One of the prevalent business models for video content owners is to sign a partnership and then split the proceeds of the revenue share. The model is fair, technically, but fairness can be moot if advertisers don’t actually bankroll online video content and underwrite the costs of content creation.
Yesterday, YouTube’s head of monetization quit. I did not want to comment on it because YouTube is one of our distribution partners at WatchMojo.com… but upon hearing that the bloke in charge of said monetization was leaving to join a startup, I was thinking “yeah right”. Eric Schmidt wants to make billions off YouTube… right now, it’s not there (understatement) even though YouTube is more dominant in video than Google is in search.
Here’s the problem, as I see it, then back to YouTube/Google.
Two main case studies drive decisions with regards to online advertising strategy.
The first case study is MTV.
In the early 1980s, MTV paid licensing fees to the record labels but kept 100% of the advertising revenues. The lesson to the record labels (the content owners) was that they should have asked for a cut of ad revenues… which is what MTV milked on its way to becoming one of the most valuable brands in the world.
The second case study is Google.
Google became a $200B company by both embracing and shunning revenue share. Technically, it mitigated its own risk by paying out under revenue share agreements, though it took in revenues on fixed revenue per click rates…
As a result of these two cases, I believe media owners now are more open to revenue share deals with distributors… and while I certainly think that over time this is the better opportunity, I am just not sure if that makes sense in a nascent and embryonic space. Think about it, MTV blossomed at a time when TV was mature; yes, the networks were already old and as a cable property it was new… but both cable and network television were vying for TV ad dollars, whereas the Web video space is literally a brave new world which right now makes 1% of what TV generates in advertising revenue.
On the front lines, I am seeing a lot more leverage and pricing power from content owners relative to distributors, who are a dime a dozen and popping up every day in greater numbers.
Case Study: Veoh
I don’t think that all content owners have enough leverage (breadth and scope of content; quantity and quality; frequency of publishing) to command minimum revenue commitments, let alone guarantees… but it’s nice to see someone more experienced than me - Michael Eisner - agree that unless we find a way to pay content creators, this all becomes moot.
Eisner is an investor in Veoh, but based on an exchange he had today with Veoh founder Dmitry Shapiro, he feels that Veoh is enriching itself at the cost of content creators. Mind you, Veoh - and competitors DailyMotion, Metacafe et al. seem to be in the business of raising money, and not generating money - but I digress. If they can raise it, more power to them.
Like YouTube, I won’t comment on Veoh directly either, but it’s interesting to note one commenter state:
“the video creators and the video aggregators, you just can’t squeeze blood from a turnip, let alone ordain who should get what chunk of what margins”.
Commenting generally on the state of online video advertising and the players, I agree, the technologists who created these platforms can’t tell their ass from their elbow with regards to sales in general and advertising in particular. This is why most VC-backed ad-supported firms bomb, because VCs will fall for the lies that technologists tell without questioning the half-baked, far-fetched stories they are pitched on the monetization thereof…
Until of course your head of monetization quits, of course… which takes us to YouTube.
YouTube owns such a huge chunk of the online video market share that frankly, with all due respect to Mr. Eisner and Veoh, it’s irrelevant what anyone other than YouTube does…
But YouTube is so meaningless from a revenue contribution to parent Google that YouTube itself makes advertising-supported business models for video moot.
I still believe that selling a video business in 2008 is akin to selling a search business in 2000 (it’s too early), but unless the people making decisions at aggregators get with the program, any comparisons between search and video shall be moot, too.
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