Commentary

The Problem With Content: You Need Time And Scale

Stop me if you've heard this one: content is king.  The problem is, in case you haven't noticed, monarchies aren't exactly in vogue these days, and one could argue that social is the democracy and distribution/aggregation is the republic. 

Indeed, online, there's no lack of content, social, or audience.  It's all there, and despite a robust first quarter in online advertising which saw $7.3 billion spent in the U.S. alone, the reality is that online advertising will gravitate toward a few at the top.  Google did $8.575 billion in Q1 revenues globally.

The market leaders have always dominated industries.  In broadcast, NBC/ABC/CBS and FOX own their category.  In cable, it's obviously more fragmented.  Print is even more so due to the local aspect of publishing.  But online, the theory suggests that the long tail would benefit from the so-called verticalization effect. In reality?  Not so.  Not at all.

When Jann Wenner doubles down on the power of print and rails against the Internet, he's not as delusional as some professionals in online media would like to believe.  Online, anyone and anything can be a "media company"; while that is great and wonderful on many levels, the harsh reality is that this simply means that many more will fail. 

What This Means for Niche Content Owners

When I started our company, our video content editorial strategy was "a mile wide and a foot deep," in that we were producing hundreds of videos each year across a dozen or so categories instead of thousands of videos in a category or two.  Everyone thought the strategy was doomed to fail. 

At the time, I argued that our core competency was storytelling in video format, and not a particular vertical.  Niche producers, I was told, could "specialize" in a category and command triple-digit CPM rates.

In hindsight, one could argue any strategy in video was doomed to fail. YouTube won the platform/sharing consumer space; 5Min sold (somewhat prematurely) in the aggregation/publisher space; and all consumer-facing startup content producers faced headwinds when they sought to build an "own-and-operated" audience and secure video advertising revenue.  That last part has proven elusive due to the practical aspect of advertising sales.

With social or aggregation/distribution, we've seen the dominance of the platforms.

With content, it's clearly not that simple, with a stratification emerging over the past five years:

-      Broadcast: great quality and pricing power but relatively little volume;

-      Portals: Legacy brands with high reach adopting a super premium stance but being attacked by YouTube, who is adding a professional façade on top of the user-generated media and aggressively courting professional content owners and rolling out more advertising features and growing at a torrid pace in which a whopping 48 hours of media is uploaded to the site each minute;

-      Ad networks: lots of reach but no defensibility or differentiation, fighting with one another for publishers' real estate while they fend off the trading desks being set up by the big buyers and ad agencies.

By the time content owners get to the front of the line, it's a matter of too little, too late. 

But that isn't even the main issue:

-      With broad producers, the mile wide but a foot deep strategy takes a while to scale, and by the time you scale enough, you have to worry about building the kind of sales force it requires to garner big ad dollars. 

-      With niche producers, conventional wisdom suggests sky-high CPM rates would make small audiences lucrative enough.  Of course, the reality is far different: the lack of scale and volume for niche producers has made it increasingly hard for many to stay in business. 

That's the advertising plan.  Some will pray that their programming will get people to open their wallets and fork over money. 

Good luck with that. Start collecting the food stamps.

Ultimately, to stay in the game, you need a plan to scale over time and a plan to stay in business by keeping costs down. If you can do both, then you stand a shot at survival.

6 comments about "The Problem With Content: You Need Time And Scale".
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  1. Eric Mathewson from WideOrbit, May 31, 2011 at 5:23 p.m.

    Ashkan:

    What do you mean by, "Broadcast: great quality and pricing power but relatively little volume;"?

    What study or basis in reality does it state that Broadcast has relatively little volume?

    The biggest challenge of Online video is that the volume is so tiny next to broadcast that it is barely measurable.

  2. Ashkan Karbasfrooshan from watchmojo.com, May 31, 2011 at 5:59 p.m.

    Eric,

    Great/fair question. Little volume relative to the demand, in other words: that is where advertisers want to be, but considering that despite the decent volume there just isn't enough supply, then prices for that tier escalate.

    Eventually, advertisers then go for portals, ad networks, large publishers/producers... small/niche producers are at the end of the line, making it that much harder to build a business.

    Ash

  3. David Scacco from david scacco, May 31, 2011 at 6:09 p.m.

    Ashkan - great post. What is the biggest challenge for WatchMojo - distribution or monetization? MyLikes is a social ad platform developed by exGooglers. We have a large network of "social publishers" who can cost-effectively generate significant distribution (video views) via social media. We done this for many large brands. Would love to discuss further at some time. Thx

    David@MyLikes.com

  4. Lyn Graft from LG Pictures, May 31, 2011 at 7:24 p.m.

    Enjoyed your post Ashkan - great to here perspective from someone who has been/is in the trenches in terms of what you have been through. I loved your 'the recession in 2008 moved up the timeline' comment - always great to have market forces separate the wheat from the chaff. What areas of content do you see as having the most promise going forward?
    Lyn Graft
    LG Pictures

  5. Ashkan Karbasfrooshan from watchmojo.com, May 31, 2011 at 7:35 p.m.

    David, avoiding the typical PR spin, I'd say candidly that

    - we realized early on that incremental distribution didn't necessarily lead to meaningful monetization so we focused on securing minimum guarantees (MGs) from distributors;

    - but are now moving to an ad-supported business as more advertising flows into the ecosystem.

    Unlike the brands you work with who have spent money on production and have an ad budget to spend on distribution, we deficit-finance our content. By and large, it's infotainment; it's not branded content.

    The thing is, even if we bundle ads as prerolls or overlays as we now do, the revenue generated from each stream is generally not high enough to justify paying the cost per view you would charge... Why? Because enough brands are willing to outbid us to promote their advertising or branded content, pushing the cost of buying views too high relative to our revenue per view.

    Seeing how you're a former Googler, it's akin to buying search traffic: it only becomes profitable if the cost per click is less than the revenue generated from advertising.

    So why do I do this? For me, as an investor, entrepreneur, executive and operator of the business, this is ok because the value of the catalog (the balance sheet approach) is gaining a lot of value. Over time, as more money flows into the ecosystem, we will focus more on the income statement side of it by doing exactly what you suggest/outline/are thinking of: arbitraging views. But that requires a direct sales force... it's hard for us to justify having a direct sales force (we are not niche) and it's nearly impossible for niche producers to have one because they lack scale.

    This is why you need scale and time to win in content.

    #Crazy.Long.Answer

  6. Ashkan Karbasfrooshan from watchmojo.com, June 1, 2011 at 8:15 a.m.

    hey Lyn, thanks for the kind words. RE: "What areas of content do you see as having the most promise going forward?"

    With regards to type, I still think branded content is more hype than reality. I don't see users caring about the kind of branded content that marketers will push for (too commercial). And branded content that fails to be too commercial won't necessarily have a measurable ROI for advertisers, so that won't be sustainable in the real world. I am biased but I see reference/infotainment content do well. There will be an insane amount of demand there, but then the reality is that marketers will always want celebrity-oriented content to align themselves with. Right now most of that kind of content is vapid. If there can be meat on it, then that might do well.

    With regards to categories, entertainment is always very popular but the endemic advertisers there are tough (studios view their ads as content and don't really spend the way they should, music labels have never really spent on ads, etc.). Lifestyle content does well especially seeing how much CPG spend to reach mom, but there the reality is that the budgets are huge, the rates are low...

    I don't mean to be negative or cynical, just want to offer a balanced perspective that yes, in aggregate online video is revolutionary, but no one should expect miracles overnight.

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