Commentary
The Oncoming Consolidation In Online Video
- by Ashkan Karbasfrooshan , Op-Ed Contributor, June 14, 2010
The past five years saw a wave of investment in all types of video companies.Now expect to see a lot of consolidation in the months and year to come.
Video companies tend to fall in the following buckets:
1. Editing Software and Compression Tools: Adobe, Apple, Avid, JumpCut, Sorensen, On2
2. Content Producers: DECA, DBG, Eqal, Fora.tv, For Your Imagination, Funny or Die, Generate, Howcast, Katalyst Media, Machinima, Mania TV, Next New Networks, ON Networks, Revision3, VideoJug, and WatchMojo.
3. Content Management System (CMS): blip.tv, Brightcove, Feedroom, Justin.tv, KIT Digital, Livestream, Ooyala, Maven, Mogulus, Permission TV, Qik, uStream, VMIX.
4. Content Aggregation, File Hosting, Sharing and Distribution: 5Min, Break, DailyMotion, Hulu, Kaltura, Metacafe, Nabbr, Revver, Vimeo, YouTube.
5. Advertising Creation, Management and Networks: Adap.tv, Auditude, Brightroll, Broadband Enterprises, Freewheel, Overlay.tv, Panache, Scanscout, Tidal TV, Tremor Media, Video Egg, Yume.
6. Content Delivery Networks (CDN): Akamai, BitGravity, Edgecast, Grid Networks, Limelight Networks, Panther Express.
7. Search, Discovery and Recovery: Blinkx, Cast TV, Clipblast, Dabble, Everyzing, Google, Mefeedia, Pixsy, Truveo.
This being MediaPost, we will focus on what consolidation will look like among:
a) Content Producers
b) Advertising Creation, Management and Networks
c) Content Aggregation, File Hosting, Sharing and Distribution
The deal-making has already begun:
- Yahoo just bought Associated Content and might buy the Huffington Post;
- AOL bought Studio Now
This is happening for a few reasons, mainly because VCs made out best before the 2008 econopocalypse, when the valuations were all out of whack with reality. For VCs to keep investing in these portfolio companies, they need to do "down rounds," which affect morale and hurt retention. Conversely, VCs themselves are operating on a shorter leash, so they will prefer to double down on the potential winners. As a result, a lot of companies will be offered the option to merge with an industry competitor or sell. However, with big media companies still trying to determine what to do with online video, often a merger is more likely than an acquisition.
So let's see the main trend affecting each of the three sectors:
a) Content Producers. We have already seen a wave of producers shut down or shift strategies and emphasize aggregation, curation or representation. Those who stay in the race will look to consolidate because the effective CPM that many producers get will remain low.
In theory, niche producers should command premium ad rates, but in reality, the ad rates many get are anemic. Those who have premium content and sales forces will be able to command higher ad rates in a relative sense, but even in those instances it is not certain that ad dollars will be large enough in an absolute context.
b) Advertising Creation, Management and Networks. If we splinter this group into the ad networks and the technology vendors, we can look back at the evolution and consolidation of display advertising players to project what might happen in the future.
Right now, ad networks are competing with one another for market share and ad dollars, which means the margins will dwindle over time as infighting for ad inventory and publisher accounts rise. Meanwhile, as marketers begin to spend increasingly large amounts on video, they will negotiate harder than ever, further applying pressure to ad networks, who essentially will be played off against one another.
Technology vendors might have an edge, but over time any edge one has will be lost as competitors and copycats catch up to the market. However, the real catalyst will be the reality that no technology is worth much if YouTube (and to a lesser extent, Hulu) don't open up their sites. We have already seen a large number of bleeding-edge, early-adopter technology solutions fall by the wayside due to a lack of adoption and traction.
c) Content Aggregation, File Hosting, Sharing and Distribution. YouTube continues to "own" this space, increasingly moving away from the UGC and prosumer segments to expand premium and super-premium space. The VEVO partnership shows just how important YouTube has become as a platform. With the inevitable outcome being a natural monopoly, expect a few of the laggards to hook up to save on R&D and bandwidth and to offer advertisers and content owners more scale.
While all these behemoths try to figure out how to make money by streaming video, very little attention is paid to how "content" producers can make money to afford quality productions. In April, 1010, over 30 billion videos were streamed in the US alone. [comScore Video Metrix service]. If 1 penny per video went toward production that would be $300,000,000. Does anyone believe that online content producers got that kind of money for their work?
Bob, great question. Sadly, the answer is a resounding NO. However, to clarify, the 30 Billion stream count includes video ads, I inquired about this matter and wrote about it here:
http://tinyurl.com/28ofblj
Furthermore,
- a lot of the most popular YouTube producers are UGC/prosumers who don't really have cross over appeal with mainstream advertisers, this is why the eCPM they get is really low.
- in the middle area, a lot of niche sites get low CPMs because they don't have sales forces to close direct deals.
- at the other end of the spectrum, even though more professional producers can command higher CPMs, to many it's small amounts...
After 4.5 years producing video content, I see there is a massive opportunity due to all of these disequilibrium, but anyone that believes that they are entitled something because they produce "quality" content is due for a rude awakening. That doesn't mean that there aren't great opportunities out there.
Thanks. That saves me from thinking up a classification.
I'd suggest adding one more category.
Video Conferencing/TelePresence, with players such as;
Skype, Vidyo, ooVoo, WeToku, Lifesize, Cisco
It's a mix of hardware and software solutions (that may even include GoToMeeting and WebEx).
I think these as a form of video creation. Most of these services offer the ability to capture/record and share video content which that can be republished and repurposed.
My sense there will be a lot of activity in this space, especially in the light of iPhone4 and Skype's new multi-person calling features.
hey Nick, the "buckets" are a work in progress, so thanks for your suggestion.
I do wonder if they don't simply fall under 3) - CMS. In fact, the same way that the live platforms such as Justin.tv and Livestream could be a subset of CMS, I suppose the Video Conferencing/TelePresence could be too. Then again, I could see them being a separate bucket altogether too.
Also, note my list is anything but complete. I should have added Demand Media's eHow under 2) and Jambo under 5).
eHow is apparently the #1 provider of videos on YouTube, so their omission is inexcusable; meanwhile Jambo is a Top 10 video ad network...
Next time, next time...
A great contemporary summary of the video space, Ashkan. It's going to be an interesting 12 months.
As a branded content producer trying to navigate through the space, I found it fascinating that several of the companies that you have listed in the different buckets do not have working relationships where their services can be integrated and offered as a solution.
For instance, our CMS provider (listed above) does not integrate with an ad network (also listed above) that we recently signed on with, so we can monetize content.
We never thought to ask if this would be an issue because both of these companies are "players," which is supported by their appearance on the list. In fact, the ad network wasn't familiar with the CMS company.
Needless to say, I'm hopeful that the ad network is now in contact with the CMS company to forge a relationship.
Maybe this is naive on my part considering the speed of bringing new technology and business to market and the time to ramp up operations, or perhaps this is just an indication of how the "players" view other "players" in this space.
Some day, in a galaxy far away, Ashcan will pen an article that does not mention his company or his book - until that day, we can only hope that the force will hold the fabric of the universe together. Shameless, buddy - but I gotta love the way you've turned this article writing gig into an endless self-promotion opportunity. You have, however, failed to mention traditional broadcasters (who often use the tools and services of those mentioned) - but I would have to think that NBC, CBS, et al. would fit somewhere on this mix. You also forgot to mention my company under the new "bucket" - 8) Problem Children.