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-bannervideo 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'tcome 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?

4 comments about "The Online Video Disequilibrium".
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  1. Jonathan Mirow from BroadbandVideo, Inc., July 11, 2011 at 5:12 p.m.

    Ashcan - Sorry about 1999 our company created the worlds first user generated video site "" - you could upload AVIs and our servers would convert it into streaming video, then put it content bins and allowed users to rate it. Essentially YouTube. In 2003, we created "" where we would collect video submissions from content owners, convert them into streaming video and let people watch them on a pay-per-view basis. Essentially Netflix. Undaunted at the financial failures of both of these - we created "" in 2004/5 which let users upload digital video files and then charged them against views or time or both - essentially personal managed video hosting. You wanna know what I'm working on right now? A wordpress site. You're certainly right about that "Win or Suck" deal...

  2. Bob Kiger from Videography Lab, July 11, 2011 at 5:13 p.m.

    Disequilibrium is non-sense term. See equilibrium-axiom

  3. Rick Monihan from None, July 11, 2011 at 5:29 p.m.

    There are good reasons video content remains undervalued. For one, the ad dollar per eyeball available is still at a very low ratio. For another, the payout for digital video is very different from broadcast or cable. It's important to remember that up to 22 :30 ads run in each hour of TV programming, so CPMs can be much lower.
    The offset for digital is that fewer ads per hour mean that each ad receives a highly qualified viewer - someone who has CHOSEN to watch the specific video and is likely to watch however few ads are shown.

    This means any provider of video content MUST have scale. Youtube has massive scale - but has extremely low quality. This allows them to utilize a variety of monetization methods in order to cover their costs. In this world, scale masks a variety of shortcomings.

    However, until a content provider has this scale, they are at the mercy of a relentless and highly competitive market. The barriers to entry are low - but the costs of continuing in business are high relative to the potential payout. If you can't generate scale quickly, you'll be left behind because the dollars will seek out either scale or quality. Without either, you're taking your chances.

    In the end, content will win out. The best content is the best place to advertise. Desirability of viewing audience, likelihood of viewing, and interaction are all going to be much better with good content.
    Scale will always have a form of value - but good content is always going to have the best money going to it.

    The question "who will remain standing when the music stops?" is the wrong question. It should be "who is going to adapt quickly and provide their viewers with what they are seeking in a high quality manner in order to stay in line with market needs?"

  4. Bob Kiger from Videography Lab, July 11, 2011 at 7:52 p.m.

    How long must the world wait for a viable plan that rewards music-video artistry? See 30 year old Daily Variety cover which not only talks about Videography Studio but the move to 3-D :)

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