Why Video Is So Hard To Monetize

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Ashkan Karbasfrooshan is CEO of WatchMojo, a video content producer. He tweets at @ashkan.

As my company, WatchMojo, celebrates its fifth year in business, it is interesting to look back at how our distribution and monetization strategy has shifted.

We certainly didn’t simplify our lives by foregoing venture funding. And while Montreal is a ridiculously capital-efficient place to
start a company, it’s a miserably hard place to scale one.

We also probably were overly aggressive in chasing companies for strategic partnerships because we needed their help to monetize our ever-growing audience. By pursuing those relationships we probably lost some leverage.

But being bootstrapped forced us to push distribution partners to pay for our content when it was clear that their advertising revenue-share contribution would be immaterial, which is the case nine times out of 10. And that helped provide us with a steady revenue stream early on.

As an online video content producer, we’re constrained by the fact that search engines – long the key driver of traffic – don’t really index videos well. Consumers have shown a preference and tendency to consume videos on aggregation sites such as YouTube (NSDQ: GOOG). Consequently, any “destination over distribution” strategy is doomed. Less than 10% of producers even maintain their own site; that number is down from 30%, according to a study by MeFeedia.

But with a distribution-over-destination strategy, you are not in control of the inventory around your content, so monetization has proven challenging at best and a deathwatch at worst. With a distributed strategy, we were at the mercy of the leading aggregators while we bought into the promises of the more hyped ones. When the former’s monetization strategy stalled: we paid a price; when the latter crashed and burned, we can’t say we were surprised.

Early on we “gave it away” in the hope of building a large audience and helping our distribution partners monetize the library. But it became clear early on that such a strategy would prove futile: that’s why we tried to lock down licensing revenues from the get-go. In 2008, for example, MySpace (NSDQ: NWS) paid us a reasonably large licensing fee to access our content; by year end, it was clear that had we opted for the revenue-share model we would have earned one tenth of what we made via licensing. In fact, until 2009, licensing accounted for the majority of our revenues regardless of the platform: web, wireless, out-of-home (OOH) or television. The problem was: it remained small, and didn’t scale.

Within a year of launching, we de-emphasized wireless in favor of OOH distribution (with the web always being our primary distribution platforms). While advertising budgets in the digital OOH category are bundled with outdoors (historically an analog medium), the digital aspect of the medium made a lot of decision-makers think like broadcasting executives. As such, they seemed willing to pay flat licensing fees to access our growing catalog.

Before we knew it, we were getting decent licensing revenue and reaching nearly 20 million consumers each month across North America. Admittedly, had we released the content and waived minimum-fee requirements, our reach would have easily doubled, but what good is marketing if you’re going out of business? While no single licensing deal represented a large share of our revenues, those OOH licensing revenues sometimes allowed us to stay in business; it was, after all, only a matter of time before video advertising took off — or so I thought.

Over time, video advertising mushroomed and the revenue from OOH became small relative to the ever-growing online portion, so eventually we waived all of the licensing fees from OOH and went all in using the medium as a promotional tool. Today we reach nearly 50 million consumers each month in McDonald’s, Wendy’s, and other places.

Without a doubt, the launch of Apple’s iPhone (and subsequently iPad) changed things in mobile in that carriers weren’t the only conduits to reaching consumers on the go. This isn’t to suggest that wireless became a priority for us, but that it came back on the radar, since profitable monetization remains challenging for content on wireless even with the app economy taking off.

The most important change occurred in the fall of 2010 when we began to bundle our content with advertising and offered publishers a video player, aggregating audiences and adding to our reach. Until then, we were waiting for distribution partners to monetize our inventory, which, let’s face it, was never going to happen. The lesson was that, sure, content is king, but without distribution it’s akin to the tree that falls in the forest, and without scale and reach, monetization remains theory.

Today, we require licensing fees when it’s clear we can’t make money via advertising. But if we think there is an ad play, we will gladly waive the minimum fees.

The lesson I learned was that it is OK for a content-production company to have different distribution and monetization strategies at different stages of the company and product lifecycle. When online advertising was really nascent and wireless models were embryonic, we focused on licensing deals from OOH networks. Now that wireless is in a “land rush” mode and online video advertising is growing rapidly, we’re becoming much more aggressive with distribution.

Even more surprising is the fact that incremental distribution isn’t necessarily a good thing if the value generated is just that: immaterial. Creating scarcity is something that even new-media companies should consider once they have built a brand and distribution.

Ultimately, as music artists have seen firsthand, content can be as promotional as it can be commercial. It is up to the content companies to move the levers to ensure that they grow their companies’ value through their content.

10 Comments

Ross Hinkle

Ashkan –

As the founder + chief fan of Liveset, we’re trying to navigate this exact issue right now. We’re creating beautiful HD content of live concerts in real-time, and have built a destination platform through which music fans can watch the concerts live, and come back later to watch them on-demand. We’ve started with the assumption that if the content is great, music fans will pay for it. It’s very early days, and we may have to change strategies, but I would love to hear your thoughts.

Thank you –

rh

SCOTT SCHLICHTER

Ash,

Well done providing the roadmap of a perilous journey. It is truly the Wild West out there. We will continue to try and pave the road to town.

Scott

Ashkan Karbasfrooshan

Greg, I agree that “not all content is created or valued equally”. And indeed, wireless payments could be a game-changer, but the flip side is:

a) the cost of Lady Gaga produced content is probably crazy high and you would need a sponsor to write a big check (ex: Telephone music videos) and the advertiser wants as large of an audience as possible

b) wireless is still largely way too fragmented to be a meaningful platform.

That being said, don’t think you are off or wrong, just that execution is challenging. Also, in my very humble opinion and personal experience, if as a content provider you want to place your bets on the Lady Gaga’s of the world (as the source of content) AND wireless as the distribution platform, you might as well burn your money…

Greg Golebiewski

@ Ashkan
There is content and premium content. It will be impossible to sell a weather forecast online or even a good but “typical” magazine article, but a hot video clip or one made by, say, Lady Gaga? The issue is that so far users had to either subscribe oto one or multiple providers of such premium content or go through a lengthy and often expensive credit card or SMS payment process. But with the new technology and as-you-go instant payment solution, the hassel has been reduced to “two clicks” — no repeated registration nor troublesome PIN numbers required.

Again, it does not work for every piece of creative content, but it can be a great alternative. And, the small sums multiply quickly!

Ashkan Karbasfrooshan

hey Greg, that is a great question.

In my experience in consumer media (5 years at AskMen, an online magazine + 5 years at WatchMojo) consumers really don’t want to pay for content, be it on a monthly basis or per article. Yes, iTunes works, but with music you sometimes don’t want the hassle of piracy and even though you pay for the music once, you will listen to it forever… so very, very different than an article or video which also has good-enough alternatives out there for free.

If you look at Salon.com for example, what did the paid model really get them? I think free, ad-supported content is a HUGE opportunity, perhaps not a big enough one for an established traditional media company with a 100-year old business model and cost structure… but for new media startups that stay lean but have a big enough “net”, it can work.

Ashkan Karbasfrooshan

hey Hubris, I was initially going to play coy and say “what makes you think I was talking about Joost?” – but, I then realized that I alluded to Joost in my blog post linking to this article (oops!).

So since you bring Joost up: yes, the notion of getting consumers to download an app might have made sense for Skype but that was the problem, Joost was tackling online video as if they were building Skype 2: there was a lack of media and content know-how, which is odd given that CBS, Viacom et al. invested… but I guess that indeed, J&N ran the show without much input from others.

Mind you, the first time I saw the interface and player, I thought “wow”. As an insider, you probably have more great insights than I do, but even on the programming end, Joost was making some odd decisions from the get-go. That could merit a post in of itself.

Hubris

“…we bought into the promises of the more hyped ones…when [it] crashed and burned, we can’t say we were surprised.”

The key mistakes were mostly technology-related and were made very, very early on, when we had less than 10 employees. J&N had no idea what they were doing and no one was allowed to question them.

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