Craig Moffett of Bernstein Research wrote an amazing report entitled And Now for the News...The Emperor Has No Clothes". If you can get a copy, read it. Starting with the disappointing but expected news that journalism is no longer a service consumers desire to pay for, he moves on to the problems facing Internet video. He does a far better job than I ever did explaining the failings of Internet video and the expectation of free content. This is the report I wish I had blogged.
From the report:
Ironically, we are headed down the same self-destructive road for other kinds of traditional media,as well. Five years into the video-over-the-Internet revolution, we have learned two things. First; consumers won't pay for content on the web, so it will have to be ad supported. And second; it won't be ad supported.
In the cable TV network world, half of all revenues come from affiliate (carriage) fees paid by the Comcasts and
DirecTVs of the world. The other half comes from advertising. But in the TV world, a typical half hour show supports an ad load of about 8 minutes.
On the web, early evidence suggests that consumers will tune out – click away – if they are forced to watch more than 30 seconds or so of advertising up front, and maybe another 90 seconds of advertising over the next thirty minutes. Hulu.com, for example, which has already been lionized by many as the future of TV, serves two minutes of advertising for every 22 minutes of programming(i.e. the programming duration of a typical half hour show from television). Assuming identical CPMs for web video and TV, and after accounting for lost affiliate fees, a 30 minute program on the web with two minutes of advertising yields approximately 1/8th as much revenue per viewer.
Are content producers prepared to reduce production costs...by 88%?
In fact, the actual economics of web-based video are far, far worse than this. Our 88% decline ignores the corrosive impact of à la carte on traditional video economics. In the public debate in Washington, the phrase à la carte refers to the idea that a few strong networks demand the carriage of a host of weaker ones, effectively subsidizing a much larger family of channels.(From MC: This is something HDNet vehemently opposes and is working towards ending) But there's a much more important aspect of web-based àla carte that is rarely mentioned–that is, the "à la carting" of the few best shows from the rest of the day's schedule. Or even worse, of the best few moments (news stories?) from the rest of the show. On the web, watching SportsCenter not only robs ESPN of its ability to pull through carriage fees for ESPN Classic and ESPN U (and SoapNet and Toon Disney), it also, and much more importantly, robs ESPN of its ability to use SportsCenter to support the economics of the rest of the 24-hour ESPN schedule. And watching just the best 30 seconds of SportsCenter robs ESPN of its ability to support the economics of... well, you get the idea. Expecting a few ad supported shortclips on the web to substitute for the affiliate fee revenues lost by multiple networks 24 hours a day is lunacy. "
Great job Craig.
The concept he defines as the "ala carting" of the best from the rest is the web video consumers favorite feature, but it's also the biggest risk to professional video content producers everywhere. On the Internet, the producers of the most popular content don't have the promotional platforms that traditional media does. There are no lead ins for Internet shows. So there is 100 pct uncertainty as to how many people will watch any given video. For those videos that do become popular, much of the popularity is viral, limiting the producers ability to monetize the escalation in popularity.
The Darwinian response to this problem has been to serialize shows. The hope is that if a viewer liked a show, they will come back for more. Which of course means they are copying traditional TV's approach to content presentation and absorbing all of the same problems. The constant need to refresh a show is not only difficult, its expensive. The constant need to promote the show to stand out in an ala carte universe of an unlimited number of shows is even more difficult than it is expensive.
So where does this leave independent video content on the Internet ? Right in the hands of Google and Youtube and black and white hat SEOs.
The ala carting of video on the net will benefit those who enable the search for content and can monetize that search. The economics of supporting content will force independently produced Internet content to be dumbed down to levels that create a perfect match for Youtube. There will be SEOs that come up with arbitrage solutions that will drive traffic to parked videos. Content creators will partner with SEOs and create budgets that reflect the CPMs they can earn in and around the video hosted on Youtube against the costs of the SEO driving traffic to the video. SEO support will be the only even marginally effective way to create baseline traffic to a video/show.
Who could have guessed that creating financially succesful video on the net would require the same marketing skills as driving traffic to parked domains ?
Content created by and for TV networks will have to make some important decisions. Why wouldn't advertisers want to be one of only 2 minutes of ads in a 30 minute TV show rather than one of 8 mins of ads on traditional TV ? Will they pay correspondingly larger CPMs to be online ?
Are TV networks making a huge mistake by putting their current TV schedules online for free ? If a streamed TV show only has 2 mins of commercials, will that drive some viewers to prefer watching online ? Will it force networks to reduce their TV show ad load ? If so, by how much ? Particularly if and when over the top video enables Internet video to be presented right on TVs. Will shows be forced to introduce different versions of shows, say with different ratings as a means of differentiating TV from streamed shows ? The R rated version of Friday Night Lights online and the PG version on TV ?
Bottom line is that something has got to give. Business as usual is not going to cut it. The question is whether the dollars the big TV and media companies are creating online from the streaming of their current TV lineups are sustainable incremental dollars ? Or is streaming the video a collateralized video obligation ? The video equivalent of the collateralized debt behind the sub prime mess. Money that looks good while its coming in, but could lead to far, far bigger problems ?
The Ala Carting of Video on the Net - Will it lead to disaster ?
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Reader Comments
(Page 1)2. Traditional TV is dead. I never thought that people would pay 1.99 for a downloaded show (not rental, a purchase), but people are doing just that to not have to pay a cable bill. This shows the trend that TV is going to. I tell people, "I don't watch TV, I watch programs." Thanks to Tivo, I chose my programming and fast forward thru commercials. They (the networks) need to find a more creative way to generate revenue because the old way is no longer working. I'd much rather look at things I recorded or online viewing of select shows, and if the price is REASONABLE (1.99/show is NOT), I will pay for it.
Posted at 11:40PM on May 4th 2008 by WilsonGoneWild
3. Of course people don't like sitting through 8 minutes of ads in online video. They already have to suffer through buffer times, proprietary plugins loading, uneven full-screen, and so-so video quality. Asking them to sit through even more advertising would just be cruel.
You're missing a very important point, though. Before the user ever gets to the actual video they have to wade through several web pages filled to the brim with advertisements. Does this not count as content created revenue?
That's only a temporary solution, however. Technology is making it easy and easy to skip through having to actually visit the webpages of the videos you watch. The only long term solution I can imagine is the much-hated product placement. It may be time that we just accept it as a necessary evil.
Posted at 11:40PM on May 4th 2008 by Matthew
4. Hi MARK CUBAN! I LOVE THE MAVERICKS and Dirk Nowitzki!!!, okay im done now.
Posted at 11:55PM on May 4th 2008 by Nina
5. I work in advertising, spent time on both the buying and selling side, and I land squarely in the camp of "Money that looks good while its coming in, but could lead to far, far bigger problems". The early years of the internet, mainly the rush to promote metrics such as CTR and the pricing CPM structure, ruined any chance of being able to use much more reliable measurements down the road. We are stuck in a rut of measurement and pricing that is far more demanding and unforgiving than any other medium. Here we go again with video... rather than give up short term profits to work together to determine the optimal roads to pricing, measurement and content, everyone and their mother is throwing video online and trying to develop sales structures for ads that make no sense to the consumer or the ad buyer/seller.
I wont pretend I have the answer, but 5 years from now the large media companies will have ruined it for the independents, and we will be wishing we had shown some patience at the onset.
Posted at 12:38AM on May 5th 2008 by bruinscott
6. I think your analysis of SEO driving the content is pointing in the right direction BUT the corollary of this is that the content providers WILL be able to charge far higher for the ads surrounding their content because you can target the eyeballs so much better than you can with the traditional shotgun approach to advertising on TV.
I'm not sure if we're anywhere close to maximizing the analytics on viewer/consumer behaviour online, but think about it.. you will be able to serve ads based on:
1. the search pattern the viewer used to get to the content
2. the search patterns this viewer has used before (assuming you have them signed up with a user account)
3. the viewing patterns that this viewer has exhibited in the past
4. the successful click through patterns that this user has exhibited in the past.
Like reward-cards, you'll build up a crystal clear picture of who the viewer is, and you'll know exactly what to market to them, with a delivery vehicle that puts traditional TV ads to shame..
Producers will continue to make niche programs on dog-shows, gourmet food, and bikini wearing zombies, because there will be a eager market ready to view this content, along with the niche advertising that can accompany it. The Long tail still work I say.
Dom
Posted at 1:08AM on May 5th 2008 by Dominic Bortolussi
7. Great post Mark, highlighting a lot of the challenges facing online video and a lot of the frustrations of consumers.
We surely are in an interesting time, as we get ready for the coming shift to online advertising.
The online advertising market is still TINY. Just last year it passed traditional radio, and it's still about one fifth the size of the TV advertising market. Does that make sense? Absolutely not, we are in stage of disequilibrium. People are spending increasing amount of time online vs. in front of a TV, and it's only a matter of time before the spending catches up with that.
As for the problems facing the content producers, I am not worried about them. The key is to create valuable content, and people will watch it. I happen to be of the belief that very little content on television is worth anything (I don't watch TV other than sports and occasional movies).
On a macro level, you are probably right, TV as we know it is on its way out. My point is, what's the problem with that?
Posted at 1:09AM on May 5th 2008 by Ariel Diaz
8. There are EIGHT MINUTES of ads in an hour's program? On what planet? Try EIGHTEEN -- the typical "hour-long" show is only 42 minutes. Promos for other shows? Those are ads. What's coming up on the 11:00 news? Ads. Scenes from next week? Yep: that's an ad too.
9. 1) Consumers haven't paid for journalism for decades. We pay for cable and magazine subscriptions, but media companies make their money from ads. Craigslist and Tivo killed traditional media.
2) Dominic @6 is right. Old media thinks the internet is just TV with a keyboard so they do the same old interrupt driven untargeted mass market advertising. It turns out the internet is terrible at interrupting but great at displaying *relevant* ads at the exact moment that a user is searching for the advertised product. TV networks don't get this.
3) Old media is terrible at knowing who is looking at what, let alone who is paying attention. On the internet you can know *everything* about your users. You can follow their clicks, their attention, where they scrub through video, their neighborhood, what kind of computer they have, EVERYTHING. Too bad TV networks don't get this.
4) I've never seen ABC.com and the rest put an RSS, Email, or text message subscribe/alert button on their video pages. Instead they want us all to *remember* show schedules, come back, and sit through ads. They're blowing a huge chance to have a relationship with the audience. The sad truth is that TV networks don't want a relationship. They want us all to sit around the glowing box together on *their* schedule as if it were 1966.
5) The smartest, richest, most desirable demographic groups do not tolerate mass market ads, and they don't watch live TV.
Mark's post is about the downside, but there are huge upsides for doing entertainment and advertising right. But it won't be old media companies that do it for the same reasons that no railroad companies became airlines.
I've been writing about the End of TV on my own blog starting here: http://nathanbowers.com/business/the-death-of-television-part-1-in-a-series/
Seth Godin has a lot to say about the future of marketing in his blog and books. If you don't know his work, watch this video of him giving a talk at Google: http://video.google.com/videoplay?docid=-6909078385965257294
Posted at 3:39AM on May 5th 2008 by Nathan Bowers
10. People will have a "their problems not mine" kind of mentality towards this, I be to differ. If the networks profits dip they will pass it onto the consumer. Basically more cheap reality shows, no more high concept, big budget shows and cult hits that have low ratings (Friday Night Lights, Firefly) will now get even less of a chance.
I think this is a problem that is dying for a creative solution. Just like Google came up with non-intrusive text ads there has got to be a way to have ads on tv shows on the internet that is not annoying to the viewer AND extremely effective for the advertister.
Hulu is an extremely good start, it just needs a lot more content and some innovative ways to sell ads.
Posted at 4:07AM on May 5th 2008 by JH
11. While the facts are correct, there are a few things that need to be considered. First, nothing has absolute value. The dynamics of supply and demand find the "real" value. And the "real" value is not dictated by the desire of the content producer, but by the wilingness of the market to pay for it. Traditional media has always followed a model of artificial scarcity, and that's what made people pay - not because things were inherently valuable, but because they had to pay the price the industry set. Now the model changed, and what's scarce is people's time and attention span.
The same logic can be applied to the ads. How many ads can be inserted in a one-hour long show? The market accepts 8 (or 18 as some reader noted) minutes today, but will accept less in a Internet video world. How much should each ad cost? Perhaps (in time) you'll have less but more value ads, as ads get more narrowly targeted. By the way, we don't even know how long a TV should be! Is one hour too much for the attendance's short attention span?
Last but not least, it already happened before - for other industries. No matter how much you or anyone like it, the model is changing. We'll all get used. The same arguments regarding the quality of video shows in an age of less ad money to support it was made centuries ago as artisans were being displaced by mass production. People found a cheaper way to do a similar thing. The quality was lower - a mass produced gun of the early XIX century was clearly not as good looking as a handmade gun. But it was cheaper, and given some time, it became better too. That's economy at work.
So I expect you to be right, in a sense. A lot of value will be destructed now. There will be little incentive for stablished video producers to keep working. But time will tell. New players will fill the void, initially with low quality offerings. As the market matures people will start to pay for the best quality work. A new market will develop and mature, and perhaps we'll have a new golden age of media a few years ahead of us.
What is clear is that us (the public) don't need the industry to shepherd us all the way. We can make our own choices. We may not chose what's "best", either in the artistic or in the technical sense. But that's still our choice. It's painful for the industry to hear it, but that's the truth.
Posted at 6:42AM on May 5th 2008 by Carlos Ribeiro
12. @Randy: Read again please!
"But in the TV world, a typical half hour show supports an ad load of about 8 minutes."
Posted at 7:56AM on May 5th 2008 by Jeff
13. Mark,
Good points, but I feel you are only looking at the Pleasure side of the lowest common denominators of why people get on the Internet in the first place. Millions of people get online each day to take away Pain.
I happen to be in the Pain-Relief business at http://www.AsktheBuilder.com with my short videos and written columns. Contextual Video Ads in videos that show people how to get immediate and permanent pain relief will be powerful.
There is another reason why the Video Ad Model is not happening just yet. I blogged about this two weeks ago. If you are so inclined, you can read my Online Video Advertising post at:
http://www.timcarter.com/online_video_advertising.html#more
Posted at 9:46AM on May 5th 2008 by Tim Carter
14. I wonder if increased product placement is going to be a partial solution to this.
Posted at 9:54AM on May 5th 2008 by Kevsource
15. I don't pretend to understand or know the flow and decision making process of ad sales over traditional television vs. on-line. But I, as a consumer, never watch television ads but the way video feeds work, I am forced to watch on-line ads with my video fee. I can't flip the channel or skip ahead as it doesn't allow me to do so.
Therefore, simple logic says that those ads are more valuable on a view by view method. That said, do they get enough eyes on them?
Posted at 10:07AM on May 5th 2008 by David
16. Lets not forget the fact that a large portion of America now has DVR in one form or another which allows them to simply fast forward through the 8 minutes of commercials that have been paid for, and most DVRers do partake in this option. Once DVR / Tivo / On Demand becomes completely ubiquitous, and I imagine it has to, will companies still be willing to pay a premium for the ad space, or will the whole system crumble paving a the way for a new medium (the internet) to take over? It seems the only way the internet could become a financially viable option would be to follow in Apple's footsteps. If you want to see the next episode of LOST you've got to be willing to cough up 2 bucks. Maybe studios will offer the first few episodes of new shows for free and then the most popular ones will get serialized and start charging. It could work...
Posted at 10:30AM on May 5th 2008 by Rich Siegel
17. video search is still in its infancy. SEO already plays a role in video, but already social recommendation plays a bigger role in video than it does in traditional web search.
Posted at 11:06AM on May 5th 2008 by tom pitts
18. Revenues will not drop as drastically as suggested because the value of the remaining ads will be high. I haven't paid any attention to ads on TV for a long time. But the ads on Hulu have my attention. I'd say 2 x 15 secs of ads on Hulu during a show have more contact with me than 15 mins of TV commercials, and advertisers will pay for that.
Posted at 11:18AM on May 5th 2008 by Bob Russell
19. "Traditional TV is dead"
Interesting premise.
In February, Americans watched about 10 billion minutes of online video content.
They watched over 2.6 trillion minutes of television. That's well over four hours of TV for every one minute of online video.
Well over 90% of all those minutes of TV were watched live. Even viewers that have DVRs watch an overwhelming majority of their TV live.
We should all work in businesses as dead as traditional TV.
Posted at 12:07PM on May 5th 2008 by Mikey
20. What the advertisers are missing out on is the opportunity to target individuals watching a show instead of the entire demographic. Why as a single male did I get a diapers ad when watching a show on abc.com? A total waste of money for the company. Collect a bit of demographics information, and companies will pay for the ability to target ads better.
Posted at 2:55PM on May 5th 2008 by Kyle Nicholson
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1. I dont see any break in this downward spiral until someone figures out how to "a la carte" advertising. It will happen and when it does it will unlock the ability for every consumer to "buy" their own content with their advertising eyeball.
Posted at 11:24PM on May 4th 2008 by J.B.Vick