually, there is a third option, which is building their own Hulu-style site. Hulu is a NBC and News Corp.-backed joint venture.
Ultimately, the conundrum for the labels is “which option will drive higher revenues?”
Somewhere in all of this we should mention that News Corp. has recently launched MySpace Music, which has a legitimate chance of being a major player in music; it already is, of course.
The Specific Reality Facing Music Labels
Music labels are going about this latest fork in the road in the wrong manner, as always. Hulu vs. YouTube vs. Proprietary Site is the wrong question to ask, which in turn will yield the wrong answer. We’ve already covered why from a business model perspective the two properties are different, but even from a partnership perspective, they are vastly different. WatchMojo.com distributes content to both companies, by the way. With a new media company, individual distribution channels can over time generate incremental revenues that, when taken as a whole across all distribution partners, can represent a meaningful revenue stream.
But honestly, neither site will drive enough revenues for the record labels. Let me explain. Music executives have seen billions of dollars in sales evaporate in the face of piracy. As such, nothing online can represent a meaningful alternative to the analog dollars they’ve lost. Not ringtones, not digital downloads, nothing. Of course, digital media is a more profitable distribution strategy, so if the music companies cut costs, they can remain wildly profitable. That they have chosen to stick to their old ways with their cost structures is consistent with their desire to stick to outdated distribution models.
The reality is that music piracy means that if someone really wants to find a particular tune, they can do so quite easily. Napster made it easy, YouTube makes it easier (even if of course, they don’t encourage it). So for music companies, they have to find a way to make it as easy to be found and make their offerings of higher quality. The only way to win and remain relevant is by doing both. Then by doing both, does the revenue factor become relevant.
Over time, yes, if the labels aggressively and frequently publish online, then they can generate meaningful revenues, especially if they then hire sales teams to sell the inventory and get creative with ad packages. But to add a 100 or even 1,000 clips from their respective catalogs and then expect a million dollar check is a recipe for failure.
Option 1: YouTube
Labels have to be on YouTube because YouTube has such a huge audience that it literally will be their loss if they’re not on it.
Option 2: Hulu
Do they have to be on Hulu? Not yet, because Hulu is basically become a TV show hub.
Awareness, Relevance and Revenue
We distribute our content to both, but I personally don’t think anyone goes to Hulu for made-for-Web programming such as ours, so the hundreds of thousands of streams that we generate on Hulu are bonus; whereas the millions of streams we generate on YouTube become part of our overall business strategy.
I think if labels want to unleas the value of their catalogs, they need to be online, so they should look at being in more places than less. But this might not translate into revenues, which means they won’t stick to it over time.
Missed Opportunities
The music labels have essentially missed every major opportunity since the 1980s, starting with MTV. To read more on why MTV was in fact a missed opportunity, read this.
But they then botched Napster, digital music in general and even how they (and Viacom) are using MTV.com. After years of taking the MTV brand away from music (by playing anything but music), we are now seeing MTV.com trying to add music videos… but the convulated copyrights and distorted licensing deals means that in nations where the advertising growth rates will surpass that of the US, there is a good chance users see this:
Which is, by the way, what most people still see on Hulu… explaining why despite the top notch programming, YouTube remains king of the hill.
Strange Bedfellows
I personally think that FOX and NBC will eventually spar over Hulu (they own the venture 50-50%) because while FOX has to decide if it wants to push MySpace TV (and increasingly MySpace Music) over Hulu, NBC has been loading the site with content from SNL and other shows. But ultimately, I will go against the grain and say that Hulu will hit a wall because the business model for a “rerun hub” is limited, and TV companies - while desperate - are not stupid enough to totally embrace online because I am not even sure of the online pennies that await them are over time going to become dollars, let alone replace the analog dollars they are losing.
Option 3: Build it and they will come?
So this leaves option 3, creating their own Hulu-style site.
Well, back in the day, Bertelsmann decided to tame Napster by investing in it and bringing it over to the dark side. Instead of aligning themselves with the leading online file sharing network, the other record labels tagged team against Bertelsmann and killed Napster. By doing so, they let Gnutella and KaZaa grow and those non-centralized P2P networks made Napster look like a RIAA project.
The point being: the labels disdain of consumers is only rivaled by the disdain and distrust they have for one another…
I think media companies are the same way. As the Web develops and becomes more regulated, the media companies’ foes go from these “rogue properties” to one another.
NBC and News Corp. deserve a lot of credit for putting aside their differences and bringing in Jason Kilar to run the company without necessarily operating under the thumb of either company’s senior management.
But over time, I expect that to change, because traditional media firms are getting increasingly desperate in the face of the severe market meltdown they faced in 2008 and the “acceleration of the deceleration” of their traditional revenue streams in 2009.
To quote Al Pacino’s character in Any Given Sunday, as you get closer to the end zone, every inch becomes harder to gain. For the media companies, it might become easier to start pushing one another out of bounds instead of trying to get ahead of the new media reality avalanche that is catching up to their business models.
Since Guitar Hero (Activision) and Rock Band (MTV-Harmonix) were created there has been a literal battle for the bands.
The Beatles, until now, have been acclaimed by neither.
“MTV, wielding the power of its parent Viacom, has claimed the Liverpool legends for itself, meaning that Rock Band will be the exclusive platform for the advent of the first ever digitally-distributed Beatles tracks.”
During the Great Depression, farmers would destroy crops in order to create some kind of floor price for their fruits and vegetables, even though many of their fellow citizens were starving to death. John Steinbeck chronicles this plight in Grapes of Wrath, a book I will pretend to have read (I actually read some of it, but man that book was thick).
Today, despite homelessness being as rampant as ever, some are considering actually demolishing homes in order to create some kind of defense against sliding home prices. As foreclosures skyrocket and empty houses proliferate the marketplace, the specter of unsold, empty homes keeps a lid on recovering real estate prices (in a best case scenario) and accelerates plummeting home values in a worst case scenario. Indeed, according to a recent piece in The Economist:
Of the 129m housing units in America, 18.6m stand empty. At 2.9%, the home-owner vacancy rate, which measures the share of vacant homes for sale, has reached its highest point since measurement began in 1956. At the end of the first quarter there were 2.3m empty homes on the market, an increase of more than 160,000 from the end of 2007.
As horrific as the prospect might be, construction cranes might very well be replaced by bulldozers in a neighborhood near you. While sociologists cringe at the mere thought thereof, economists would be quick to argue the merits of such a strategy when there is endless supply on one side but weak - or non-existent - demand on the other.
Last week, the Wall Street Journal reported that of YouTube’s vast inventory of content, only 4% was monetizable. The remaining 96% consisted either of pirated videos or user-generated content (or crap, as I like to call it). The net effect of this, on a site which generates 70% of the streams online and commands 35% market share of eyeballs, was simple: YouTube cannot really exert any pricing power… especially in a battleground such as display, which gets by even less on mathematical logic and economic determinism and more so on gut feeling and perception.
Allow me to add a quick disclaimer: our company, WatchMojo.com, provides professional content (to which we own the rights) to YouTube, amongst a myriad of other players.
So connecting all of these variables, I wondered, would Google ever consider going nuclear and simply scrub YouTube of all of the crap found on the site? Sure, traffic would take a beating… but if one thing is clear, it’s that online, and with online video in particular, traffic does not (at least not presently) equal revenues.
“There will be new monetization forms. That is what we are seeking. That is the holy grail,” Eric Schmidt said on a conference call after Google reported disappointing second-quarter earnings. “When we find it, it (monetization) is likely to be very large because of the scope and scale of YouTube.”
The idea sounds crazy, but if YouTube gets rid of 96% of the seedier and undesirable content on the site, no doubt you very well might see a proportionate loss of streams, maybe not a drop of 96%, but probably something in the 50-85%.
But what about users? I don’t think YouTube would lose 96%, 69% or even 50% of its users in the short-term.
Initially, people would find something to watch on YouTube… and in fact, they would suddenly find something of higher quality to watch, something that YouTube owns the rights to, in fact.
As such, if YouTube loses even 75% of its streams, it would be left with a leadership position in streams, and it would still remain in a leadership position in terms of eyeballs and market share.
Most importantly, if the site were devoid of the crap that scares away traditional content owners - let alone marketers - many more companies would partner with Google (hint: Viacom) and give YouTube more monetizable content that would in turn open the floodgates with marketers.
But, of course, here’s the problem:
Google might as well launch a new site, called YouTube Prime (or YouTube Light) because what made YouTube YouTube is the UGC, or as I call it, the crap. As a content owner with nearly 2,000 high quality clips on YouTube, I want to see nothing else but Google and YouTube printing money… but when I think of what your typical marketer looks for… I have to say… I’m just not sure if YouTube is the holy grail, it’s an important part of the ecosystem, no doubt… but the holy grail? Je ne sais pas.
In case you are wondering: no, I don’t actually think Google will press the red button and flush YouTube clean, but then again, with mounting bandwidth and legal costs, and no real revenue to match YouTube’s awesome stream count… you have to wonder: what is more likely,
- a publicly traded company burning UGC videos in order to maintain its profit margins and make Wall Street happy,
or
- a government approving the burning of food crops and the destruction of homes which affects the many, in order to protect the investment of a few.
Yeah, welcome to crazy times people… I’m heading for the bunker.
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.
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?
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