Online Video Is the Ultimate A La Carte Mode, Needham Analysts' Report Points Out, And That's a Challenge

A new report from Needham & Co. LLC’s Laura Martin and Dan Medina is getting some news coverage because it reinforces  the contention that cable couldn’t exist as we know if it tried a la carte programming. 

But the report has a lot of great insights about online video that makes it really worth the read. 

Like, try this disconnect.  “The rapid shift toward viewing on mobile devices implies that the length of premium digital content must shorten, since approximately 86% of videos viewed on mobile devices in 1Q13 were less than five minutes long,” the report notes.

OK...Later on they note the peril of that. Short videos facilitate the constant churn online that advertisers fear.  

It’s neat that Martin and Medina compare and contrast online video to television, since that’s what advertisers are doing too.

“Online video is the most unbundled form of video content,” the report states, referencing the way cable services are delivered to consumers.  “Online premium video is the extreme of a la carte because each show is viewed separately.  A key economic problem with this form of a la carte is that after the consumer watches a video, it takes an action to watch the next show. This heightens abandonment, since typical viewers have several demands on their time. This call to action reminds viewers of the 20 other things they should be doing with the next 20 minutes. This shortens average viewing lengths and limits ad revenue upside.”

And while content creators generally seem to like the idea that the cost of entry online can be low, so is the survival rate.  I’m putting some words into the analysts’ mouths but the report seems to suggest that without a structure, viewers-- and creators and advertisers—will constantly be set adrift online. Again, with cable, and now broadcasting, retransmission rights and subscriber fees cover the cost of failure.

 With online video, “there is no revenue associated with content unless it is viewed,” the report says.  “Because it is impossible to only make hit content, the ecosystem cycles through hits each year but companies can’t survive year after year. This exacerbates discovery by consumers and disperses talent rather than creating hubs of creative folks that push the envelope on new forms of content. Each year a different raft of entrepreneurs has hits and they re-learn the same lessons of the prior year’s hit entrepreneurs, making it difficult for the ecosystem to move forward.”

This report makes some other thoughtful observations—pointing out, for example, that the “deal” YouTube offers to some creators is just as bad as they now complain it is; that Netflix’s ability to get people to binge view might mean that eventually many more millions of viewers will decide it’s better to pay for a cheap monthly Netflix subscription and see programs a little late than spend $80 a month to see programs on time; and, getting back to mobile, that it “threatens the nascent premium digital video content incumbents” that are spending millions creating long form programming.

The Needham report makes one more neat observation: Those online content creators actually have to spend money to promote their programming.   “The most prevalent forms of discovery in the online world are sharing and recommendation engines,” the report points out, but online video platforms—I read that as YouTube--won’t spend marketing dollars to promote their hottest properties.

It wouldbe ironic if it turns out that the reason marketing and advertising expenditures are so low for onlinecontent companies is that they don’t believe in the power of advertising, despite the fact that they havead-driven business models,” the report says-- and those italics are theirs. Pointedly, I’d say.

Next story loading loading..