Commentary

How You Can Make Money From Video Content

This week I will be attending the NATPE LATV Fest and speaking on a panel called "Get onto Mobile and Get Paid."  Indeed, one of the most frequently asked questions I get comes from fellow content producers who want to know: "How can I generate revenues as a video content producer?" 

It's not easy or quick, but it is helpful to try to maximize revenues by viewing your revenue opportunity as a matrix with platforms on one axis and sources on another.

Unlike traditional media companies who need to balance the loss of analog dollars with the potential of earning digital quarters (hey, the medium has grown since the days of "digital pennies"), new-media producers can really attack all platforms and monetization strategies.

First, let's list the platforms:

1. Web
2. Out of Home (OOH)
3. Wireless
4. Television (cable, networks, IPTV, satellite)

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Indeed, the world is moving toward a blurring of the lines between these platforms, but it is rather naïve to think that economic potential and size is the same across all platforms.  TV advertising in the U.S. is a $70 billion annual business, yet video advertising only generated $1 billion on the Internet.  Wireless isn't even a rounding error next to those figures -- but naturally, the potential to advertising on a mini-computer that follows consumers everywhere they go is making marketers salivate.

Our sources of revenue have come to mirror that of a bank, which generates money from retail, corporate and investment banking.  I'll expand on that analogy below. In any case, our sources are:

A) Licensing
B) Syndication
C) Advertising

Another option that we have not pursued but I will touch on is:

D) Subscriptions

Conceptually, I view licensing as a B2B paid model that could work, and subscriptions as a B2C paid model that simply doesn't.

Admittedly, the definitions of each revenue stream become blurry as things become interconnected, but by and large, we view our overall distribution as either licensing or syndication, with

A) Licensing representing distribution deals where you earn a fixed, recurring, minimum amount regardless of the stream volume and the sell-through.  Not many video catalogues can command this kind of guaranteed and recurring revenue stream.  New-media producers generally lack the breadth, scope, quantity, quality and frequency to pursue this revenue stream.  Traditional media companies can generate money from licensing, but that will require them to let the content live on another property and allow others to sell ads -- conditions that they are generally adverse to.

In banking parlance, licensing revenue mirrors "retail banking," not because individual consumers pay you (that would be subscriptions, which I'll touch on below), but in that the business is safe, producing recurring revenue in both good and bad times as other media firms turn to us for their video content needs.  This is also a nice revenue stream to have. Since clients are licensing your existing catalogue  "as is," you are recouping sunk costs, earning high margins and developing funds to create new content in the future.

B) Syndication deals are essentially partnerships where you share advertising revenues with the distribution site that is aggregating content and serving ads alongside it.  With more money being poured into online video, naturally these relationships are becoming more lucrative -- but it's not obvious beforehand if a partnership will generate revenue.

In our particular case, we have about 50 distribution partners, with about a dozen contributing material revenue.  Yet many of our relationships don't earn enough revenue to buy a Happy Meal in a given month.  It's sad, but true.  This is also why you will see a major shakedown in the aggregation space, because distribution sites who cannot generate stream volume or revenues don't offer much value to content owners. This being said, if you have a sales force and sell ads and then bundle your content with ads, all incremental views are indeed welcome.

In the banking scenario, this is akin to corporate banking, where the content owner profits more when the overall ecosystem does well.  

C) Marketing deals are related to syndication in that they rely on advertising and distribution, but they are different, too, because instead of simply attaching any related (or non-related) ads next to your content, you now have marketers coming to you, asking to get more involved.

As you grow your catalogue, distribution and brand, advertisers will start to come to you for a variety of marketing needs, including but not limited to advertising media alongside your content, distribution of their videos through your content stream, using your videos on their microsites, and even the creation of custom content. 

The key requirement is having direct relationships with marketers or their ad agencies. Having to go through your distribution partners makes this a hard revenue stream to develop because admittedly these are not as scalable, though they tend to be very profitable and add to your top line.

D) While we have not pursued a Subscription strategy, it's important to address it, especially due to the euphoria around the iPad these days.  Realistically, despite what the odd study and report might suggest, the harsh reality is that after 15 years, few (if any) successful online subscription models for content exist.  Yes, people might pay for the Wall Street Journal, but they can expense it.  For the vast majority of content, there are ample free alternatives.  The other problem is that if someone is willing to pay for content, it's probably because they want to save time, but if they want to save time, they probably prefer to get a text version than a video version (think of an analyst getting a report on a country, for example).

Ultimately, content creation is expensive and takes a lot of time to scale.  But if you can set up your content catalogue and distribution strategy a way that maximizes your matrix, then you will in time build an actual media business.

3 comments about "How You Can Make Money From Video Content".
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  1. Ashkan Karbasfrooshan from watchmojo.com, July 12, 2010 at 6:19 p.m.

    Paula,

    Great question. If you just want the answer, scroll to the end of my post.

    It depends on many things. For one, pure content will take much longer than branded content, but fewer people will watch branded content, so pure content over time is a better strategy.

    Ultimately, it all boils down to:

    a) keeping costs down, and
    b) having an evergreen library which can remain timeless and relevant.

    Naturally our 5,500 videos are relevant today as they were in 2006, so that helps. Of course, unlike articles, most videos have a 10-year shelf life, I think... but if you're still around after 10 years then you are perpetually updating your catalog and it all becomes seamless.

    You need to invest time and money to have quality, quantity, frequency (scale), so sadly, you probably won't see a profit for 2-3 years, if ever. Most content businesses are money-losers and rely on another unit (ie. Bloomberg).

    We are starting to turn the corner - we're in Year 5! - so I definitely don't want anyone to under-estimate the challenges of being in the content business. I see similar time horizons from other companies in our space.

    Therein lies the real barrier to entry: it takes time to get into the black, but once you're in the black, you have a commanding position.

  2. Chase Norlin from AlphaBird, July 13, 2010 at 12:22 a.m.

    Ashkan, appreciate your enthusiasm over the topic of online video, but you stereotyped syndication as purely a revshare business. Syndication is an industry in itself with a plethora of business models. Keep an eye out for our next article.

    Chase Norlin
    CEO, Alphabird

  3. Ashkan Karbasfrooshan from watchmojo.com, July 13, 2010 at 10:16 a.m.

    Chase, I was merely setting up the stage for you ;)

    Look forward to the article.

    Ash

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