Friday, May 2, 2008

Can Video Ever be Pay Per Click?

Can video ever be pay per click? Video is a strange beast online. Its not exactly free as YouTube quickly learned after they received their first Limelight bill. Google AdSense works because the cost to deliver these ads to the blogs that host them are so negligible as compared to bandwidth. However, when we begin to talk about video, the economics completely change. Let's take as an example. It costs about 11-12 cents for an episode of Lost. ABC charges their advertiser about 25 cents to sponsor the entire episode (this equates to an astronomically high CPM of $250; although they do get to sponsor the whole 42 minute show). This nets ABC 12-13 cents per show. Guaranteed. At this high cost, ABC HAS to guarantee this revenue. Or do they?

Let's look at some other statistics. The average commission from an affiliate is let's say $10. This takes into account big purchases (laptops and ipods) and small purchases (books, CDs) and everything in between as well as the average split of anywhere from 5% to 10%. For a 42 minute episodic, ONE person out of 80 has to buy something in order to break even. 80*$0.12=$10. Add in some type of pay per click revenue at an average of let's say 50 cents per click (everything from a mortgage to a newsletter sign up) and there's a possibility to even pay for video production.

The economics look promising if the model works. Are people ready to purchase items within video? We don't know. But we do know this. YouTube is making $0 on all of those dog on a skateboard videos that we watch. And with HD coming out, the only one that will be laughing to the bank is Akamai and Limelight.

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