Commentary

Why The Online Video Industry Is Waiting For Its Potato

Accordingto Harvard’s Nathan Nunn and Yale’s Nancy Qian, 22% of the increase in population growth after 1700 could be attributed to the potato.  Requiring no tools, potatoes were easy to grow – and that fact, combined with the vegetable's health benefits, which led to a lower child mortality rate, partly explains why the world population exploded after the potato’s introduction. Without the potato, the world simply wouldn't be what it is today. 

Somewhat analogously (please, bear with me), I think that many in the online video landscape are waiting for the proverbial potato to come along and reduce the mortality rate while allowing for more prosperity.

With online video consumption booming, it's hard to imagine how everyone can be well-nourished.  Indeed, according to Accustream, professionally produced and user-generated videos generated 511 billion views in 2012, a 20.3% annual increase.  Professional clips grew 17.9% to 104.4 billion, with UGC variety rising 21% to 406.8 billion (worth noting that Accustream lumps all social networking video views in the UGC category, even though some of that content may very well be produced by brands themselves).

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In any case, while 80% of total views come from lower-quality videos (at least as perceived as such by the marketer community), it's foolish and naive to think that none of those views are monetized.  The reality is that as marketers increasingly rely on data and programmatic buying,  the chances that some of those views are serving ads are pretty good, even when you tack on frequency capping.

As such, it should come as no surprise that Google will soon surpass News Corp. as the biggest beneficiary of WPP's largesse.  Speaking at the FT Digital Media Conference in London, WPP's CEO Martin Sorrell referred to Google's rise against the backdrop of WPP now generating 34% of its revenues from digital: “from zero to over one-third in about ten years, the age of Google,” was how he put it.

AOL and Yahoo each get $400 million to $500 million in ad spend via WPP, with Facebook getting $270 million.  This made me wonder: Even as video spend is set to grow, how much could those behemoths grow their cut?  And better yet, how much can all of the smaller mid-sized players grow to?

Incidentally, Sorrell described Google as “a media owner masquerading as a tech company.”  Fitting, since Google is the only tech company that has successfully built an ad-supported business around software, while others have only managed to charge for it (end sarcasm).

That takes me my point here: There simply won't be enough advertising to support it all. 

A recent study by Forrester revealed U.S. online video advertising  of  $2.9 billion in 2012, $3.9 billion in 2013, and $9.2 billion in 2017.  Globally, Google's YouTube is expected to generate $4 billion in revenue in 2013, according to RBC.  Google generates 53% of its revenues globally, and YouTube in particular is a very global platform, with US accounting for a third of a channel's views, though well over 50% of its revenues (at least in our company's channel's case).  YouTube, of course, is the market leader in video according to comScore

While video advertising will invariably siphon ad dollars from display, print and over time, television, the competition for a limited and finite pool of ad dollars among a seemingly endless amount of content creators is daunting.

It's always thorny to draw conclusions when using two disparate sources.  But if all of that online video advertising was spent against the 20% of videos that represent professionally produced content, then there's enough revenue per one thousand streams to allow producers to make ends meet.  But when you realize that some of those dollars invariably make their way onto the 80% of UGC, then you realize just how hard it is for media companies that produce content to survive, let alone feed everyone at the table.

Until the video industry discovers its proverbial potato, you may want to leave the champagne on ice.

4 comments about "Why The Online Video Industry Is Waiting For Its Potato".
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  1. The digital Hobo from TheDigitalHobo.com, April 29, 2013 at 2:55 p.m.

    When you say "There simply won't be enough advertising to support it all," you seem to imply that all of it deserves to be ad supported. And that is simply not true. Even Conan O'Brien joked about the :30 pre-rolls running on HuffPo. You simply shouldn't have to sit through a :30 to see :30 worth of content. The value exchange is still out of whack. Too many attempts to monetize content that isn't worthy of the ad that is being wrapped around it.

  2. Ashkan Karbasfrooshan from watchmojo.com, April 29, 2013 at 3:15 p.m.

    hey Hobo, to be perfectly candid, the "potato" need not be ad-based... but I don't think most viewers would pay for 99% of the content that is out there and e-commerce doesn't apply to 99.9% of the videos we watch... so almost by process of elimination it comes back to ads.

  3. Pete Austin from Fresh Relevance, April 30, 2013 at 6:10 a.m.

    @Ashkan: most viewers DO pay for 99% of the content that's out there. They pay by creating and sharing the content in the first place, and extra to their ISP or phone network. Long-form content is different - the 1% of professionally-produced videos that we watch - and adverts may work for that.

  4. Pete Austin from Fresh Relevance, April 30, 2013 at 6:17 a.m.

    But a lot (most?) long-form videos are produced by non-profit organisations - in my case mainly the BBC, VTV and assorted marketing departments. They care about mind-share, not immediate profits, so adverts would be undesirable.

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