Digital studios will have to make some cuts, but there's still plenty of money in online video to go around

Original online video took a beating this year, but the shine hasn't quite worn off yet. Despite a string of high-profile broadband start-up flops earlier in the year, media companies like Alloy Media + Marketing, studios like Generate and Web destinations such as the Sony-owned Crackle continue to invest in original Web programming.

But they're doing so against a much more cautious backdrop than just a year ago.

That's to be expected, given the broader economic woes. Even so, the firms that want to stick around are implementing new standards and practices reflecting the reality that there just aren't enough ad dollars for everyone. Media firm Magna forecasts the u.s. market for online video will grow by 32 percent this year, rising from $531 million in 2008 to $699 million in 2009. There are a lot of independent producers, digital studios and media conglomerates fighting for a piece of the $699 million pie, especially since they've already seen their brethren fail.

The first Web studio to fall was Mania TV in March [Mania TV ceased operations earlier this year, and was then bought back this summer by its original founder Drew Massey along with a few of its programs.]. Then 60Frames came tumbling down in early May. Next was multimedia shop RipeTV, which specialized in Web and video-on-demand programming.

What's a digital studio to do then?

Streamline, tighten, trim.

The survivors have implemented stricter rules about spending, reporting and the type of shows they'll back. Plus, the digital studios that remain have found they need to bring advertisers into the equation much earlier in the creative process. Indeed, there are new standards and practices for digital studios.

To be sure, content has always been a risky business in and of itself. The movie, TV and book businesses are all predicated on the concept of hits. Find a big one and it pays your bills for a very long time. But you have to bet on a lot of duds along the way.

Online, hits are hard to come by despite the 14 billion views per month that Web video generates. That's because Web programming is still a new marketing vehicle and Web dollars, as Magna points out, are few and far between.

Plus, the paid model some media executives are espousing will only work for a few genres online, such as feature films and sports - putting even more pressure on advertising as the source of revenue to support the online video business, according to an eMarketer report earlier this year.

"It's fair to say that consumers are generally not willing to pay directly for online video," wrote Paul Verna, senior analyst with eMarketer. "They'd rather endure a short pre-roll and then watch the clip for free. I think it would be a mistake for content owners - especially media sites like CNN.com, NYTimes.com - to try to charge for video that they have been offering for free for a couple of years now. I also think that if Hulu and YouTube are going to start charging for some of their content, they should limit it to feature films. Virtually everything else they offer seems to work better in an ad-supported context, with the caveat that user-generated clips are challenging to monetize through any model."

Getting In Frame
So with ads paying the bills, more brands will take the lead in developing Web content. The media agency Digitas is doing its part to ferry more money into Web video. It expects to book about 10 new advertising deals stemming from the "NewFront" Web video showcase it hosted, along with its visit to the Cannes Lions International Advertising Festival, both in early June.

"The agency is very serious about the digital content space as a new vehicle for advertising," says John McCarus, vice president and director of brand content at Third Act, the branded entertainment arm of the media agency. "We have made an investment in this and we are doing everything we can to connect the stars in the content-creation community with clients that understand the space and have an appetite."

In some cases, the deals that Digitas brokers will be with existing Web properties. In other cases, the brands may craft original shows for the Web.

Digital studios that want to stay in business need to make room for advertisers to play an active role in the shape of a show, says Alan Schulman, executive creative director for The Digital Innovations Group. "For content-centric digital studios to stay alive, they should expand their base of business from pure narrative storytelling to weaving other types of narratives like brand-centric edutainment into their offerings," he notes.

Advertisers who are willing to invest in Web content generally want to be involved early on, so the project can be a true marketing extension rather than just a pre-roll or post-roll buy, says Jordan Levin, CEO of Generate, a multimedia production shop.

Advertisers and media outlets are also more comfortable investing in shows that have legs and can extend across platforms, Levin adds. "Developing shows that can easily migrate from one media platform to another - TV, Web, etc. - and having the expertise as an organization to diversify your offerings to add value in other areas to support brands is important," he says.

In addition to producing shows that can run in multiple venues, studios can diversify by owning distribution, like Break Media does. The company purchased digital studio hbo Labs earlier this year, but its core business is the distribution network it owns with 60 million unique visitors worldwide, led by Break.com. With both a studio and a destination, Break is able to license content and guarantee to advertisers their ads will get seen, says Break Media CEO Keith Richman.

Remember, too, that advertisers are most comfortable when they can get their hands on lots of numbers, data and metrics. That's why studios and Web producers can demonstrate roi to advertisers by self-funding research that shows purchase intent and other key metrics, Richman says. It's also why advertisers are somewhat in love with online video - and it isn't going anywhere.