• by Ashkan Karbasfrooshan , Op-Ed Contributor, November 29, 2010

In my last post, I looked at scarcity with regard to traditional media companies (TMCs).  To recap, I stated that:

- Without scarcity, the value of a product or service will fall.

- Newspapers and magazines face a challenging online landscape because articles are easy to duplicate, facilitating the creation of large amounts of similar inventory of nearly equal value -- which, when combined with behavioral targeting and demand-side media buying, decreases the value of their content and audience.

- Meanwhile, studios and networks created false scarcity by way of linear programming and the use of release windows. The lack of these online has created a sense of imbalance that makes the success of online video anything but certain.

Today, we will focus on how new-media video producers can create scarcity in order to create valuable, sustainable content businesses.

Production is the Rodney Dangerfield of the Media Business: It Gets No Respect

Any company that competes on production alone is at a disadvantage.  There's always someone with a camera willing to do the job cheaper.  Considering the falling price of filming equipment, no wonder production gets "no respect."

Making matters worse is the reality that video content producers have not had the largest of exits:

-        Wallstrip sold for $4million-$ million to CBS;

-        Kush.tv for an "undisclosed" sum to AdConion;

-        Luxe.tv sold for $5 million-$10 million to NBC. 

Alternatively, aggregators such as YouTube, Grouper and 5Min have sold for $1.65 billion, $65 million and $65 million to Google, SONY and AOL respectively.  Unlike Grouper and YouTube though, 5Min's value was in both its distribution and rights to content catalogs it has secured.  However, given the relative lack of exits, prices have been set by venture capitalists -- who by their own admission don't understand or like content.  In other words, content has all but been valued at zero.

Of course, times are changing.  Look at how quickly AOL dumped social networking site Bebo in favor of premium content.  But the fact remains, if you want others to value your content, you have to value it yourself.

Your distribution strategy should change over your company's life cycle. To create scarcity, you need to first create demand.  When companies begin to produce content, they need to distribute it as widely as possible to grow their audience and brand to create demand. 

In theory, a content company can sell ads against every incremental stream and ad impression.  In reality, an over-fragmented audience doesn't really serve anyone.

The Web's tracking and targeting abilities have forced media buyers to change, but the most important change has been the glut of options media buyers have.  But the time it takes to weave through all of the options isn't minimal -- so, more often than not, incremental inventory goes unmonetized as a result.

Odds are that your 80% of your audience will be on 20% of your distribution partners.  Mind you, when you start your business you won't have a clue which partners will account for that 80% -- so you need to be open-minded when new potential distribution partners come knocking.

The Bells Toll For Thee: I'm Your Pusher

But that doesn't mean that you should be a pushover.  In fact, content owners should think like pushers.  If you have some good stuff, you can give some up for free because your clients will become hooked.  In fact, you almost have to.  If your stuff is weak, you won't be in business for long. 

Distribution companies have forever built their business on the backs of content owners (this doesn't mean that distribution partners don't  offer anything to content producers ever, but most don't really add much value by way of revenues or reach), so content producers need to become as shrewd and use their assets to their advantage.

Distribution partners rarely expect content owners to exercise clauses or not renew the term.  Once in a while, you have to.  Of course, only do this if your content has value; otherwise the distribution partner might welcome the news.

In theory, niche publishing works.  In reality, it doesn't. In 2006, Bear Stearns analyst Spencer Wang published a study called "Why Aggregation & Context and Not (Necessarily) Content are King in Entertainment," outlining the deportalization of the Internet and how audiences were becoming fragmented.  While all of that turned out to be true, the reality for niche publishers is that while the ad rates you command might be extremely high, the likelihood that your audience will be too isn't a given, meaning that your total advertising revenue might be insufficient.

So while many content companies prefer to go deep instead of going wide, in practice it might prove fatal.

Promotional vs. Commercial Benefits

It's YouTube's world; we just stream it.  The problem is, for most content providers, YouTube is also their largest distribution partner.  Yet by now, it's clear that unless you are a prosumer content producer, you cannot rely on YouTube to stay in business. 

Ironically, YouTube faces its own scarcity problem because it generates the lion's share of its streams around user-generated or pirated content.  But it exacerbates its problem by creating obstacles for rightsholders to sell ads around their content. However, YouTube could further consolidate the video space if it let content owners fully control sales of their inventory.

Redistribution is a double-edged sword. It's one thing for content companies to distribute their content to another business; it's another when that other business then redistributes it a gazillion other Web properties. 

-        5Min became a Top 10 comScore video property largely through redistribution; its own property is relatively small. 

-        Hulu, meanwhile, also redistributes content, but its own property is sizable. 

Ultimately, this is a business; sometimes a content company might find that too much of something isn't necessarily a good thing.   

Take control of your destiny. With traditional publishing, incremental distribution still bore some cost (be it to printing or postage, for example).  Only with digital media is free publishing even debatable thanks to the actual marginal cost of distribution being zero, but the bottom line is that that marginal distribution does come at an opportunity cost, and smart businesses need to determine what those costs are before they embrace an anything-goes distribution model.

Ultimately, traditional media have tried to create scarcity with print, which is a losing proposition; yet by shying away from distributing video content, they are creating false scarcity and helping new media companies.