According to Accustream, online video will generate $5.6 billion in 2011.  That figure includes in-page video campaigns; instream (pre-, post-, and mid-roll) ads; paid viral placements; overlays; and podcasting.  The lion’s share — or 59% — will come from in-banner placement.  Raise your hand if you’re surprised.

The Landscape

Most content producers only create articles.  These publishers have back catalogs that are well indexed by search engines, creating a steady of flow of traffic, which is amplified by social media.

Very few publishers also create video content.  Video content creators (suppliers) are either

-        Traditional media companies (TMCs) who are looking at monetizing their “super premium” content online, or

-        New media companies (NMCs) whose main distribution platform for their “premium” is the Web.

Few video producers have built “own-and-operated” distribution on their own websites.  By and large, video producers create content and distribute it on aggregators:

-        Distribution sites such as YouTube or vertical publishers (ex: WebMD.com), or

-        Intermediaries who then redistribute the videos on multiple related websites.

As such, the ecosystem is made up of:

-        Suppliers: video content creators.

-        Publishers: producers of articles who may or may not also produce video content, and tend to have a lot of unique users who generate pageviews.

-        Aggregators: distribution company like YouTube that then publish the content on its own site, or a re-distributor who then syndicates to thousands of other sites.

-        Advertiser: needs no explanation.

Instream Opportunity

According to comScore, in July 2011, 180 million Americans generated 6 billion viewing sessions for an average of 1,107 minutes per viewer (under 20 hours).  Indeed, while the online universe is now generating billions of in-stream views, most of it remains on YouTube, where a high portion of the activity is around UGC content, and thus not monetized.  After YouTube finally embraced pre-roll ads in 2010, there was an 89% spike in media spend in 2010, according to Accustream.

As such, a major opportunity remains the ability to create in-stream views.  To achieve that, obviously, the content does matter.

In-banner Reality

With in-banner executions, most of the monetization is being done by the aggregator, so the supplier’s content doesn’t really matter so long as it’s

-        Professionally produced,

-        brand-safe and

-        relevant to both the publisher’s environment and advertiser’s message.

Relevant should mean a video of Berlin alongside an article about Berlin, with an ad from Lufthansa before it.  Provided the placement is above-the-fold and sound is user-initiated so the user experience isn’t compromised, then that kind of aligning-of-the-stars represents a valuable opportunity for any advertiser, even if the delivery is in-banner (more here).  While advertisers want the sound to be on auto-start, adding sound automatically will lead to a bad experience.

Rates will fall; variance between instream and in-banner should grow

With or without a slowing economy, marketers have every right to ask for a return on their investment, even if the metric they may use (such as the CTR) is the wrong one.  As search and banner rates fell, video rates will fall while total video revenues grow.

Right now, the spread between in-banner and in-stream rates is surprisingly small — but still too large given the difference in engagement level. Over time,

-        in-banner rates will be priced at a slight premium to display banners, and

-        instream rates will be multiples higher than in-banner rates.

The Main Challenge Facing Publishers

Considering the existing market rates for in-stream and in-banner pre-rolls, publishers don’t have an incentive to create true pre-roll inventory, preferring to run in-banner ads where they previously ran display banners.  In theory, a publisher can replace display banners with in-banner video ads and yield more revenue.  Of course, there isn’t enough demand for in-banner ads to fill up a publisher’s entire display inventory, but this explains why Undertone bought Jambo and Specific bought BBE: the specter haunting display is video.

Seeing how in-banner placements tend to show weaker results, advertisers will want to shift their spending to in-stream, but there simply isn’t enough supply of in-stream inventory around monetizable content out there.  This challenge creates an opportunity for content creators.

What Does This All Mean?

While aggregators have certainly built up a good lead at the expense of content creators, all these moving parts can only mean one thing: we are about to enter a period where

-        To entice marketers to spend the big dollars, suppliers, publishers and aggregators will have to dole out exclusive content;

-        To get users to generate more video views, content will start to matter.

This by no means suggests that content creators can start to high-five one another.  With 48 hours of content uploaded each minute to YouTube, there’s too much clutter for suppliers to ever feel like they can coast, but, it does signal a shift that will have wide repercussions in the years to come.

Carmel Country Inn, Image Source: CarmelCountryInn.com

10. Cypress Inn, Carmel, California

9. La Quinta Inn & Suites, Valdosta, Georgia

8. Hotel Marlowe, Cambridge, Massachusetts

7. Carmel Country Inn, Carmel, California

6. The Paw House Inn, West Rutland, Vermont

5. A Laughing Horse Lodge, Port Arkansas, Texas

4. Palomar Washington DC, Washington D.C., District of Columbia

3. Ocean Park Resort, Myrtle Beach, South Carolina

2. Hotel Monaco Portland, Portland, Oregon

1. Affinia Dumont, New York City, New York

Find out why and what they offer, according to KNSS Radio HERE

Adele

10. Tonight Tonight – Hot Chelle Rae

9. E.T. – Katy Perry Featuring Kanye West

8. Good Life – OneRepublic

7. Edge of Glory – Lady Gaga

6. How To Love – Lil Wayne

5. Last Friday Night (T.G.I.F.) – Katy Perry

4. Super Bass – Nicki Minaj

3. Rolling In the Deep – Adele

2. Give Me Everything – Pitbull Featuring Ne-Yo, Afrojack & Nayer

1. Party Rock Anthem – LMFAO Featuring Lauren Bennett & GoonRock

According to Billboard HERE

YouTube owns nearly half of the online video pie.  As it marches towards greater market share of viewers and video streams, “it’s YouTube’s world, we just stream it”. But can you build an audience on or outside of YouTube?

The reality is that unless a content creator relies solely on licensing sales, they need to build advertising revenue. In theory, that means that the content creator is in the business of maximizing their audiences. But only when that audience is on one’s own-and-operated property can the right holder fully monetize it. In a distributed model, the content owner and distributor face sales channel conflicts, reduced margins, and unsold inventory.

Distribution vs. Destination

It’s challenging for a company with no offline brand, celebrity cachet or multimillion dollar marketing budget to build a destination around video content.

Indeed, while YouTube owns video in the figurative sense, it’s not a monopoly in the literal sense. comScore’s list of top 10 video properties shows aggregators or traditional media companies: YouTube, VEVO, Facebook, MSN, Viacom properties, Yahoo, AOL properties, Turner Digital, Hulu and NBC Universal. The traditional media companies have proven that if you hold back distribution, people will come to you if you have compelling/popular content and an offline brand.

Where do people watch videos outside of YouTube & Why do people watch videos on other sites

This doesn’t mean that it’s impossible to generate views on one’s own site. After the top 10 properties on comScore,

1. Other aggregators such as Metacafe, DailyMotion, Break or Blip boast high/medium reach. Metacafe and DailyMotion have sought to emulate YouTube’s strategy; Break branched off into original content; Blip seeks to aggregate original series made for the web, but it encourages producers to also syndicate to YouTube, according to CEO Mike Hudack.

Aggregators will leverage their massive catalog and multiple inbound links to index higher than the underlying content owners’ website on search engines even if the video originated elsewhere. As a content creator you can avoid distributing to the aggregators altogether, but then you might miss out on the largest video audiences. In fact, according to Mefeedia, the number of content producers who had their own sites fell from 30% to 10% from 2007 to 2010.

2. News sites have timely content that draw users, be it CNN, BBC, the Australian, al-Jazeera English or local stations. Meanwhile, TechCrunch TV can leverage the archive of blogs and news-breaking new articles to point traffic to videos, let alone AOL or HuffPo traffic since its acquisition (worth noting that TechCrunch’s traffic would be included in AOL’s and CNN in Turner’s).

3. Humor sites such as FunnyOrDie.com, which has successfully leveraged Will Ferrell’s brand-name to build a real business; TheOnion.com that has leveraged its satirical take and offline mojo to successfully transition into video; or College Humor which restricts content to its site and uses what it does publish to YouTube to draw away users back.

4. And of course, Adult sites remain more popular than ever, especially as they embraced the free “tube” model, too.

Value = revenue / cost (basically)

As we discussed in an earlier show, most of the new media content producers around today are part of the Third Wave of video creators. The first wave included Pop.com, the second wave included Mania TV, Ripe and Heavy.  This third wave built their audience on YouTube and other distributors. We have all benefited from YouTube:

a) investing in the technical infrastructure (hosting, encoding, ad serving etc.) and
b) the search engine marketing/optimization (a cynic would say “not surprisingly” since Google owns YouTube, but in all fairness, YouTube was well on its way to being the second search engine when it sold to Google).

These two are expensive money-sucking cost line items, so while it’s easy to complain about distributors building their businesses on top of content owners’ back, a more level-headed perspective is required.

Exacerbating all of this is the long-term payoff with video; you can write an article and publish it and before long search engines will send you traffic, increasingly over time. With videos, we’ve covered the challenges aplenty.

Erosion of pre-roll CPM

The reality is that for all of the talk about a lack of supply in video, CPMs are – at the aggregate level – falling precipitously. The reasons for this merit an article in of itself, but unless you have massive streams, you won’t be able to close direct deals, having to rely on ad networks to fill your inventory; your ad rates won’t be as lucrative as you might think.

Bye-bye Margins

The combination of high video-related costs, a long-term payback and eroding ad rates means lower margins in the short-term and unprofitable operations over time, which explains why content companies have either shut down altogether or moved into aggregation. I think having a low cost structure is the single top variable determining who has survived. Apple wouldn’t be as valuable if it didn’t outsource production to China after all. It’s no different in video though I don’t think you can outsource content production to China.

The comScore effect

Of course, until last month, it might have been worthwhile to try to build views on your own property. Today, with comScore and YouTube finally partnering to open up audience sizes for each content provider on YouTube, you’re almost better off putting up the white flag and simply focusing on amalgamating your viewers and views on either your own site (if you have any traction there) or YouTube.

Here are the videos from the second installment of the HipMojo show on new media and online video.

Segment 1: we look at the effects of a recession on advertising and online video in particular, I refer to my article on MediaPost.

Segment 2: we look at which companies are vulnerable in a downturn, touching on an article in PEHub.

Segment 3:  Lightning round on a) GroupOn, b) AOL and c) HuffPo; then in the Email of the Week: Ash enters the “no BS-zone” and answers to a critic who calls him out over something he said on Show 1.

If you have any feedback or advice, email us at live@watchmojo.com.

Ford Nucleon Concept (Nuclear Powered Car, 1958), Image Source: Cadoges.com

During the 1950’s the future of the automobile was bright. They predicted that in a matter of decades, cars would be nuclear powered, flying, maintenance free and self-driven. Almost none of this was destined to be.

FAA regulations for pilots and aircraft would keep the vehicles grounded, while nuclear power plants have been taken off the drawing board over fears of nuclear disasters. On the bright side, reliability has improved; however, current vehicles are far from maintenance free. However, there is one prophecy that could be coming to fruition: self-driven cars.

Since March of this year, Google has been in the process of developing these self driven automobiles. They rely on cameras, GPS and sophisticated computer programs in order to navigate the roadways and traffic.

Under current design ideals, a passenger is still behind the wheel to intervene, if necessary. This sort of system would operate similarly to cruise control, which would enable operators to relax.

For most people, this may end up being the fulfillment of a dream: a chauffeur to take you everywhere you want to go. For the rest of us who enjoy driving, this might appear to be the seed of a threat to our way of life. Although the technology is planned to be only an extra, in several years legislators may require it to be in operation at all times, for safety reasons.

What will stop lawmakers from deciding that we are too dangerous to drive ourselves around? This technology may reduce the number of fatalities every year, but it may also strip people of their freedoms.

Before YouTube, people turned to iFilm for video entertainment. While the site would occasionally publish a viral video without the expressed written consent of the rightsholder; iFilm largely housed movie trailers. Viacom acquired iFilm for $49 million in October 2005.

While they were advertisements, trailers were the quintessential short form of entertainment. But as a sign of how little “professional” video content existed at the time, iFilm was able to build a syndication business by aggregating movie trailers and redistributing them around the Web.

Definition of Long Form Content?

I always ask media executives, ad planners and content owners for their definition of long-form content. Judging from responses, there’s absolutely no standard or widely-accepted definition. In fact, the definition is a matter of context. For example, when we started producing videos in 2006, our average video lasted 30 to 120 seconds; as such, anything over 2 minutes seemed long-form. Today our average video lasts 2 to 5 minutes, so anything over 5 minutes is long-form (to us). Ask a studio executive and you shall get a very different answer. As more content appears online and the business of video grows, the answer will vary accordingly.

A Matter of Rights

By merely focusing on aggregating, iFilm and other aggregators were at the mercy of content owners and what they made available online. At the time, that was trailers. Today, we are seeing a wide array of content being made available online, but not necessarily to the aggregators.

Enter Hulu

Before Hulu launched in 2007, what the traditional media companies (TMCs) called long-form content was non-existent at best and DOA at worst. When it did exist, it was found on Bitorrent or The Pirate Bay –not exactly rightsholders’ ideal home. Hulu changed things, prompting YouTube to remove the 10-minute cap on video length in June 2008.

Hulu’s success can be credited not simply to the quality of content but also to the convenience of being able to time shift. Indeed, as chronicled in Brian Stelter’s NYT article, Jason Kilar told Charlie Rose in 2009 that “media was an impulse business. Viewers don’t need ‘30 Rock’ the way they need food or water, but if you can make it easier to consume, people will consume more of it. The ‘aha moment’ for consumers was when they saw that basically they could consume ‘30 Rock’ when they wanted — when it was convenient after the kids went to sleep, or in the morning when they had a break. And that’s very liberating, it’s very empowering, and I think at the heart, that’s a big part of the Hulu value proposition”.

Kilar is right: that might very well be the power of Hulu, because it’s the convenience of legally watching super-premium content when you want that made the service popular.

But therein lies the rub,
- as the TMC owners behind Hulu rethink their strategy and cut back on content and convenience, Hulu appears doomed.
- The convenience of watching long-form content whenever they want works for busy parents and professionals but “what about the children?”

Well, what about the ADHD generation?

A WatchMojo viewer emailed me and wrote: “The content at times is brilliant with just the right amount of education and pop culture. Perfect for the ADHD generation like myself!” That viewer makes raises a point.

Since Hulu launched, TMCs have used the web as a distribution platform to push their traditional models. In other words, they will use the web’s pipes to try to get consumers to subscribe or license content but not publish for free in the hopes of generating advertising revenues.

With Netflix’ market cap growth, Apple’s iTunes transitioning from music to television and movies, Amazon and CBS’ recent deal, Time Warner’s TV Everywhere and Comcast’s Xfinity, rightfully a lot of the focus has been placed on long-form programming using the power of the web to reach consumers.

Personally, I think that social and technological shifts will make the Web a medium for short-form programming, and there will be a regression to the mean, especially with the “cool crowd”.

While TMCs are starting to do a decent job of using the Web to experiment and distribute their content, they’re only scratching the surface. If and when they can take their traditional assets and bring them to life online in a format and style that younger audiences will embrace, then they will unlock considerable value. The problem, of course, remains the same: online video remains too small for TMCs to fully embrace with their existing assets, let alone pour in more resources to repurpose the media for online habits and preferences. But if they can find a way to accomplish that, then it’s lights, camera and profits!

This article I wrote was originally published on TechCrunch.

While Yahoo! remains the best positioned digital media company around, Wall Street remains unconvinced.

Yahoo!’s revenues are not growing as fast as other online media companies (GOOG, AMZN, Facebook, etc).  Moreover, between Facebook’s grip on display ad inventory and DSPs changing the way advertisers buy inventory, Yahoo’s core business (display, reach) is under threat.

If that weren’t enough, the Alibaba/Alipay situation illustrates that it’s only a matter of time before investors, analysts and the media force Yahoo! to shed its Asian assets. Once the company unloads those assets, the cash on its balance sheet will soar, but its enterprise value (market cap + debt – cash) will plummet.

Block and Tackle, but Look for Hail Marry as Well

As Yahoo! plays catch up investing in video . . .  it might realize that it needs to make some tuck-in acquisitions and consider throwing a hail marry, too.

Post Asian asset sales, Yahoo! will find itself with:

• lots of cash on its balance sheet
• a lower enterprise valu
• tepid revenues
• growing threats
• an opportunity to grow in video.

Yahoo! will be able to use some of the cash on its books to acquire Hulu to compete with Netflix, Google/YouTube and Amazon more effectively.  Otherwise, the status quo means a company that will become gobbled by one of the larger companies out there.  Not a bad fate in of itself, but not a fate it needs to back itself into either.  Yahoo! can also be taken out by a private equity firm, something that I’ve long argued would have its share of benefits.

Content is a Woman, Distribution is a Man

I’ve cut hundreds of deals with distribution companies.  The conclusion I’ve reached is that—for lack of a better analogy—Content is a woman, Distribution is a man.  In other words, historically distribution companies

• make no commitments,
• never make any promises,
• have no-strings-attached offerings,
• rarely seek exclusivity, and
• when they do, it’s usually too good to be true.

Content owners, meanwhile,

• enter distribution deals with expectations,
• believe the promises they hear,
• expect a commitment, and
• want a guarantee.

As a man, I can’t help but admit that in the end, women prevail and men have to come around if we want to play along.

As a content owner, it’s reassuring to know that.

Is Hulu a Content or Distribution Company?

In case you’re asking: is Hulu a content or distribution company, well, it’s a hybrid.  Technically it’s a distribution company but its pedigree is content (via its owners).  If someone buys them and gets exclusive rights, it becomes more of a content play than a distribution or tech play.  The reality is that to most buyers its traffic and technology are worth less than its content rights, especially if those rights become exclusive.

Welcome to an Era of Exclusivity

Meanwhile, I expect Facebook to move away from being a pure-play platform and move further into becoming a media company striking content deals, including exclusive content rights and content acquisition deals (learning from Google/YouTube’s early missteps and trying to jump some steps and save time to justify its $70 billion market cap despite relatively low revenue figures).

Lost in the recent “will Hulu sell?” talk is “why would Hulu’s owners want to sell?”  Its owners are of course some of the largest traditional media companies (TMCs) including News Corp., Disney and Comcast (via NBC Universal).

Hulu raised $100 million at a $1 billion valuation.  It’s unclear if the consortium of media companies and the private equity firm Providence share a vision for the exit, or end game.  Even if Hulu’s value has risen since that deal, the increased value on the TMCs’ balance sheets means little to media companies.  Moreover, Providence realizes that without the rights to the content, no buyer would take a stab at Hulu.

The Mother of All Pivots?

So a company like Yahoo! will be tempted to “pivot” its plodding aircraft carrier and acquire Hulu and then use the cash left from the Asian assets (net of the $1-2B rumored to buy Hulu) to then fork over licensing fees to the media companies as a carrot to lock in rights—dare we say exclusive rights—for years to come.

As much as some pushed the “non-exclusive” and “hyper-distribution” mantra, those are dead in the water.  The web will “regress to the mean” of media and advertising and see more and more exclusive deals.  Those are the kind of deals that make television a $70 billion advertising industry and $250 billion ecosystem including other revenue streams.

Hulu’s Strategic Options

This begs the question: what about an IPO?  If Hulu goes public at a valuation of $1-2B and sells 10-50% to the public it will only generate a few hundred million dollars; not nearly enough to be used to pay off the big media companies that now own Hulu in licensing fees.  Combined with Hulu’s low margins, this means an IPO won’t maximize Hulu’s value, which means the big media companies won’t have an incentive to pursue the IPO path.

Of course, Hulu’s current investors could sell some shares in the IPO, or  hold onto their stakes and sell later in a secondary offering in the hopes that the valuation goes higher if they continue to improve the content they give Hulu and/or increase revenue.  But, let’s be realistic here, media companies are risk-averse and realize that if they can sell Hulu, give up some exclusive content in the process and concurrently lock in a decent annuity that is more than a positive outcome for what was once labeled Clown Corp. by an influential blog a few years ago.  This is all even more pertinent considering that the cloud overhanging Hulu’s content licensing terms and profit margins will remain risk factors in its prospectus.

However, Hulu in the hands of someone like MSFT/YHOO/GOOG would be able to pay the TMCs hundreds of millions of dollars per year in licensing fees.  While a ballooning value on paper and increasing goodwill on their balance sheet does little to move the needle for the TMCs, hundreds of millions of dollars in annuities on their income statement will.

Combine this with the facts that:

• Google/YouTube is eager to use $100 million (if not much more over time) to offer Fortune 500 marketers the kind of content they’re used to advertising alongside,
• Facebook is armed to the teeth with hundreds of millions in cash from operations and the sale of stock to DST, Goldman, etc., and increasingly eyeing content,
• Netflix is opening its wallet to TMCs for content,

then you can imagine that Yahoo! realizes it needs a new playbook and the TMCs want to create more competition for their content.

As it turns out, Sumner Redstone was dead right: with new distribution channels the value of content rises.  While content and distribution are equally important and one without the other is worthless, suddenly content companies will find themselves in a landscape of heightened competition which will see the value of their content rise.

Disclaimer: YouTube, Hulu, Yahoo! are all WatchMojo’s distribution partners.

This article I wrote was originally published on TechCrunch.

 

The new self titled album from Bon Iver officially drops on June 21st, but you can listen to a stream of the entire thing right now.  Very exciting!  Enjoy: