"All streams are equal, but some streams are more equal than others" -- Animal Farm, had it been written in the 21st century by an online advertising executive.
Last week, Brightroll's CEO Tod Sacerdoti touched on the "Syndicated Video Black Network," which he said was "dominated by codependent and unscrupulous video syndication firms, ad networks and publishers." He's right, but there's more to it than that.
Not All Streams Are Equal, But They're All Valuable Depending on the Context
With video consumption growing quickly and marketers embracing the medium, videos are being streamed in two ways:
Stream A - The YouTube variety: a viewer clicks on a link and is taken to a page where the video loads automatically. Marketers run pre-roll, overlay or companion ads. The video is the main content on the page.
Stream B - The in-banner contextual variety: the video sits in a 300x250 or 300x600 unit next to an article (the main content on the page). The video tends to auto-play with the audio off and there might be a companion display, overlay or pre-roll advertisement.
Value is Relative
The explosion in social networking created a glut of ad inventory, plummeting ad rates. Conversely, online magazines and newspapers have some of the most valuable real estate online, with branded marketers running alongside premium content. The problem is most of this is display banner inventory as many of these properties fail to generate much video inventory.
Destination vs. Distribution
Earlier, Sacerdoti forecast that the Top 10 video properties will be aggregators, not content creators. Indeed, with search engines failing to index video content,
- the largest content-producing properties will remain text-centric; and
- the only video destinations that will really scale will be the aggregators. YouTube will remain #1, Hulu will be a strong #2 and the rest are vying for the third spot and fighting against obsolescence.
Admittedly, those who can build a destination will attempt to do so, and those who cannot will turn to distribution.
Context Will Win: Matching Great Content with Audiences
Until 2010, we rejected Stream B-style distribution deals. However, the biggest value proposition for our content is actually print media companies who have great articles but who lack the ability, DNA or resources to scale the production of compelling high-quality videos at a low cost.
But audiences consume content by type (articles vs video) and not category (auto vs business). Visitors who frequent a newspaper website generally want to read articles; those who watch videos go to YouTube.
Consequently, when a magazine or newspaper adds a link off their main page to a given video, few people will click through and watch that video. (The exception might be a site like CNN or ESPN whose DNA is in fact video.) The result is that even the traditional media companies who will produce video content will fail to generate the ROI to continue the endeavor. Before long, they will turn to video content producers to offer video content on their properties.
For example, if a newspaper adds a link to a page with a video on travel to Florence, it will fail to generate as many views as it would if it added a video of Florence alongside an article on the destination. In other words, in aggregate, the newspaper property will probably generate more Stream B views than Stream A views, and in that context, the pre-roll before that video on Florence would actually be very valuable to an advertiser and more lucrative to the publisher, even if the CPM it charges for Stream B is lower than Stream A, because the volume will be that much higher.
Push vs. Pull
As the Florence example illustrates, audiences can "pull" in content and publishers can "push" content out. What is more valuable is actually not that obvious, neither is what is more lucrative (because total revenue is ad rates multiplied by stream count).
Taking a more extreme example, say Toyota wants to spend a lot of money to address what they are doing in the face of safety concerns, would it not jump on Stream B type inventory?
What About Branded Content?
It's not just contextual campaigns or crisis control campaigns that derive value from Stream B content. If Kraft hired a company to create a series of recipe videos using their products, would they not want those videos "pushed" out as much as possible to relevant audiences around relevant content?
Conventional wisdom states that the value of audiences who will "pull" those videos is greater. Playing devil's advocate, people who are looking to buy your products or services will eventually find you. You need to also worry about those who might not actively be in the shopping mindset. If you can win those consumers, that's when you become dominant. Think about it, if I am really looking for insurance, I will compare the prices of 10 offerings. But if one day I suddenly realize I need insurance, I will first think of Geico (for example) because of its branding efforts and maybe bypass searching for alternatives.
That is the value of the Push process. By no means is it a replacement of the Pull mechanism.
Just be Honest and Transparent
There is no one single answer but so long as the process is transparent, the pricing reflects the different nature of the stream and the advertiser signs off on things, there is value in both.
Spoilage and SOV
There are, of course, drawbacks to focusing on building a property alone. Once you include frequency capping and geo-targeting, you realize that the true commercial value of a property is not as large as you think that it is.
Moreover, by spreading out a campaign across multiple web properties in one distribution network, you can obtain a far bigger share of voice across the Web (albeit so long as it's a form of syndication that avoids the more scrupulous tactics of the so-called "black market syndication" markets that Sacerdoti refers to).
An Exercise in Brand Building
Up to now, we're talking about the value to a marketer. But, what about the content producer who is also building a brand and an audience: the greater the audience, the greater the value to advertisers; the greater the brand, the greater the value of the content. This doesn't mean that advertisers should pay the same price for Stream A as they should for Stream B, of course, it just means that to totally write off Stream B is leaving a lot of value on the table to both marketers and for producers.
Creating Value is All About the Multiples
The media business involves
production, publishing and distribution. Video is no different, however,
- production is a commodity and expensive,
- publishing (ie. building a destination) is a huge challenge with video and
- distribution is fragmented.
We did 9M views in March. If I could choose to have those on third party websites or our own and operated, the answer would be obvious, but given the realities of the video industry, naturally most of that will come through distribution. Distribution isn't such a bad thing. When it comes to the multiples that investors pay, an argument could be made that the premium lies in distribution, not destination.
I have found that investors would pay roughly (depending on the many things that drive M&A deals):
- 1x revenues or 2x earnings for production companies
- 2-3x revenues or 3-10x earnings for publishing companies
- 4-10x revenues or 5-30x earnings for distribution companies.
This changes over time, but if you can build a "white hat" syndication company and have a defensible IP then you will be sitting pretty.