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The Future of Online and Mobile Video: Where’s the Money?

In Los Angeles, UCLA Anderson School of Management and the German American Business Association (GABA) held a discussion on the future of online and mobile video. Panelists were Scott Bushman, vp of content, Metacafe, Brett Brewer, President of adknowledge, a performance-based advertising network; Myspace (Intermix Media) co-founder and advisor at Crosscut Ventures; Curt Marvis, president of Digital Media at Lionsgate, including the company’s stake in online video hub Break.com, the FEARNet VOD/Internet channel, and the new EPIX online streaming venture with Paramount and MGM; Mark Suster, partner at GRP Partners, previous Founder and CEO of Koral and BuildOnline; and Frank Chindamo, President of Fun Little Movies, which won the Content Award at Cannes and the Mofilm Award at GSM and airs on Sprint, MSN Mobile & the iPhones. The panel was moderated by Michael Metzger, UCLA Anderson alumnus; GABA Board Member; Vice President at New Century Capital Partners, a digital media focused investment banking firm

Metzger opened the panel by describing the space as segmented into three categories: UGC (user-generated content); professional video, be it short or long form; and content initially made for cable/TV and repurposed for online or mobile. He pointed out that the buzz around UGC began only four years ago, when YouTube was founded. “Now there are over 6 billion videos a month,” he said, although he noted that Google is losing money on it. “Maybe it’s not that successful after all, since Google is having a hard time monetizing it with advertising. Advertisers don’t feel that comfortable with the unknown aspect of UGC.”

He asked panelists, Do these numbers seem right? Is there any way to make money with UGC?

Brewer noted that “Google is taking a long term approach.” “They could blanket the site with advertisements but they’re protecting the user experience and brand. It’s not quite as bad as the numbers dictate,” he said. “It is hard to make high CPM dollars off of UGC. Brands don’t want to be there. It’s hard to convert the users also; they’re there to watch the video, not buy an airplane ticket.”

Marvis pointed out that the four-year gestation period of the YouTube business is “so small in the grand scheme of things and the growth they’ve experience is so astronomical,” that it was too soon to judge the numbers. “If you look historically at cable channels, going back to the beginnings of USA or TNT, who could have imagined what they’d become?” he said. “I remember when ESPN launched. Not only did they show tractor racing in Minnesota, but no one could have imagined it would expand to become a powerhouse in cable and satellite. To say YouTube hasn’t figured it out in four years is short-sighted.”

Chindamo took an even rosier look, saying that “UGC is the creative expression of the 21st Century.” “Kids in Iowa and Iraq can make these films,” he said. “To monetize it, you have to not get lucky but be good and consistent.” Bushman stressed the video-sharing behavior around UGC. “Platforms like Metacafe or YouTube are moving together with the creators of that content to add tools that help that content go from UGC to professional,” he said. “That takes it to a new level. There is a lot of great UGC that’s been developed, but it has to be more than a one hit wonder. You can’t predict virality. It’s about finding people who are talented producing with a cost structure that makes sense and doing so consistently.” According to Brewer, the average effective CPM has gone from 20 to 25 cents to 60 to 70 cents per 1,000 views. “While those numbers seem low, if you are the person getting that 60 to 70 cents, you’re happier than you were,” he said.

As a venture capitalist, Suster noted that, although he’s a big consumer of UGC, “a lot of money was invested in a lot of crappy sites that people assumed would be able to get large advertising revenue that weren’t.” “Look at Jib Jab,” he said. “It’s high quality content and one of the better known brands. They created professionally produced content, and they made shit. People have to find alternative ways to make money.”He noted that some Asian sites (Crunchy Roll) are turning to a subscription model.

“Mostly the industry has been a bust,” Suster continued. “The $470 million that YouTube lost…I can tell you it’s a real number. I’m not sure that people inside Google think it’s a good long term bet. I think they’re frustrated internally with a desire to monetize that. Uploading videos of my kids will eventually switch to a subscription model: a base model for free with basic services. You can’t give away this shit for free forever. Videos of my kids are not monetizable.”

“There are a lot of interesting companies but I see more in Asia than in the US,” he added. ” They’ll have to start charging for the long tail because it’s not ad supportable. And I’ve seen tons of great content: Filmaka has phenomenal content, produced for a fraction of the cost. But how to build a business out of it is the challenge we all face.”

Metzger asked: Is content king? Do you need the right content? Is professional or repurposed content king?

“The thing that’s been lost around web video–and it’s true around music and filmed entertainment business is that what drives those businesses is marketing,” said Marvis. “In rare instances, it’s the music or movie. And people like to point to those instances: Here’s My Big Fat Greek Wedding made for $2 million that generated $200 million. But the difference that separated these businesses traditionally has been marketing. The web is a great equalizer: anyone can discover their inner Spielberg–but nobody knows about it or finds it. There’s too much content for anyone to sift through and find. There’s an idea your stuff will get discovered virally and 270 million people will watch it. But it just doesn’t happen that way except in the rarest of circumstances. And businesses aren’t built on exceptions – they’re built on something that’s reliably repeatable. Marketing is the way you get people to see that stuff.”

Suster noted that “most UGC is crap and that’s the biggest problem with it.” “It’s hard to produce high level content that people want to watch,” he said. “Mobile may create a better opportunity, opined Chindamo, who noted that “people are more used to paying for things on the mobile phone than on the Internet.”

Metzger noted that one thing he found interesting watching videos on Hulu was why he was seeing the same ad over and over again. “You have a top site with lots of traffic and premium content, but the advertisements aren’t interesting. Do we need better metrics? What needs to change to make it work?”

Brewer gave a “super short answer.” “It takes time,” he said. “When you’re getting the Tide brand manager and his spend, it takes time for the budget to transition from billboards to Hulu. It’s been a big shift over the last 18 months. I’ve seen Hulu’s CPMs and advertisers, and as far as getting branded advertisers around online video, it’s one of the best successes we have. As advertisers see it’s a more effective way to reach the end consumer, they’ll be more comfortable with switching their ad buy dollars from old media to new media.”

Putting it in perspective, noted Brewer, the U.S. ad market is worth $300 billion; the online ad market is $300 million. “But the online spend market is the only one that’s growing,” he said. “Everything else is down 8 percent and newspapers are down 15 percent. There’s so much content it’s hard for the advertising to support all of it. But the ad dollars have shifted faster than for any other new media.”

Another question was how do you get media produced for the web and not for TV initially that can be monetizable?

Both Brewer and Marvis pointed out that Break.com is already doing that. “They’re doing extremely well but still not at a level they’d be looking for,” said Marvis. “One of the biggest surprises to me has been the slowness with which the ad agencies have embraced online video. Newspapers/magazines have fewer pages every month. Who watches ads on TV? But, for some strange reason, the online side hasn’t been embraced. It’s been hard for them to get around the concept of an agency dealing with the client of the brands online. Also challenging is the divergence of sites that don’t really have an identity: What does Metacafe or Veoh mean versus NBC or CNN online? There’s been a slow transition.”

The panelists discussed the power of branded entertainment, which reached a visibility level with the BMW campaigns. “No one has gotten an advertiser willing to step up and do branded advertising like that since,” said Marvis. “I think it’ll change over time. Maybe not between now and Christmas but in the next two, three, five years.”

Bushman said that Metacafe curates video in a way that appeals to advertisers. “We’re doing something around Bruno, pulling together Bruno’s favorite clips. We can get horror movies to come back and sponsor MetaDeath. These initial successes can be repeated. There are opportunities to package a combination of premium content, professional content and UGC content in a way that advertisers can get behind.”

Looking 3 or 4 years out do you see one dominant way that professional content is monetized?

“Consumer behavior is one of the slowest things to change,” answered Marvis. “It reminds me of the concept of clubs that don’t let people in when there’s room inside and a line outside. It’s the same thing with entertainment product in terms of marketing to create a demand. In terms of business models, people have been accustomed for a long time the difference between renting things and purchasing someting. People understand subscriptions: Book of the Month Clubs have been around forever They understand Free TV which is advertiser-supported. At Lionsgate, we don’t see those models changing any time soon. It may be that subscription for some kinds of content works better, but I don’t see advertiser-supported or free content or rental going away. I’m not a believer that there’s one dominant model.”

How much does piracy impacting advertisers’ willingness to pay for ads for professional content distributed on YouTube and other channels?

“I don’t know if the issue is really piracy or content quality,” answered Bushman. “The challenge for a lot of that video is that advertisers don’t know what they’re getting. The key is targeting metadata. YouTube will approach it by throwing algorithms and engineers at it, others by social networking.” Metacafe licenses content from professional studios, said Bushman, who noted that they’d partnered with Hulu, CBS and Sony Music but also serve YouTube video.

What about bringing the HBO-style to the web where you have exclusive theoretically hot content, on a subscription model only?

“Subscription is a valid model.,” said Marvis. “Netflix is doing tremendous biz through the US postal service and digital delivery “watch instantly” service. HBO started as a service that showed movies and they weren’t even movies of note. They kept getting better and better films and became synonymous with movies. Then they got into creating content. Now people are there for the original programming, not the movies.”

“All these businesses are iterative,” he stressed. “The press gets obsessed with what’s happening today and don’t give these businesses enough time to gestate.”

Suster countered that “the only subscription business I’ve seen work is when they have a brand on TV and can sell it against a time window.” Brewer agreed that “it’s tough to make subscription work on line.” “I’d rather try it with mobile where people are used to buying things, with clicking yes,” he said.

Tags: adknowledge, CPM, digital media, EPIX, FEARNet, Filmaka, Fun Little Movies, German American Business Association, Google, GSM. Sprint, Hulu, long tail, Metacafe, metrics, mobile content, MOFILM, Monetizing Mobile, MySpace, MySpacew, subscription model, UCLA Anderson School of Management, UGC, user-generated content, YouTube

This entry was posted on Monday, July 13th, 2009 at 3:39 pm and is filed under Advertising/Marketing, Content, Home Feature, Monetizing Mobile.