The Online Video Disequilibrium
While most new media startups have seen valuations spike, video content remain under-valued, providing investors with a considerable safety net and compelling risk-reward ratio.
- online video advertising remains the fastest growing segment in online advertising, and
- we are seeing a flight to quality content as advertisers demand premium content to advertise against.
But content owners are by and large not optimizing (let alone maximizing) their inventories. Take Next New Networks for example: despite billions of video impressions, they could not monetize their audience effectively. They're not alone. If I had the option, I would consider entering into a "swap agreement" and sell the rights to monetize our company's video inventory today for the right to reclaim it in the future. This goes against the fundamental tenet in finance knows as the time value of money, which states that a dollar today is worth more than a dollar in the future. But that illustrates the inefficiency and disequilibrium of online video we face.
Back to the Future: History Repeats Itself
Back in 2000, right before the NASDAQ peaked and imploded, I was working for a search engine that was serving hundreds of millions of search queries each week; and each week, those queries went unmonetized.
It was frustrating, not because the industry lacked a model, but because we were frozen by inaction. By then GoTo had pioneered the pay-per-click model, but we were torn between running the paid ads in our organic search results or alongside the results (the way Google made it the industry standard later on). Before we knew it, Google took the winner-takes-all sweepstakes and today owns the market. We became a footnote in history. It happens. Life goes in.
If You Operate in a Winner-Takes-All Game, You'd Better Pray That You Win (Otherwise Life Sucks)
By the end of 2000, I transitioned away from search (a distribution and technology play) and into content. That taught me a lesson: if you enter a winner-takes-all competition, you'd better win; otherwise, you're irrelevant at best and impotent at worst. This is clearly what is happening in the online video distribution segment as YouTube continues to grow its grip on eyeballs.
With content, it's anything but winner-takes-all: in my lifetime: I've seen ABC, NBC, CBS share the crown at different times. I've also seen that paradigm shift away from the networks to cable first, and now from television to the Internet.
But while content's outcome is less binary, it's not for the faint of heart, either. Content is an extremely long-term bet. Even if you bide your time and scale, there's no guarantee that you will be left standing when the music stops. In fact, the online video content landscape is littered with zombie companies that are running on fumes, who have been around for a while and burned through a fair share of capital.
The thing is, unlike in the distribution segment where content owners and audiences will continue to converge on the largest platform, all of the content plays retain a shot at glory because of the need for premium content. Provided you can grow your catalog, audience and brand over time, eventually you can build a business that becomes a going concern.
Maybe that is why I was drawn to content; I feel more in control of my destiny, even if it means a hamster-in-the-wheel existence at times.
Content Will Prevail in the Long Run, But Most Content Owners are Screwed in the Short Term
The issue is, how long can content owners hold out? It is becoming obvious that a lot of the money allocated to online video is actually spent on in-banner video ads. In that kind of push dynamics, the content itself is irrelevant.
The content itself matters most with real click-to-play pull environments. Most of the in-stream (true pre-roll) inventory comes on YouTube; as long as that tendency continues, the challenges content owners face in monetizing their inventory will remain, especially as long as YouTube doesn't come on board and play along with the rest of the industry, which is their right to do.
Nothing Will Change in the Short Term
eMarketer's Geoff Ramsey argues that marketers "need to be in the content business," but while many prefer the "certainty/surety" of knowing where ads are placed, the reality is that many ad agencies will opt for the savings associated with turning a blind eye and relying on ad networks' exchanges, according to Vipin Mayar.
As a result, in the short term, content owners will face their share of challenges. But over time, differentiation will come not solely through premium content but what that content actually is.
The question remains: Who will remain standing when the music stops?