Question: “As far as your business goes, which is proving the bigger challenge monetising existing content or increasing views?”
Answer:
One year after launching our syndication network, we’ve become one of the largest syndicators of video content online (for more on this, read a press release we issued or check out one of many sources backing this up). The focus now is on monetizing it, either via advertising or licensing deals… frankly, due to the lack of traction in the former (advertising) we’re now focusing on the latter (licensing).
As a result, on our end, we’ve stopped giving away our content for free (in the hope of speculative revenue share deals) and now demand minimum revenue commitments (so basically, ask for licensing fees). If I had plenty of money in the bank, I might be more willing to give it away… but even then, to be very honest with you, with YouTube commanding such a large market share, just because you sign a distribution deal with a new company does not mean it translates into incremental views, let alone revenues… I won’t name any names… but I do wonder how most of the other sites competing with YouTube (be it directly or indirectly) will stick around and be relevant - let alone competitive.
So since we are financing the company with debt (money I am fronting the company, basically, since we launched) and revenue from operations, we demand minimum revenue commitments to keep the lights on, so to speak, though we’ve kept the costs low by being smart about things, ie. not raising VC so having to spend it on expensive fax machines and cutting edge coffee machines, along with the latest deflingers.
What does this mean practically?
For purposes of illustration, out of 10 leads for syndication partners that we talk to:
- probably 5 balk when I demand for minimum commitments because “it’s not in their budgets”, but with all due respect to them, they’re the ones who made a mistake not to allocate any funds for content acquisition and instead prefer to burn money on non-differentiating things like servers etc. More f’n power to them… honestly. If I could get content for free, I would too…
- 3 consider it but balk, saying the timing is not right… it’s their loss… because their sites remain hollow ghost towns while YouTube continues to gather audiences and content… to see why these companies make a mistake, see this.
- yet 2 agree. But guess what, content is king and those 2 sites have something that differentiates them… unlike the 8 that sit on the sidelines with oodles of servers waiting to handle the load but have little to serve other than UGC or not-frequently-published video libraries of yesteryear, or content from our peers who publish a clip a week, maybe. I won’t name any names… but you be the judge.
Honestly, I don’t mind losing out on the 8 because there is so little good content being produced that invariably they come back at one point or another… and the 2 that do pay make it worthwhile. I can add up some of the revenue share checks from the smaller players and honestly, I can use some of those checks as coasters because the cost of coasters is greater than the amounts on those checks. Yes, the initial analogy I was going to use was R-rated… I cleaned it up.
The reason why advertisers are staying on the sidelines with online video is not a lack of streams, but a lack of trustworthy content… what has not helped is the backwards investing targets of VCs who have plunked down $2-5B in more platforms, file sharing sites, CDNs etc., all things that become commoditized and don’t differentiate anything that advertisers look for. Coca-Cola does not care about your back end, they care about the content, demographics, reach etc. That all starts with content…
We’re living in a very faddish, hype-driven world… and thanks to the souring US economy and abysmal VC investing in video (quick: name me a successful exit in video other than YouTube) the noise is going down, fast. Digg was fetching $300M last month… now it’s $200M. Honestly, in 3 months, it will be $100M and in 1 year, $50M.
Why? The US economy will make things change very quickly: growth will be less sexy because non-monetized growth will mean more costs and costs alone… and VCs will become more fickle about financing clunkers. Companies will have to compete for every inch (especially with a US Greenback that is puny relative to global currencies) so money losing ventures become losers, quickly.
Of course, this weakening economy also means that companies won’t want to foot the bill for content creation…
But what won’t change is the rush of users and audiences online… with voracious appetites for content, particularly video content.
So day in and day out, our content is worth more and we have more pricing power and leverage… but the fact remains, until we’re breaking even and laughing all the way to the bank… yes, it’s a constant struggle because the Web has trained us that content does not pay, apparently, aggregation pays… frankly, I think that is nonsense and as the Web develops and matures, this will come back down to reflect the real world.
Distribution is easier to come by than good content, largely because aggregators and distributors have been over-funded, but content has been under-funded, but additional distribution is not valuable because it dilutes your product. We’re awfully idealistic with online media… but ask yourself, if the Olympics really were on all networks (CBS, ABC and FOX in addition to NBC), the Olympics would win, but NBC would not. But the reason why NBC agrees to foot the licensing fee is because the scarcity forces advertisers to pony up. Right now, we don’t have any of that online.
So instead of following the institutional imperative, we’re going against the grain and now protect our greatest asset to make it worth something.
But distribution is meaningless if people are on YouTube and “the latest aggregation site that will reinvent everything” isn’t even being visited. Look at the latest stats: it’s brutal if your URL is not YouTube.com, and if your URL is YouTube.com, you are monetizing 3% of your content because only 4% of it is monetizable to begin with - yikes.
Bottom line: if you give something away for free, it’s impossible to come back and price it at something other than zero.
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From Tech Crunch’s Michael Arrington, on GigaOm’s acquisition of a wireless blog:
I’m sticking to my argument that blogs should get cash positive and then start to acquire others - raising a slug of money just gives people an incentive to spend it, and you lose control to a group of investors who may know little or nothing about how to build a blog.
Replace blog with any content site and I agree whole-heartedly. It’s nothing against VCs, but let them stick to technology startups… they’re doing a helluva great job at that, after all.
I think Arrington at some point tried to raise VC and realized that it would be imprudent, and he’s now wiser for it. Sort of like someone I know.
Congrats to Om and his team for the acquisition though.
One more suggestion for YouTube on how to monetize its content:
- if you want to move more traffic from non-monetizable areas to monetizable ones,
- if you want more marketers to embrace advertising on YouTube
then I think one thing you should do is remove links under Related Videos to non-partner videos. On YouTube, all videos are linked to two groups of videos:
- videos that are produced or uploaded by the same user (marked with an $ in the image below),
- related videos that are uploaded by others and the user whose page you are watching the video on (marked with an X in the image below).
(bear in mind, not all users are producers, many simply upload other content).
Anyway, one thing marketers tell me is that they hesitate advertising on YouTube not only because of the content on the page, but also because they fear what content is linked to off a page they might be running ads on.
This is not that revolutionary, frankly. YouTube is already pushing “partner content” over non-partner content. When you do a search for a given topic, you are given the option to search only from “partner pages”.
This is more than a tacit way to drive traffic to monetizable areas… so I wonder, why bother linking to UGC content (in the X above) which is either not monetizable and scares advertisers away.
After all, anyone selling ads will tell you, ensuring that the content on a given site/page is “sponge worthy” is not enough, you also have to ensure that the page is not linking to something seedy or nefarious.
Google does not care about having less users and less content if it’s monetizable content. If you doubt me, consider this: Google forces advertisers to pay a minimum cost per click to advertise, willing to serve search queries without any ads instead of serving low CPC priced ads. It will apply the same philosophy to YouTube, too, especially as it finds itself with less margin to play with to meet numbers.
Just another tip for our friends at YouTube. More such tips:
- Memo to YouTube: Do This, You’ll Print Money
- 4% is Part of the Solution
- YouTube’s Nuclear Option to Monetize its Content
The ongoing question surrounding YouTube and Google’s inability to maximize revenue opportunities on the site is, has been and will be: will marketers embrace the site, which has only 4% monetizable content, according to a recent WSJ article.
But judging by a couple of comments that my post on YouTube’s Nuclear Option on Monetizing YouTube got on Seeking Alpha, I wonder if that is even moot. Judge for yourself:
Commentor Joyful Alternative: But user-generated crap is why I go to YouTube!
Commentor Tom B: I think “joyful” has it right; let’s get MORE “seedier and undesirable content”. In fact, if you make it seedy enough, people might pay subscription fees…..I mean– people pay for cable TV, right? That’s at least 96% junk.
What if YouTube’s users just shun professional content in favor of falling cats and stumbling skateboarders? I mean, our content does very well on YouTube, we’re one of the largest producers - both measured by videos and video streams - but the fact is, the most popular videos will always be random UGC clips of pirated content.
If that is the case, then I pity the fool who shelled out $1.65B for YouTube - well, no quite, I still see oodles of value in Google’s decision… they paid in stock people… stock!
