No Clear Path to Profit for Online Video, Say Executives

Photo by Angel Raul

Photo by Angel Raul

Cnet.com’s coverage of last week’s RBC Technology, Media and Communications Conference paints a bleak picture for the current—and perhaps future—state of online video publishers’ ongoing struggle to attract big ad budgets.

While online video’s current advertising market is about $1 billion, it’s a far cry from TV’s estimated $50 billion. Executives are split on their predictions for the future. Some make a distinction between user-generated and professionally-generated content, e.g. YouTube vs. Hulu. Others say the entire web video market is handicapped, regardless of the content.

I don’t think it’s right to throw the baby out with the bathwater, though. I do see some problems with user-generated content, all of which essentially boil down to a lack of control:

  1. Poor relevancy. Advertisers can’t be assured that their their ads will be well-matched to appropriate content. Even the best algorithms can’t determine the relevancy of video content to an advertiser’s message.
  2. Negative brand association. Advertisers don’t want to be associated with poorly produced, crappy content. Surely, not all the content on YouTube fits that description, but the vast majority does. Most big brands (with correspondingly big budgets) don’t want to sully their image by standing next to a home video of yet another Jackass-wannabe taking it in the nuts.
  3. Legal landmines. Copyright infringement, libelous speech and other legally dangerous content abound on user-generated video sites. Advertisers can’t afford to have their message associated with such shenanigans.

Professionally produced content, like the videos on Hulu or on the major networks’ sites, seems to mitigate these issues by providing relevancy, quality control and sanitization. What these outlets currently lack, however, is volume. There’s simply not enough inventory for big advertising dollars to flow freely in the direction of online video.

Yet.

We’re in the middle of sea change, with networks finally waking up to the fact that people are spending more and more time watching their favorite shows online (or via online delivery methods like Netflix), and less time “tuning in” to their boob tubes. TV is, in many respects, becoming like radio: A noisemaker that sits in the corner and provides a constant background wash of content, most of which we pay very little attention to.

This is a debate about distribution models, not content. Content is—and shall remain—king. Sustainable content that can attract big advertising dollars is the result of good writing and solid production. There are anomalies that create spikes of interest, but advertisers can’t bank on spikes. They need mountains. They need huge, consistent numbers across several seasons.

YouTube is a loss leader for Google, and as such, it’s a successful means of keeping people hooked on Google-juice. But most user-generated video sites don’t have Google’s deep pockets. I predict that over the next few years, we’ll see more and more user-generated video sites either dying or starting to sponsor sustainable content that can be packaged more easily to advertisers. I think we’ll also see networks loosening the reigns on their properties, allowing for more Hulu-like sites that encourage the distribution of professionally produced content.

What do you think will happen?

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About the author

Justin Cone

/ justincone.com
Together with Carlos El Asmar, Justin co-founded Motionographer, F5 and The Motion Awards. He currently lives in Austin, Texas with is wife, son and fluffball of a dog. Before taking on Motionographer full-time, Justin worked in various capacities at Psyop, NBC-Universal, Apple, Adobe and SCAD.

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3 Comments

Beaver

I hate to speculate – no wait – I love to speculate – so here’s my 2c. The current popular saying is something like “Why trade broadcast dollars for online cents?”

Anyway, to make a prediction, I don’t see the death of broadcast TV happening for a very very long time, if at all. The thing is, we’ve got a brilliant system of distributing content like live events, first run shows, news, etc, and the TV does it perfectly. Also, the internet is creeping onto broadcast TV just as fast as TV is coming to the internet. TNT latin america already has a system where you can go online to vote for what movie you want to see that night. News programs are using online polls & email, and CNN has a whole show dedicated to playing youtube videos.

TV does live/first run media perfectly, and without the network issues you encounter when millions of people try to download the same thing at once. We will always need big daddy networks to manage major events like the super bowl, (and sadly, they will be tightly clutching the DRM reigns). Even underdeveloped countries can easily get around their lack of broadcast infrastructure with a satellite dish (which is notoriously a one-way street in terms of data transfer).

My ultimate prediction is that TV will remain our source for the type of media that TV does best, and our computers will replace our DVD collections just as iPods have replaced our CD collections. I think it would be pretty easy to figure the numbers on how much viewership is re-run/niche market viewership and compare that with the first-run/live event market and draw the line there and say “ok, this is where we’re going to reach some kind of equilibrium with broadcast vs. online content. The timeframe for reaching that equilibriu is anyone’s guess. We just know it’s going to happen eventually.

justin

I agree that TV’s strongest… uh…. strength is in live events. But maybe the internet can do it better. Witness NBC’s massive effort to stream the entire Olympics live online. ESPN has been pushing the same evelope for a while, too.

I do think that TV and internet are merging, but it’s the choice and on-demand model of the internet that’s setting the new rules. And those rules don’t include clear ways for advertisers to maximize their dollar. At least not yet. :-)

armandoalves

Cheer up. The latest predictions forecast a bright future for online video:
http://www.emarketer.com/Article.aspx?id=1006478&src=dp1_home

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