An interesting thing is happening in the video sector that has broad repercussions for content in general. What we are seeing today is the Commoditization of Distribution and the Scalability of Content. This is something that has dawned on me from the conditions on the ground managing the WatchMojo.com Web TV property.
Digital Media Revolution
Apparently video now accounts for 60% of bandwidth online, and this is supposed to reach a suspiciously high 98% in the next few years. Of course, there is no real way to determine what kind of videos will make up that figure, but the trend is clear:
- the digital boom
- cheap hardware
- soaring broadband penetration and
- online advertising
have created an uptick in digital content. The audio digital content boom was manifested in MySpace’s explosion. It’s no secret after all that MySpace’s rise to the top of the social networking space had a lot to do with independent and unsigned music artists turning to the site to promote their craft. Similarly, YouTube’s rise was both a cause and consequence of the video digital content boom: more people creating more video files and sharing them with one another.
Herd Mentality Has Lead to a Surge in Distribution Points
Given MySpace and YouTube’s spectacular growth, everyone these days is suffering from envy and trying to create platforms to duplicate that success. Take for example Marc Andreessen’s investment and involvement in Ning. Ning was first hatched in 2005, but it finally hit the masses today. Ning empowers people to develop social networks. Great, the only problem is that for Ning (as a business) to succeed it needs masses to adopt it as their platform. And while the high end of the market will probably not want to build their social network on Ning’s platform, the low end of the market will probably stick to more popular alternatives like MySpace, Facebook, YouTube etc. In Ning’s case, the middle part of the distribution model it is targeting might prove elusive and too small to make a dent in the broader social networking landscape.
Commoditization of Distribution
Make no mistake about it, for social networks to succeed, you need size and scale. Otherwise, it ain’t a network. When Ning launches a plug and play social networking toolkit, they essentially further commoditize social networks. That is not good or bad, it just is. Distribution is valuable if you can plug in content, and content is valuable if you can distribute it. But when it comes to social networks, they are only valuable if they are popular. In other words, distribution and content can overnight become valuable if you add the missing element but for a social network to be valuable it takes time. Indeed, one out of a thousand will spread like wildfire - thanks to viral benefits - and hit paydirt. But 999 others will die and no one will notice them.
As VC money has poured into creating more YouTube and MySpace clones (what sane VC invests in media, after all… but technology, sure, let’s create a bubble, please!), there is now suddenly a glut in distribution points online. Frankly, if you were to strip the logos and look and feel of most of these sites to the barebones, you would probably not recognize one from another, and part of that is admittedly that the content found therein is eerily similar.
Why that is is simple.
Content is King
I’ve referred to the pyramid of video content frequently in the past few weeks:
Most of the content found on such file sharing social networking video sites consist of the low end of the pyramid: user generated content. Very few of these sites carry the high end content, that of TV networks and what not. What exasperates this is the lack of trust between Silicon Valley and Hollywood, which I wrote about here.
Call it greed, fear, whatever, the bottom line is that the media companies are going to try to protect their good stuff and keep it off of social networks like YouTube, Revver and company because the economics do not make sense. Lacking a high flying stock, media companies need decisions to reverberate financially on the income statement. That is something that tech outfits like Google need not care about, but Viacom, CBS, Time Warner, Walt Disney, News Corp. and company sure do.
The middle part of the video media landscape, the content created by online-only producers like WatchMojo.com, but many other great ones as well, is suddenly being valued at a premium. People are spending more and more time online and on wireless devices, but where’s the content to whet their appetite? User generated content is one source of content, but that is not what advertisers will look for. TV networks content? Nope. Not available. System error. Please call again.
It’s thus no surprise that not a day goes by where one of these video file sharing sites with distribution approaches us and wants to license our content. With 4,000 original clips on everything from cars, to fashion, music, drinks, dancing, video games, and much more, there is a sharp rebalancing in the relative value of content vs. distribution online.
The Scalability of Content
The irony of the media vs. technology debate is that video content is proving to be highly scaleable, far more than I had personally thought it could be. Forget the upside of putting content on wireless, that is an entirely new business that my small brain did not even anticipate for really and now is a major push for us. The online component is enormous in itself: every day that goes by, we get a request for our content from one of the distribution points and because there is a lack of “torso” content online (between user generated and TV networks) we get pricing power and leverage.
As the archive on WatchMojo.com goes from 1,000 to 2,000 to over 4,000 video clips today, we build a consumer destination to generate revenue from advertising. If that is not enough, with every deal that we sign, our content becomes commonplace across all of the distribution points online: that’s for branding and traffic, and trust me, that drives direct and indirect revenue as well.
That’s right, we’ll be part of the problem, the 98% problem. I encourage everyone to start creating more content. I welcome the competition, though in my eyes, it’s not competition. The more quality content online, the better. Of course, you have to be crazy to run an operation like WatchMojo.com or any online-only Web TV content producer, but I’ve been called worst. Web TV is not sexy enough for TV networks and too much work for people who fancy user-generated stuff. To me, it’s the only place to be.
“If I had a Million Dollars…”
If you are still not convinced about just how much distribution has become a commodity, consider this: when you had ABC, CBS and NBC accounting for 80%+ of people’s attention, distribution was not a commodity, it was scarce.
Today the opposite is true.
In the Web’s 1994-2004 era, the major players changed but the fact remained that the Top 3 portals (independent of whether it was Lycos, AOL, MSN, Yahoo!, Google, etc.) captured most of the eyeballs. If you had content, you had to go to one of the major players and pay them for distribution. Not anymore.
Video might have killed the radio star but it also killed the portal to some extent or another: AOL changed its tune and went free, MSN is floating, Yahoo! is suffering from an identity crisis and Google is trying to remain a high-growth engine. Meanwhile, YouTube and MySpace need to generate financial returns befitting their exit price tags.
Today, if you had $1M in the bank you could go out and get distribution overnight and you would face a bevy of potential places to spend your money.
But if you had $1M in the bank for content licensing, it would not be as easy, now would it? With online advertising being robust, distribution is easier to monetize but only premium content will get the top advertisers and top ad rates. In other words, if both content and distribution were simple resources, $1M can go much further in terms of distribution than content. Everyone mistakenly points to the “kid in the basement uploading a clip on YouTube” as an example of the cost of content falling, but that is not monetizable content, after all. In this scenario, I am certainly biased to think that content is more valuable that distribution, but I think that most would agree that content is far and away a more scarce asset than distribution.
Disclaimer: the writer of this piece is biased as a content producer. Of the companies mentioned above, News Corp. was my employer briefly and I own stock in Yahoo!
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