Friday, February 12, 2010

The Web Video Money Pit...

Online video, practically since its inception, always touted its promise as "the future of the Web". Then came YouTube, which, of course, was based on an innovative new business model centered on user-generated content, and the hype surrounding online video hit the stratosphere.

Well, a few years in, let's take a moment to observe that online video is a total money pit. As GigaOm reports, no single company is turning a profit and only a small handful like and Brightcove have even managed to grow in significant value. Yes, even YouTube has failed to turn a single penny of profit.

Yesterday came news of another leading online video company, Veoh, calling it quits.

And all of this is in spite of the fact that, as this chart demonstrates, hundreds of millions of dollars of venture capital have been invested. (Or flushed down the toilet, depending on one's perspective.)

Not to sound like a complete and utter Debbie Downer. To be sure, observers still consider it to have plenty of upside and it can stake claim to a few major accomplishments...

Online video has largely succeeded at many of its goals: It is democratizing media and encouraging a culture of sharing and participation. It’s pushing the television industry to modernize and become more interactive. It’s freeing content from time schedules and repressive windows. It’s driving cable companies to at least consider the true value of the loyalty of their subscribers.

But let’s be honest, it’s done more displacing and destabilizing than it has created wealth.

The big question is how to monetize online video effectively.

YouTube is experimenting with trying to bring in revenues through a lot of different means. Obviously, it relies heavily on advertising dollars, but has recently attempted to drastically increase the number of videos it monetizes. Additionally, at the Sundance Film Festival this year, it dipped its toes into the movie rental business. Also, in the fourth quarter of last year, it sold out the highly prominent and sought-after space on its front page almost every day.

But YouTube is really pinning its hopes on larger macro trends than it is on day-to-day operational strategies for generating revenue. Nikesh Arora, president of global sales operations and business development, is quoted as saying that YouTube is becoming increasingly important to brands and agencies. "There’s been a big shift... [YouTube] has gone from being ‘nice to have’ to an essential part of the media mix”.

As always, time will tell. It's just shocking that, in 2010, friends who invest a ton of time and effort in producing online video content - like the web series, "Concierge" - have a harder time earning money than schmucky blogs this one which are text-only.


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