Summary:

Consumers have shown an aversion to paying for content, forcing rightsholders to identify advertisers or licensees for their content. But while U.S. TV is a $75 billion market, all online advertising here is about $25 billion, with online video accounting for a paltry $1.5 billion.

scales

If you want others to value your content, you have to value it first yourself. In finance, the value of a stock is the sum of all discounted dividends (i.e., actual income) and growth opportunities (i.e., growth potential). Analogously, a content catalog’s value is the revenue you derive from it, but also the potential that library has to create value over time. One’s total return can get amplified if someone buys the catalog outright, but that takes time.

The anomaly of online media

Online, consumers have shown an aversion to paying for content, forcing rightsholders to identify marketers or media companies who would advertise around or license the content. Television in the U.S. is a $75 billion market, while all online advertising here is about $25 billion — search accounts for 40 percent, with online video accounting for a paltry $1.5 billion. So even if you can convince a company to pay for your content, it won’t be much.

Quality is subjective

Venture capitalists avoid content investments because determining what is good content is subjective and predicting what is commercially viable is even tougher. Content producers need to provide value to:

  • End users who read or watch the content,
  • Other media companies who will distribute or feature the content, and
  • Marketers who will directly or indirectly support the content.

Technologists are vilified for building a better mousetrap that no one really wants or needs, but content creators are not necessarily immune to that phenomenon either.

Value is paramount

With the explosion of content farms, it could be argued that the value of content has fallen due to an increase in supply. However, because content will remain a free, ad-supported media in this decade, it’s important to remember that advertisers don’t care about a) output maximization or b) cost minimization. Instead they care about value. Advertisers want to underwrite and associate themselves with good content that reaches their target audience and allows them to do so at a reasonable return on investment.

Considering the slow growth of online video, it’s important to have a marathon mentality. That means:

  1. Keep costs down: Content producers need to maintain a sustainable production cost to pursue a free, ad-supported monetization strategy. Many video producers failed by forgetting this golden rule.
  2. Long shelf life:With video, nothing is truly evergreen due to the visual nature, but if you can have a five- to 10-year shelf life, you’re more likely to remain in business.

Value creation is a multi-step process

Early on, creators have no brand, little content and even less leverage, so value can come in the form of commercial or promotional benefits. Even if one doesn’t necessarily derive revenue, sometimes it’s beneficial to leverage content for marketing purposes. The end result -– creating value from your content –- can be the same as striking revenue deals.

Consumers don’t vote on your content’s quality with their wallets, consequently, they don’t assign its value. You can have a hit on your hands, but if you cannot duplicate that hit, it’s somewhat useless in terms of value creation. To create value with your content, you need to validate it by building an audience and brand. This takes time, volume and a delicate balance between quantity and quality, frequency and scarcity.

Value is relative

Ironically, once you build distribution and your brand, become more selective through distribution because other media companies and marketers will imply your content’s value through licensing and advertising deals. If your content becomes too ubiquitous, you tend to cheapen its value.

Traditional media restricts supply in a myriad of ways — through release windows or network exclusivities — to increase the price they can command from distributors and advertisers. Up until now, new media content producers seem to have forgotten or ignored this tenet. Instead, they’ve adopted an open distribution model. The problem is that this strategy –- while great for marketing –- tends to destroy leverage before you can ever exert any pricing power.

Indeed, online video is in the early innings. But if content producers get behind the proverbial count by chasing too many opportunities outside of the strike zone, they’ll find themselves trying to overcome an insurmountable lead. Traditional media might be built on hits, but unlike the venture capital business, new media is all about winning through blocking and tackling.

Ashkan Karbasfrooshan is CEO of WatchMojo.com, one of the largest producers and distributors of premium video content. Previously he was a partner and VP of Sales at AskMen and manager of investor relations at Mamma. You can follow him at twitter.com/ashkan.

Photo courtesy of (CC BY-ND 2.0) Flickr user Hans Splinter.

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By Ashkan Karbasfrooshan

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