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 2)22. TV is not dead. Just go to any restaurant or bar or backseat of a minivan. The viewers just happen to be more diverse than they used to be. Many younger viewers have short attention spans so they'll have their computer on while watching a show. This just provides additional screens to reach the same audience.
Posted at 3:47PM on May 5th 2008 by John
23. I personally like the pay-for-play model like iTunes where I can decide how/when to play back video. I don't mind paying a buck or two for a show w/o commercials. Its nice for long plane rides.
Posted at 3:54PM on May 5th 2008 by Austin
24. I think the simple economics of the situation will force advertisers' hands and work itself out. Mr. Cuban and the guy he linked assume that advertisers won't eventually start to pay more for the limited ad space available. Why won't they? The whole point is that if that's the only place people are watching, the space they DO have will become that much more valuable (again, this is a very simple supply/demand argument here). I don't see why prices (to advertisers) simply won't increase to meet the current production needs of the studios. Call me crazy, but I don't think anyone will stop advertising because of this shift in medium; I just think its going to become more cost prohibitive to so with much less bang for your proverbial buck on what advertisers do get.
Posted at 4:20PM on May 5th 2008 by Justin (New Orleans)
25. The answer is simple, and it's been around for a while, but it has interesting implications the more you think about it. The line between advertisements and content is blurring. For instance, "Will it blend?": advertisement or entertainment? Both? And coming from the other end, it's only a matter of time before you see sitcoms where the characters spend half the episode in Starbucks, Chili's, showing off their SUVs, etc., so that the ad is so integrated into the content that it's unskippable.
The losers here? The losers are content creators who can't sufficiently integrate ads into their format. After a while, naming rights for the Nokia Sugar Bowl won't be nearly as attractive to Nokia as a sitcom with the name brand coming out of characters' mouths, close-up shots of the latest model, and demonstrations of new features.
Posted at 4:36PM on May 5th 2008 by Tim Dellinger
26.
First: No one is making a "mistake" by offering ad-supported streaming versions of network programs. It may not be a long-term solution to a crumbling economic model, but not offering legitimate streaming versions is foolish and self-defeating.
Are networks already forgetting that the reason they were forced to put shows online in the first place is that if they don't, viewers will find shows torrented shows online anyway, through free, illegitimate means? If someone misses a live broadcast or otherwise wants to watch TV online, they can find a way to do it. Online streaming beats illegal torrents of TV shows because they are easier to find and faster to download, but if they are not available, young, desirable viewers are the most proficient at seeking out torrents and the least likely to feel guilty about it.
Napster and file-sharing gained momentum while the music industry failed to agree on an iTunes-style model that consumers would actually use. Withholding legal streaming in hopes of increasing live viewership (the Gossip Girl experiment) seems ridiculous, especially for a show so targeted to tech-savvy youngsters that its promotional taglines are ":-O" and "OMFG."
As for the problem of making people view ads... I want Hulu to succeed and even I admit I click to other tabs while waiting for ads play... wouldn't you? But I still hear the ads, and if the ad's message comes through in audio, I receive it, and that should count. After all, advertisers still paid for TV ads even though lots of people used that time to flip channels, get a snack, or go to the bathroom, right?
Pop up bugs below the video -- already used on YouTube and Revver -- are unavoidable views, and you don't click away because the video is still playing. No one likes them, but they are tolerable and they work. What about those?
I think advertisers need to realize that exposure to their ads is more powerful than they think. We shouldn't need to click through a banner ad for that to count as an impression. I almost never click on banner ads, but that doesn't mean that they do not successfully communicate that, say, Harold and Kumar 2 is coming out this weekend. I don't click on outdoor billboards but somehow people make money on those. I think online advertising needs a model where seeing or hearing an ad counts as delivery -- you know, like it does everywhere else -- and can be a source of revenue even if people don't click on it. Because it's 2008 and we've had the internet for over a decade and people don't click on everything they see anymore, so let's get with it.
27. A few things here:
1. Shouldn't broadcasting a network show have very little additional costs for the web. Show is already produced, just changing the media. Hardware is already in place. So here you potentially have an additional revenue stream with logically much less costs.
2. If someone is watching a network show online, that is a much more targeted demographic/audience. And therefore should charge a much higher price. Plus, its like a banner ad. You know who and when they saw the ad. So the ad customers can get much better conversion rates tied to their marketing campaigns.
3. Lastly, And I'm definitely not alone here... I currently pay $42.00 a month for the 100+sports package thru Dish Network. I'd gladly pay $50.00 for 30 channels if I got to pick the channels. If I have to get toon Disney with ESPN/ESPN2 etc.. then fine, I know that going in as part of my 30. The market is backwards. Produce a product that people want to watch, and the carrier's will show it. Dish can charge a premium for the service, and increase the rate that they pay the networks based on subscriptions.
Of course, we'd be left with just the big boys and the number of choices would diminish. But there must be a happy medium between what we have now and the utopia.
Posted at 5:44PM on May 5th 2008 by Crofoot
28. Media companies will continue to face problems like this until they stop thinking of the internet as an unreliable tv with lots of buffering. The report seems to talk about how pulling the best few minutes out of 24 hours of content will destroy networks - but that's meaningless. I think one of the biggest things that hurts networks is the need to have a 24x7 schedule. Very few people actually have the ability to talk non-stop all year without sounding idiotic most of the time. Who's reponsible for producing something that will air at 4am (as an outside observer, it seems like even reruns of good shows - with virtually no marginal cost - are too expensive) and how useless do they feel?
The only way to adapt to the web is to recognize that a large number of viewers are rejecting this unflexible homogenized approach to media. When networks realize that on the internet they don't HAVE to be doing something from 1am to 6am they can take the first steps to becoming more attractive. Not only can they eliminate a lot of dead weight, but they can also go in the other direction by forgetting about the filler and putting more effort into the programming that counts.
If there's a big event that everyone wants to watch live, why not have 2 or 3 or 6 or 10 feeds playing online at the same time with different approaches to reporting on it? Each viewer can pick the one they like the most - and next weekend when they're bored they can click on one of the other feeds in the archive to get more information. The meaning of "live" can change too - if I want to get local business news, do I always have to block out 6:17:24 PM on my schedule? Unless it's something like a sporting event or a speech where 1) people are eager to see it and 2) it's absolutely impossible to see it before a certain time, trying to make a distinction between "live" and "reruns" is just annoying the very people you need.
The web poses a lot of other questions - why does a show have to have exactly 21 or 41 minutes of content? Why can't it release 2-5 minute clips now and then for a couple of months while full episodes are being produced? Why can't a company sponsor a full episode or clip (which rarely happens on tv) more often? Why can't they think of 1000 great ways to monetize content to replace one old model that often pisses off everyone it's supposed to help?
Posted at 6:35PM on May 5th 2008 by Richard
29. Mark,
Great article, Craig Moffet makes a ton of valid points although the problem goes a bit deeper than 'a la carting' though. Producing and broadcasting content for both the television media and the web (as a medium) makes little sense. I'm not sure why content distributors haven't figured it out. I think most TV media types simply do not understand the value they add (in this case remove) when they publish content in both mediums.
The newspaper media has been slowly singing their swan song for well over a decade now as their media becomes stratified over the web. They have tried the bait method(s) of publishing half their content for free and offer the rest of the story for subscribers. They have tried click-thru revenue, which works but isn't 'smart' enough yet to really target readers and thus generate enough revenue to keep the paper side of the business alive.
But click-thru ads do not generate enough revenue to support both the 'paper' side and the digital side. And so we see the larger corporations (knight-ridder, mclatchy, Newscorp etc) merging and trying to make themselves presentable for buy outs. Looking at the Audit Bureau of Circulation's reports, they are all going down in nasty, costly flames.
Someone smarter than myself needs to invest some serious time and energy into figuring out how to make (expensive, highly produced) content a viable business on the web. Micro-advertising with wicked algorithms that make google engineers drool would be nice. Start with Bayesian Inference and throw in a stochastic vector and BAM, instant revenue. :)
30. If people have a shorter threshold for amount of time they will watch an ad, doesn't that increase the per second value of the ad?
Why do you assume "identical CPMs for web video and TV"? Is 30 seconds of ACTUALLY PAYING attention less valuable than 5 minutes of barely paying attention? I don't know how to gauge how attentive people are, but I would bet that most people walk away from 2 minute commercial breaks on TV yet they stay in their chair for the 15 or 30 second web ad....
Also, its about time advertisers step up their game. If your sole job in this world is to create video advertisements, then you better make them damn enjoyable. I don't feel bad for companies who put out shitty commercials and suffer from it.
If the internet is proving anything, its that people may have short attention spans, but they are willing to ACTIVELY participate in ala cart video watching all day long.
I would argue that a witty yet brief advertisement on Hulu would have more value than a boring one hidden inside of a 2 minute block on TV. If that is so, then why should it not cost more?
Posted at 7:43PM on May 5th 2008 by Zach Weisman
31. If you're getting 1/8th the ads, then you need to figure out how to produce content for less than 1/8th the cost.
Typical broadcast non-fiction (not HDNet) costs around $300k an hour. Here at http://www.Revision3.com we're producing 15 shows for about a tenth of that hourly rate.
And the revenue's coming in now too. But we haven't made money by simply cow-pathing existing advertising models, we've adapted Howard Stern's sponsorship and product placement model, with overtones borrowed from Ed Sullivan.
Our targeted shows are gaining audiences daily, we have loads of repeat viewers, and our advertisers are seeing amazing engagement and action results.
It's not cable. It's not broadcast. It's a new medium. Those who simply cow-path existing media onto the new platform are doomed to failure. Just like magazines who slapped their print stories on the web back in the nineties (I know, I was one of them who did that).
Oh, and when it comes to SEO, I think it'll develop a new offshoot, which I call YTO - for YouTube Optimization. It'll share elements of SEO, but its a new discipline
From MC:
But you spent how many years developing and building your own brand ? working for how many magazines ? giving how many speeches ? Going on how many TV shows ?
Its not quite a fair comparison
m
Posted at 10:37PM on May 5th 2008 by Jim Louderback
32. Studio supported shows online do have a future.
First the CPM's for online shows are higher than that of TV shows and will probably get even higher as ads are able to become more targeted. An advertiser will pay more when they are one of 4 ads in a program and an advertiser will pay more when they know their audience is interested in their product.
Second, ads can be attached to clips. 15 seconds of ads for a 30 second clip is a good ratio, especially if the clip was produced as part of a larger program that is also getting ad revenue.
Third, Online video, assuming the rights can be worked out, can reach a global audience much easier. 300 million Americans versus over 6 billion earthlings. You do the math. The only thing content producers would have to take care of is translation; distribution is a non-issue.
Fourth. Old content will continue to produce revenue as long as its online, basically forever. A viewer can blow a day watching an entire season of Arrested Development, content that would just be collecting dust otherwise.
Online video does have a future, if the content producers are smart about it.
Posted at 11:11PM on May 5th 2008 by dave
33. About 2 months ago I terminated my satelite service and switched over to an on-demand, online life style. I have a rather sophisticated setup, two HD tvs, connected surround sound systems, Tivos, etc, etc. I hooked my MAC up via my TVs HD BNC connections and now pay only one bill, to my Interner provider.
I take the money I spent on satelite and allocate it for Amazon Unbox, NetFlix and beer. I rely on free local broadcasting for the basic channels and watch Hulu, ABC.com, Fox and others for premium content.
So far I'm significantly happier with online and on-demand content than I ever was with cable or satelite. The money I spent on my previous satelite plan more than covers my movie and download habits.
What most scares me about this situation is how the "a la carting" of video could potentially leader to a proliferation of CRAP TV. Intelligent product often gains smaller audiences, Studio 60 can't compete with 30 Rock, etc, etc. I pay for ondemand movies or TV because I want to watch what they're selling.
Keep producing quality products and I will keep spending money.
Posted at 11:25PM on May 5th 2008 by Casey Potenzone
34. I'm one of those people that prefer to watch shows on the internet. The ads are fewer, but there are still a few ads.
Posted at 7:49AM on May 6th 2008 by Chris Griffith
35. I think the ideal solution to interactive video will be content-targeted unobtrusive advertising.
Let's say someone is watching a typical drama online. When a character wearing a certain clothing brand appears on screen, a relevent text-ad appears outside the content window. "Meredith is wearing a TrendyBrand sweater. Click here for a 15% coupon to Macy's womenswear."
Posted at 8:27AM on May 6th 2008 by Mike
36. "If the internet is proving anything, its that people may have short attention spans, but they are willing to ACTIVELY participate in ala cart video watching all day long."
How exactly is that being proven? The average internet user is spending over two hours a day online and spending less than five minutes of that time watching video.
If anything, the data is establishing a widespread lack of interest in watching video content online.
Posted at 11:15AM on May 6th 2008 by Mikey
37. I see very hard times coming in the short run, but surely a turnaround with an accompanying new model in the long run. These are troubling issues and troubling questions... ones we can only address on a micro level. I think the media world has put far too much faith in internet advertising as the financial panacea. It's not sustainable in the long run, lack of true measurability is what made big ad buys work in the first place. The days of huge media takes from advertising are probably over, no matter what the platform. The days of mega media companies may have a dimming future -- at least the large number of them that the current market sustains. No, I think the current model will slowly crumble, causing a lot of pain and unemployment, and something new and totally different that we can't quite foresee yet will probably emerge. Hopefully a middle ground will sustain us all as we move through it.
Posted at 12:59PM on May 6th 2008 by Marcia Zellers
38. Interesting facts Mikey.
Posted at 6:35PM on May 6th 2008 by Nick Smith
39. There's no way traditional TV is dead.
That won't happen until 100% of people can watch TV online on their big screens. Ultimately that will happen, but not for a while. And what that means is that traditional TV will just be delivered a different way and rather than 500 channels there will be 5 billion channels. The networks, for the near future at least, will always be the place to go for must-see programming - Super Bowl, etc...
Bottom line is: TV is easy to watch today. Remote. Click. Hey, it's Spongebob Squarepants for the 5th time today. Until that happens the numbers will be relatively low and media buyers are throwing money away online, because the audience doesn't want it.
The best thing about online is that you know exactly how many and who is watching. Unfortunately, that's also the worst thing. Another best thing about it is there's a lot of creative untapped talent that we are seeing that exposes the politics of traditional TV. Another worst thing is, there's no such thing as fact anymore and there's a lot of sucky talent too.
Mark, I bet you're watching this and ultimately what will speed up online TV is how the cable companies/sports league/entertainment properties and the FCC handle ala carte programming. To a consumer it makes a lot of sense. But we know if that happens the cable companies will make the pricing so outrageous that it's the worst thing for the consumer. I'd love to hear your thoughts on things like NFL Network, Big Ten Network (you're an IU grad), NBA TV etc...
Posted at 8:04PM on May 6th 2008 by Sam Schachter
40. Don't count out television. Live video is compelling and can still be advertising supported. Sports, news, weather, major community events, these are what many want to see live. If live TV can move to your laptop, mobile and automobile...it will remain the most attractive viewing option, trumping much of what is digitally stored.
Posted at 10:53PM on May 6th 2008 by Andrew Finlayson
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21. One thing that I think is left out in your comparison of 2 minutes vs. 8 minutes of advertising is how much of that is actually watched. Are people really tollerating more than 2 minutes with traditional TV, or are they changing the channel, muting, or flipping through it on their DVR. I think that advertisers would pay 4 times as much if they got 4 times the amount of attention, because that is truly what is of value to them, people's attention to their ads.
Also, I think that advertising today is a real shotgun approach. Yes, there are demographics, but in reality you're paying to send your ad out to an audience where a large percentage of it would never use your products (I'm a guy, I'll never need maxi pads, I promise). If you remove those "false viewers" through targeted ads, I'm not sure that there isn't more money available to pay for fewer more expensive ads that people care about.
I think the real thing here is to look at what advertisers care about. They want people to pay attention to their ads and they want people who would be actually interested in their product to see them. That's not an available option on TV today, and so those false impressions get figured into the price. If one can focus, I think that alone is a huge selling point to advertisers that would justify the additional cost.
Posted at 3:26PM on May 5th 2008 by Ted Gould