Who owns a video stream? Obviously, the short answer is the copyright-holder. Online however, it’s never so easy.

Earlier today, we asked who would become the Google of Video? It’s not an easy question, mainly because the web is so fragmented and there are many well funded companies taking on Google, who itself aspires to be the Google of Video via YouTube…

Alas, this begs the greater question: who owns a video stream? Answering that philosophical and practical (read technical) question might help us answer the question.

First off, a search query is fundamentally different from a video stream in that each one can be broken down into:

Both video and search can be summed up by:

Value = content + technology + advertising + distribution

What is different is how each component is defined.

With search, content can be defined in two ways: the keyword or the organic results that load up after the search is served.

Thus, the Value of a Search Query:

+ content: a keyword/search results
+ technology: an underlying search index/algorithm
+ monetization engine: advertising
+ distribution: a search box/text link that triggers the query (a place/destination where the search is done from)

To understand why Google became such a money machine, frankly, it boils down to understanding that Google does not need to remit anything for the content component of the value chain: the keyword is part of the public domain, and as such, Google does not need to pay out anything for it, even though it is what generates the value chain. Then, Google does not pay the websites that appear in the organic search results, au contraire, it is offering them something valuable in traffic and branding.

Next up comes the technology. In Google’s case, obviously it owns the underlying search index/algorithm.

Initially, Google was only a destination site and as such, it retained all the monies generated off the search, which takes us to the monetization engine. Again, in Google’s case, it owned the monetization engine because Google was building up its paid advertiser database. So when people did searches on Google, once again Google retained 100% of the revenues.

Once Google began to generate revenues, it made sense to extend its reach away from the google.com property outside to the Web and build distribution. Google leveraged its algorithm to power other high-traffic sites, and in exchange, it shared revenue with these sites. This was one more reason why Google was a one in a million case study: search was not a profit unit, it was a loss leader, so instead of charging portals a licensing fee to power their search, Google came in like a white knight, powered their free search and offered them ads to boot, with a generous ad share.

In fact, Google would remit anywhere from 50% to 110% to distribution partners whom it powered (Yahoo!, Ask, etc.).

That, of course, explains Google’s AdWords program.

Eventually, Google flipped AdWords onto its head and launched AdSense, which allowed publishers to serve up contextually relevant ads, again on a revenue share. By acquiring Applied Semantics, it got a great contextual engine, by buying Sprinks from About.com, it consolidated this market.

The point is, Google was a money machine because there was no underlying IP (the keyword belonged not to the user, or a third party, but wherever the search was conducted; the ads were powered by Google and depending on distribution, Google would keep all of a portion of the revenue).

This was the business model to hit the Web, frankly, since eBay’s 85% margins created a $40B company out of Pierre Omidyar’s vision.

Google took it many steps further. Today it’s a $200B company.

Why Video is Different

Video is really a very different market. I now believe that the video advertising component of online advertising will become greater than the paid search market. There are many reasons for this, but mainly, video ads on the web will be powered by TV’s $75B ad spending and the fact that large corporations will be the driver of this slice of the pie… whereas small and medium sized advertisers drove the paid search market.

In video, the value chain is quite different.

It starts with the content, which belongs to someone. As such, immediately, the margins are different and affected.  Imagine if Google had to pay users for the query and/or the websites listed in the organic search results for a right to create the subsequent platform/monetization/distribution ecosystem.  Would Google be worth $200B?  Of course not.

Anyway, back to video, the content belongs to someone, be it a traditional or new media company…

Then, there is once again the technology that serves the video, which unlike search is far more expensive to host and serve.

Sometimes the advertising platform is embedded, sometimes it is not.

Then once again there is the distribution point where this video is consumed. If a content producer like WatchMojo.com serves this content on its own property, then it retains 100%; if alternatively we remit a portion to one of our many distribution partners, then we get a cut.

Today, distribution has really become fragmented. Even though YouTube might account for over 50% of all video streams, they do not account for 50% of revenue mainly because of the nature of the content found on the site. As such, over time, no one site will really be the Google of video… so in other words, we see that the advertising / monetization engine becomes quite fragmented, and in a mathematical mindset approximates to zero, because no single player will own the video ad market the way Google owns search. To understand why, click our previous post.

However, due to the breakdown of the video value chain, unlike in search,

the Value of a Video Stream:

+ content: the video
+ technology: the platform
+ monetization engine: advertising or subscription
+ distribution: a place/destination where the video is streamed and watched

Again, you can see that the breakdown and economics of video content and advertising are fundamentally different in the sense that the underlying content is not in the public domain. Someone owns the content, and they are the chicken and egg of the value chain.

While YouTube is currently the technology platform of choice amongst consumers, that is not the case for businesses (content producers and other web properties).

For the reasons we outlined above, it is neither as ubiquitous as Google is in search nor will it exert the kind of financial leverage Google did due to the nature of the content found on the site, so it won’t command the kind of grip on the monetization either… In fact, while Google borrowed from GoTo.com/Overture’s pay per click model and made it the de facto business model in search, no one, and we mean no one has found the holy grail in video advertising.

Lastly, distribution remains in favor of YouTube, but even that is awfully fragmented, suggesting that distribution alone won’t be what determines the winner.

Why Content is King, Particularly in Video

In this context, I think that content will rise to the surface if the quality is good enough, distributed widely, on a wide array of platforms and easily sellable to advertisers. Digital content, in this context, is the new software in the sense that once it is produced, all incremental consumption is practically pure profit… because content owners do not need to worry about platforms, they also do not need to worry about monetization, and if syndicated wisely, they can become successful regardless of any single point of access, format, or platform.

Last week at Om Malik’s New Tee Vee conference, CRV venture capitalist George Zachary said that content was not the place to be, in fact, he argued, the social networks who owned the users were the larger creators of wealth. I respected his perspective but respectfully disagreed because unlike in search, where the search query (content) comes from one point and is exclusive to that point (though powered by someone else, usually Google), in video, the content is not exclusive to any one social network, distribution partner, portal etc., the only one who owns that content, is, you guessed it, the content owner.

For that reason, the fundamentals of video advertising are very different because the dynamics between content and technology are fundamentally different.

Take all of this with a grain of salt, of course, because it comes from a content producer.

• Digg this Blog
• Share on Facebook
• WatchMojo on Twitter
• WatchMojo on YouTube
• Add to Favorites
• WatchMojo Newsletter