Apparently, there’s a new all-time most popular video on YouTube, with 87M views. This begs the question:
What is the value of one stream?
Of course, all streams are not created equally… but if we wanted to estimate the value of the average stream, what would it be?
History Repeats Itself
Video is where search was in 2000-2001: it’s a major component of the online media landscape looking for a business model.
Indeed, a video stream is no different than a search query. While a search query conveys intent, a video stream captures interest. While performance-based marketers care about intent, branded advertisers care about interest.
Either way, in 2000, investors, analysts executives and marketers wondered: how can we fit a revenue model in that query. History holds the answer: Google borrowed GoTo.com/Overture’s pay-per-click model, refined it by buying Applied Semantics, consolidated the market by buying Sprinks and today Google has a near-monopoly on search advertising.
So while naysayers are realizing that indeed video streams will over time become monetized, this begs the question: what is a video stream worth, today?
Glad you asked. Let’s look at some data.
In December 2007:
- comScore reported that video streams surpassed search queries (well, they did not report it, we put two and two together). During that time span, there were 10.3B video streams in the US.
- we estimate monthly total video advertising in the US to be about $87.5M. The methodology is simple: online video ads in the US in 2007 were $750M and in 2008 will be $1.35B. Since December is the last month of 2007 and usually much more robust than all other months (usually, I find November to be strongest) then I think that the best way to estimate December 2007 US online ad sales is to estimate a mean for 2007 and 2008 video ad sales in the US, then divide that figure by 12.
So, what is a video stream worth today?
According to our analysis, we estimate each stream - on average - to be worth $0.0086. Stepping backwards into a CPM, you get $8.62 CPM.
Obviously, this does not mean that CPM rates for online video are $8.62. The fact is they are all over the place. Wall Street Journal might command $90 CPM. TheStreet.com might get over $50 CPM. But the problem is that the bulk of video streams do not come on those sites:
As you can see, 33% of streams come from Google sites, and since Google itself is not a video site, you can work backwards to assume that 30% of those streams come from YouTube, and about 3% come from Google Video.
As a content partner to YouTube, I will not disclose what CPM rates are on YouTube, but it’s a safe assumption that they do not match the rates that targeted sites such as TheStreet.com, CNET, or WSJ.com get… Clearly in the video space - unlike in search - the bulk of revenues is going to media companies (FOX, NBC, ABC, WSJ, CNET, etc.) and not technology companies (Google, Yahoo!, MSN, AOL and Ask.com) who power search and own the underlying IP.
Oh, wait. Did we use the o-word. The o word is ownership… and therein a major flaw in investors strategy thus far. Investors have in 2005-2007 invested in technology platforms and ad networks that do not own any really valuable IP. Don’t get me wrong: many tech companies own the technology IP, but even in Google’s $1.65B acquisition of YouTube, the acquirer admitted to only attributing $100M or so (I’ll get the right figure and update soon) to the $1.65B price tag. YouTube’s main asset was a) its audience and b) the content.
Of course, shareholders’ equity is equal to total assets less total liabilities, so in YouTube’s case, its content was both an asset and a liability in the sense that it did not own the content or own rights to the content.
The point we are making is that if you want to win the online video battle, you have to own the IP. And since the case studies show that the technology has little value, then by deduction, where the value lies in video is not the IT, but the content.
So, what is a video stream worth in 2012?
First we need to estimate monthly streams in 4 years. A couple of figures:
- The growing reach of new distribution models will expand the total consumer base of Internet video consumers from roughly 300 million today to nearly one billion by 2012 (source) (this implies 3x growth in users).
- Overall online pay video streams for over-the-top video downloads will grow from 215 million in 2008 to over 2.4 billion in 2012, with rentals accounting for approximately half of these (source) (this implies 10x growth in paid downloads).
Since paid downloaders are far more fickle than free consumers, then it’s a fair assumption that the rise in free video consumption would be greater than 10x. However, if users consuming broadband “only” grow 3x then combining these two figures, it is fair to assume that online video streams will be 5x bigger in 4 years. So if we did 10B streams in December 2007 in the US alone, we very easily could be doing 50B video stream per month in December 2012 (if anyone has a figure here, send it to me please to ash@mojosupreme.com or leave in the comments).
To estimate what the revenue per stream would look like in December 2011, let’s estimate a monthly video advertising revenue at $7.1B / 12 months = $595M, which give the following overview:
To quote Clint Eastwood, “I know what you’re thinking”: did I cook the numbers by capping streams at 50B per month?
Well, let’s see. By December 2007 - a good 10 years after the first search engines were launched - monthly search queries in the US were at 10B… search remains the second most popular activity after email and 80% of websites are found via search… so for us to come out and say that monthly video streams would be at 50B/month is quite aggressive.
Mind you, according to my previous admittedly mind-numbing number-crunching, we’ll need 645 Billion to 1.5 Trillion each month video streams per month, provided CPM rates are $20 for pre-roll ads and users find it acceptable to run 1 ad per 3 content streams (if you doubt the $20 CPM figure and think it’s lower, we’ll actually need more video content and more streams. So be careful what you ask for). Mind you, I am not sure the pre-roll will prevail, but let’s not even go there. If you do want to go there, go here.
To be fair, at the 1.5 Trillion Streams per month, here’s what the figures look like:
Sure, in this case, a stream is worth nothing and the CPM is a paltry $0.40. But as we see today, this is an average of all streams. Those who own premium content will be fetching far greater CPMs and what in fact drives this price down is the hundreds of billions of streams that are generated by user-generated content or pirated premium content that marketers have rejected and refuse to advertise with.
Either way, guess what: the demand for content will be so ferocious that if you own content, you hold all of the chips.
Content is King
To conclude, any way you dice it, over time, the value of a stream will go up, if not in absolute terms, it will in relative terms.
After all, online audiences are rushing online faster than ever before, but the flow of marketing dollars online is faster, and the subsequent flow of online dollars towards video even faster.
Most importantly, owning that stream will be more valuable than enabling it. Why?
If I create a video, I can publish it on WatchMojo.com, syndicate it to YouTube, MySpace, Veoh, Revver, Metacafe, DailyMotion, etc. etc. etc., and generate revenue across an infinite number of distribution points. This is what Sumner Redstone was referring to when he said “content is king”: “content would become more important than distribution mechanisms. There would always exist channels of distribution”.
I could care less where it gets played and who enables it. The marginal cost of distribution is zero and the incremental unit of consumption is pure profit. This is what I meant by digital broadband content is the new software. People laughed at me then and thought I was crazy… but who’s laughing now?
However, if I am a technology enabler, I have to ensure that said stream is served on my IP. That is very costly and frankly a much riskier proposition.
This is why after many misses, investors are suddenly hopping on the video content bandwagon. It’s about freaking time.
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