A recent New York Times piece by Laura Holson, "Bridging the Gap, the Sequel," explores the latest mating dance between Silicon Valley and Hollywood, as both entities explore ways to partner in the creation and distribution of professional content online. I wanted to link to a very funny and insightful episode of "South Park" that parodies the WGA strike and the issues of making money from the Internet, but I can't link to the full episode anywhere on ComedyCentral.com until May 3. Ironic.
There are three major issues when it comes to creating a sustainable online video ecosystem:
· Content creation
· Content distribution/syndication
· Content monetization
These most basic issues are really not any different from the issues facing other media outlets. The major distinction is the audiences' choice and control of media consumption. Audience choice/control means that to form an effective new media ecosystem, Hollywood, Silicon Valley and Madison Avenue each represent an important piece of the puzzle and must work together more closely -- which, as Holson's article points out, is far easier said than done. But, when you put cultural differences aside, there is more in common between Silicon Valley investors and Hollywood producers than one might think at first glance. Both invest in numerous bets hoping, and fully expecting, that just one or two will hit big to pay for all the other investments that don't work out. Both like to bet on previous winners for future projects (previously successful entrepreneurs vs. previously successful producers, writers and actors). Both are the rock stars of their respective communities that make the creation/innovation engine tick.
It's not an issue of the content creation model or even distribution model not working -- Will Ferrell's "The Landlord" (http://www.funnyordie.com/videos/74) on FunnyOrDie.com has over 55 million views -- it's the monetization model that's broken.
Neither Silicon Valley nor Hollywood is going to be happy until the monetization issue is addressed. FunnyOrDie is a success in media terms. At a modest $10 CPM rate for pre-roll, "The Landlord" would have earned over $550,000 dollars. I don't know what the 2:18 piece took to shoot; I am guessing less than half a million (but then again I don't know what they paid the baby...). It could have been the one hit that covered the cost of other productions until the next "hit." However, in order to capitalize on the viral lightning in a bottle that was "The Landlord," FunnyOrDie would have to have had monetization deals with brands and assets in place before they ever knew what a success the piece would be. And this means that brands would have to be willing to commit budget not knowing if it was going to be spent -- not media buyers' favorite thing to do.
This brings us to the issue of predicting viewership so that media creators can do a "digital upfront" with media buyers. The problem are twofold. First, with viral, past success is not indicative of future performance (see: Diet Coke and Mentos). Second, quality episodic content, which would be easier to predict viewership for, is harder to find online due to the upfront cost associated with creating such content.
So what will make a successful Hollywood/Silicon Valley joint venture? The one that comes with a monetization model built in. Be it advertising, or an innovative subscription model, or a new easy to use pay-for-play model. Content producers already assume the risk of content being successful or not; that's a risk they are willing to accept. What producers cannot do is also assume the risk of failed monetization of their content that does become popular. A joint venture built to aggregate eyeballs will eventually collapse, as the hits won't be able to support the failures -- and it will continue to be difficult, if not impossible, to allocate the resources necessary to create episodic hits. Media is certainly in a very transitional state, with no sustainable model for content creation and monetization online, which is becoming a necessity as more and more attention shifts to the digital medium. But you know what they say about necessity and invention...