5 Reasons To Ramp Up Video Production

The only sure thing in the current economic quagmire is the exploding options and issues related to video distribution and the continuing hunt for the secrets to monetization. Call it media's crusade for the Holy Grail.

At an invigorating roundtable discussion of online video at the UBS Global Media Conference Wednesday, the panelists sparred about rapidly changing video dynamics: the ongoing evolution of content on TV, online, on game consoles, on smartphones. It provided a springboard for contemplating some of the developments and trends shaping digital interactive video over the next 18 months. Online video executives are calling this era the Wild West of distribution opportunities, and estimate that by 2015, consumers will see little differentiation in video displayed on any screen of choice.

Overall, it's still about monetization.

CBS touts its top prime-time ratings, Yahoo touts its unique visitors, and YouTube its video views--although there is relatively negligent profit among them. The tenet--2% of the content is generating more than 90% of the ad revenues--could be sorely tested over at least another 12 months of nasty recessionary pullback. If producers of professional video believe that digital profits rely on scale, they will find ways to present and quote reliable cumulative reach across all relevant Web sites, platforms and devices. That could take some time, since Nielsen Media is still wrestling with integrating DVR delayed viewing into prime-time ratings.



The notion of scale also runs counterintuitive to the Internet and connected devices' 24/7 value of delivering video anytime, anywhere. Even online aggregators such as Yahoo and YouTube suffer from an almost immediate diffusion of their mass reach into countless key search words and special-interest categories. It also will take some time to develop premium profits from niche video that both consumers and advertisers are willing to pay for.

Playing safe with video content: Comedy, sports and politics continue to be big draws. The major video producers--media conglomerates such as Disney, Time Warmer, CBS, Viacom, NBC Universal and News Corp.--will continue to extend the appeal and revenue-generating capabilities of their branded entertainment to ad-supported sites and download-supported devices. Although digital revenues remain relatively small (less than $1 billion annually at most companies), this remains the only growth business. If "American Idol" can still garner 25 million viewers in prime time, the goal will be to broaden that to a digital audience of 250 million, even though the bulk of revenues will continue to flow from conventional television.

Advertising spending and creativity at double-digit lows: Safe, predictable pre-roll commercials carried over from television remain the online staple, especially during unsettling economic times. Ecommerce is the ultimate objective--but it remains far from a widespread reality until interactivity becomes ubiquitous, binding all television sets, smartphones, PCs, game consoles and set-top boxes. More tinkering will allow consumers to choose among a smattering of ads and have selective exchanges with marketers of products and services. Unit pricing will decline as inventory and placement opportunities increase. Overall, consumer-viewer-user attention span remains a problem.

With one-quarter of each prime-time hour devoted to commercials, broadcast networks will continue to average $25 CPMs, or 50 cents per viewer per hour. Online ad experts claim they can reach pricing parity within 12 to 18 months--complete with targeting, immediate feedback from consumers and other enhanced features. More defining metrics must be developed beyond today's TV ratings and online views, to include mentions on Twitter and other demand barometers wherever consumers roam.

Demand for refined content search, findability and location functions: A lucrative case can be made for delivering desired content to PCs, iPods, smartphones and other devices for consumers willing to pay rather than sift through Web sites, services and bulk video. On the other hand, players in the online video business--from Google to Hulu--are expected to develop such features. Consumer demand will dissolve many interface and access issues. Software solutions available on platforms and devices using new configurations of metadata and algorithms will improve the digital video experience. Cable operators also may seek to get in the act.

DVD sales continue to decline and other home entertainment weakens: It may be that the PC is becoming the video-viewing platform of choice. The loss of retailers like Circuit City and generally lower spending by consumers means revenue pressure for content players. It's one reason why film studios and television networks are significantly reducing original production. That creative prudence will continue until new, more effective, less costly business models improve the scalability and monetization of video everywhere in the digital marketplace. CBS and its peers stand to reap $200 million-plus annually from cable retransmission of their prime-time fare, but what they are really after: digital billions.

The new economic models are starting to show: Keeping Jay Leno at NBC and moving him into prime time for $30 million annually is the cost of a high-end network series that guarantees ratings and delivers premium ad prices. The next move will be reallocating the air-time and resources devoted to newsgathering. Down the road (as previously noted in this column), broadcast networks will become glorified premium entertainment networks carried by cable, satellite, online. Within five to 10 years, they will break ties with owned-and-affiliated local television stations, the fittest of which will become super-local video hubs.

The Great Recession and the Digital Revolution are catalysts for certain change in 2009.

2 comments about "5 Reasons To Ramp Up Video Production".
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  1. Sam Whitmore from SWMS, December 11, 2008 at 9:53 a.m.

    Nice analysis, Diane. You took a lot of disparate data and put it into clear perspective. -- Sam

  2. Robert Rosenthal from Rosenthal Heavy Industries, December 11, 2008 at 11:44 p.m.

    As usual, Ms. Mermigas, nobody does it better.

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