10 Lessons In Online Video After Five Years Of Operations

Jan. 23 marked the five-year anniversary of my company. Feels like 50.  With that in mind, here are ten lessons I've learned about online video in that time.

1)  Destination vs. distribution.  Video producers have such a hard time scaling properties that most don't bother. 

Back in 2007, around 11% of the video bloggers/producers tracked uploaded their content to YouTube.  By 2010, that number rose to 36%.  Meanwhile, the number of producers who maintained their own site fell from 57% to 18%.  I've covered this ad infinitum

What I've covered less is how some producers have turned to (or tested at least) aggregation, while some aggregators have opted to launch networks.

2)  99.9% of revenue-share deals are a flop. One day, in a far-off place, there might be enough money in the system to make each and every video stream worth something.  Don't hold your breath.   Between user-generated content and low barriers to entry for aspiring producers, content and advertising inventory supply is booming.  As a result, there isn't enough advertising revenue to make everyone happy.

Get used to it.  Most content producers won't be able to generate a sustainable business through revenue-share deals alone, and in turn, most aggregators won't stay in business -- because they will not be able to generate any meaningful revenue for content owners.

3)  The YouTube phenomenon. The reason for that no. 2 statement, of course, is that YouTube has become a vacuum, sucking eyeballs and ad dollars from everyone else. 

Five years ago when we launched, we came across YouTube and weren't even sure if we could set up a professional account with them, so I used my Gmail email address to create the froosh account.  At the time, YouTube co-founder Steve Chen would reply to some of my emails. That's the least of the changes: YouTube sold to Google for $1.65 as early as October 2006 and today accounts for about 45% of U.S. video views, with revenues clocking in at a reported $500 million per year.  YouTube can do a lot more to help content producers generate revenu,  but the fact remains: it's YouTube's world, we just stream it.

4)  Video tech companies are generally screwed. As a result of YouTube's dominance -- and Google's ownership of YouTube -- video technology companies are generally screwed.  Whereas tech companies tend to face a level playing field in most industries, in video, unless they get access to YouTube's burgeoning audience, they fail to get the kind of traction they need to scale.  Quick: Can you name one video tech company that has become a billion-dollar entity?  I thought so.

5)  Content is king, but distribution commands dollars.   Of course, maybe one reason video tech companies haven't reached the kind of success we expected is because content is king and video highlights that.

Sure, content is king, but let's face it: content alone is akin to the tree that falls in the forest; especially until branded content becomes less hype, more reality.

Content is king but monarchies are out of style if you haven't noticed.  Of course, that explains why you have 10 distribution companies for every content company, and that is an opportunity in itself.  But distribution is the other side of the coin, and is equally important in the formula for success.  In fact, whereas in previous media we saw content producers also own distribution, with online video, content owners seemingly got lazy or forgot that.

Sumner Redstone is absolutely right that with new distribution channels the value of content rises, but he forgot to mention that he owned enough distribution to make the content relevant and pertinent.

6)  Ad networks are starting to feel pressure in display. Distribution is so important because video is an ad-supported media, and marketers want to see reach before signing an insertion order.  No one commands reach like the ad networks do, and nowhere do the ad networks see more opportunity and threat than in the video industry.

The reason for that is the ad networks have grown comfortable (some would say lazy) collecting and writing checks in display advertising.  Video represents the first fundamental technological and editorial shift since many have been in existence.

Moreover, their bread and butter -- display advertising -- is starting to feel the pressure from search from the bottom (performance-oriented marketers) and video at the top (branding-oriented marketers).

This is why Specific Media bought Broadband Enterprises and why Undertone bought Jambo -- and this trend will continue.

7)  For ad agencies and most marketers, video is still largely on a to-do list only. Yes, video grew up considerably in the last year, but by and large ad agencies are not heavily spending on video yet.  Of course, this is probably changing so fast that, depending on when you read this article, it could sound false.  We're seeing bigger and bigger deals from better and better advertisers, no doubt. 

But, when it all is said and done, we're talking about a $1.5 billion slice in a pie that is worth hundreds of billions of dollars. Considering just how big online video has become, that remains small.

8)  VCs are batting .033 at best. With massive consumer penetration, impending advertising spending shift and recent mergers and acquisitions activity, you can anticipate that investors will get back into the video game. But let's face it, if you listed all of the venture capitalists' bets on online video, they would get a D.Were it not for Sequoia's massive YouTube exit which was a grand slam: $11.5M capital raised, sold for $1.65 billion - they would be getting an F.  Clearly, VCs like baseball analogies, so let's just say they'd be batting at less than .033 so far.

9)  Big media remains frozen in time. If there is one sentence that summarizes the state of online video for traditional media, it's those who can, won't -- and those who want to, can't.

Print companies got shellacked so they couldn't invest in video, and when they did, the end result wasn't up to snuff.

Television companies had the rare move (CBS/Wallstrip anyone?) but by and large they (somewhat rightfully_ felt that they didn't need to do anything in online video -- even though by now they should have realized that repackaging the stuff from television and theatrical that no one cared about for the web was probably unwise.

Their one success (Hulu) might be killed because it is too successful.  Will they one day go on the offensive

10) TV will remain huge, search too -- but online video will over time compete with both for ad dollars.

Online video might not surpass search or television any time soon -- but bear in mind, it took 15 years before online surpassed print ads.  In fact, were it not for the 2008 economic meltdown, many print media companies would be in a better shape than they are today (only delaying the inevitable).  Indeed, television media companies have a lease on life for another decade until they suffer the same kind of traumatic losses and market value meltdown that their print counterparts faced these past few years.

3 comments about "10 Lessons In Online Video After Five Years Of Operations".
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  1. Bill Hildebolt from Expo Communications, January 24, 2011 at 3:20 p.m.

    Good article but too negative on point #8. There's plenty of VC success around video. You've got positive exits for 5min, Expert Village and others. Incredible traction & momentum at Tremor Media, profitability at Brightcove, consumer adoption at Hulu. And even if Revver and Veoh blew up in the wake of YouTube....Metacafe and DailyMotion continue to do well. The challenge for players in the video space is too many companies with undifferentiated services....but that's no different than any other number of overfunded sectors. It's a great space and there will be more winners.

  2. Jonathan Mirow from BroadbandVideo, Inc., January 24, 2011 at 3:59 p.m.

    Here's to #4 - YouTube was the missle that sunk our battleship. But seriously, what fun would it be if you didn't have to reinvent yourself every couple of years? Thanks for the insightful article, Ashcan - hope de Mojo is still with you.

  3. Paula Lynn from Who Else Unlimited, January 24, 2011 at 5:35 p.m.

    WOW, there really is a realist ! Blinders make good....blinders.

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