Thursday, April 17, 2008

Long Tail Gets Longer

Is there a way to monetize UGC? The YouTube reports came in and it seems that a popular show on YouTube Break a Leg, received a check for $1600 after 2 million views for an 80 cent CPM. What does this mean? It means that collectively all of our UGC might let someone eat lunch, but its not going to be the creator of that content. Just like Amazon who claims that the long tail exceeds the head of the tail in terms of revenue, the long tail of content probably does as well. But who wins there? Amazon does. By aggregating all of these pennies they are able to make a business. YouTube wins (sort of) by aggregating all of these videos. Is crossing over into traditional media the only way to earn a real living? Bloggers appear to have figured it out: Gawker, TMZ, Perez Hilton, although the latter two have crossed over into mainstream. Further, these are well trafficked blogs. The stars of Internet video (LonelyGirl guys) just got $5 million to continue to make shows. Well if you're an economist this could be a good trend. The monetization for content is creeping down the long tail toward the tail but its stalled in the middle.

Will the long tail ever become profitable for the content creator? Well by definition it means that its content serves a small niche. (sometimes a niche of one). The medical / scientific / engineering communities found a way to monetize this by charging more money for each research paper that you might want to read online. Trade journals are very expensive - $100 an issue. Not because they print on glossy paper but because they (like you) need to eat! And given this high price, most likely they have a highly targeted audience and thus, advertising will be most effective for niche products.

So going back to the long tail, will there be an effective way to monetize? I think so. But right now the Internet is all about scale. If we can cut through that and think about relevancy than I'll be able to continue to watch

Wednesday, April 16, 2008

What Do You Really Watch Online?

PluggedIn launched today with most of the major music labels joining in. As TechCrunch puts it, its the Hulu for music video. The site is a great looking site as its powered by Move Networks - the same company that powers and other high quality video sites. Investors include Will Smith and they hope to monetize through ancillary product sales (i.e. affiliate revenue).

I think that PluggedIn could possibly work but here's the catch: You need to take traffic from YouTube. And being that YouTube has a stronghold on the video community it will be hard to do. But what's even harder is the same problem that is plaguing Hulu. The content is NOT EXCLUSIVE! There's a major disconnect between Hulu,, MySpaceTV, and the folks that place content on YouTube. Content creators have simply said that they'd like to spread their content in as many places as possible on the web even at the cost of a start up that they co-own. Simply put, if Hulu (or PluggedIn, for that matter) had exclusive access to the NBC/FOX library or to music video they would be hugely successful. Yet they don't. And further, if the content creators really want to have their content all over the place, why do they disable the embeds on YouTube...(yes this is right, see for yourself on Avril Lavigne's GirlFriends video).

What is the reason for this? I think folks are still trying to find an effective way to monetize video. Bandwidth now is a huge consideration and if YouTube is giving it away ... for free.... then that's a tough proposition. Broadcast TV had no marginal cost to deliver programming to every incremental household. Internet does. And when that's the case, you have to go with what you know: free delivery - i.e. YouTube. So until we can come up with a way to monetize more effectively, the answer to 'What do you really watch online?' is simple. We watch YouTube.

Monday, April 14, 2008

The Free World

Chris Anderson's Wired Article about Free has really sparked many debates and discussions. This weekend I heard more than one viewpoint about free. It's time for a few quick points about it and my view:
[Right now the argument really surrounds music and the proliferation of music piracy.]

  • With so many iPods sold and only 3 billion songs sold on iTunes - there must be another way that 20 GB hard drives are being filled.
  • I've learned that a long time ago there was a "tape tax" that helped to subsidize the music industry everytime you recorded a song off the radio (will that translate into an iPod tax?)
  • The Internet / Bit Torrent / even email has made it easier to "share" files.
  • Most kids/users don't believe its stealing. (The analogy of sneaking into a movie theater versus getting caught shoplifting.) If you're not taking something physical you're just sharing information, and that's free right?
  • Ad supported music? Look at what's happening with radio.

You get the picture as to the gloom that is happening with music.

Opponents argue that the music industry has been "ripping us off" for years with $20 CD's (will this happen to software? some argue that it has already).
Do 360 deals make sense to record labels? [this is when the label acts as manager and takes a cut of all entertainment related deals, including when the musician becomes an actor, sells t-shirts, etc] Look at P. Diddy and his Bad Boy outfit. I think only 20-30% of Bad Boy's revenues came from music. The rest was from Sean John, his vodka line, his TV show, etc. P. Diddy is selling a lifestyle and the music is his entree into showcasing it.
Label executives would argue that this works for the Radioheads of the world but what about unknowns? Would an Amie Street model work? Probably not for the labels (at least not now since whether you are a hit or not, you still have to eat). I've heard of the argument that the free period has conditioned us to see the computer as an entertainment center.

So these are the positions and the arguments from proponents on both sides. Will all digital media become free? There's no way. Hank Williams from Why Does Everything Suck blog made a good point. If you take MSFTs revenue and get rid of that, then figure out how to support all of that software with ads, you'll never be able to make up the difference. Never. Ever. Yet, we are conditioning ourselves to believe that digital media should be free. Why? Supply and demand. There's more supply than ever. Look at the hundreds of millions of posts on YouTube. The hundreds of cable channels out there.

To me, I think that this is more a question of psychology rather than economics. I remember what Strauss Zelnick once said about his consumption habits. To paraphrase: If I did it when I was 17 years old, I'm probably doing it now. College kids are ripping music off now, and when they're in that prime spending age, they'll still be doing it. Hank has a further point that companies like Google and VC's are helping to perpetrate this trend right now for land grab. Sure, some sites like Facebook should be free ....

Take a look at the current operating situation for cable. HBO charges you for content. But many people are happy to pay. Sure, you can probably get a bootleg version of Entourage off of Bit Torrent or something, but you've been getting a cable bill for x number of years. And that's a habit. Paid for email? Never!

Media as a broker of other goods and services? If this is the case, is media only good to try to sell you something physical? Do you watch "Lost" only to buy the Toyota that they'll sell you in the fourth ad block? Do you listen to Jay Z only to buy the Roc A Wear shirt he's wearing in the music video? Is that what its come to?
If so, we are in deep trouble.

Has radio and television conditioned us as the consumer to be "cheap?" Take an average feature film. $12 bucks to see it when it first comes out. Wait 2 months and get it on Netflix. Wait another 18 months and see it on pay cable. Another 18 months and get it on network for .... FREE!

Again its conditioning. This is how we grew up and this is what we are used to. Contrast this to things that people will pay for online.

  • A digital teddy bear on Facebook - $1
  • The right to customize your penguin on Club Penguin - $5.95 / month
  • Organize a meetup through - $18
  • Meet your soulmate through a number of dating sites - ~$25/month
  • Sell one of a kind items that you probably don't want on eBay - $0.01 - $100's

And the list goes on and on. Why is this relevant? Look at all of these things. They are all new forms of consumption. Why is this smart? Because this is the beginning of conditioning. If we're conditioned to pay for something, we're happy to do so. And if not, then we won't. (the whole, I got it for free before, why would i pay now?)

So, traditional media, unless you can change the mass psychology of millions, we're kind of - let's put in nicely - in a very bad place.

Friday, April 11, 2008

I'm Back But I'm Not Live

Yes, after a long hiatus from writing this blog, I'm back. What I've been doing? We can talk about that later.....

One of the trends that I've noticed that is catching on like wildfire in the videospace is lifecasting. Made popular by Justin TV, YouTube, UStream and others are getting into it. Why? I don't know. We all know that YouTube's biggest expense (and the other video sharing sites that host their own content) is bandwidth and if you have very fickle users the cost of CDN's and such. (Although I learned last night, admittedly, that YouTube's new API really wants you to use their bandwidth). Now imagine live streaming. Costs for Flash media server. Cost for 24/7 live bandwidth. The number would be staggering. BUT from a business perspective...if you can make more money than that it would make sense.

Now let's look at that angle: Currently videos monetize by a few ways. Pre Rolls, Post rolls, interstitials and banners. Pre and Post rolls are hitting about $20 CPM on YouTube. OK. Let's give banners $10. So at these rates its all about the eyeballs. If we do some quick and dirty math (really dirty math from my last Amazon AWS bill) we can make an assumption that a GB of data costs about 18 cents and that each minute of video is about 10MB. SO... 100 minutes of video data is about 1GB (obviously depending on quality). But to keep it simple let's say that's the cost. So let's say you have a banner and an interstitial (its live so you can't have pre and or post rolls). $30 CPM (on a good day).
Some math:
($30/$0.18)*100minutes/60=~277 hours or 11.5 days.
To break even you need 1000 viewers every 11.5 days.

Doable? Maybe. But the thing that we all have to realize is that no matter how exciting Paris Hilton's lifestyle might be, we all sleep at least 6 hours a day (well some of us get 4!). Are we really going to put all of the video editors out of business? After all these are the folks that are getting us to the juicy parts of the content faster than ever. And what about those bookmarking tools like MotionBox and VeoTag? Do you really want to sit through and watch Justin sleeping (by himself, of course)?

In my mind the economics of live streaming don't make sense, but on a more base level, the entertainment aspect of live life casting is just plain boring. Some events are great live but with more and more life casters out there - its just going to make our Internet slower when we need to sit and watch more important things (like Round 1 NCAA games on Thursday and Friday!)