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Broadband Content: How close to legitimacy are we?

March 30, 2007

There’s been a lot of talk recently about the rapid legitimization of web based content. There is news of Steven Bochco’s new property over at Metacafe called Cafe Confidential, as well as an article in the March 26th edition of TelevisionWeek discussing recent moves by “Ask a Ninja” and “The Show by Ze Frank“. “Ask a Ninja” is moving (for the third time) from Revver to Federated Media Publishing while ZeFrank is moving over to The TelevisionWeek article suggests that Ask a Ninja could make as much as seven figures in ad revenues with the new partnership.

Under the radar of user generated content, a lot of effort has been made to publish more professionally produced content. While many properties are simply reusing existing content in new formats (like news podcasts, etc.) some mainstream properties like Battlestar Galactica have made bolder experiments like inter-seasonal webisodes. And of course, there was the whole Lonelygirl15 thing. And there is still more rolling out. Michael Eisner, who recently started his own broadband production studio called Vuguru, will be launching a web series soon called Prom Queen – a 90 second long episodic series about a mystery surrounding a prom. There will be 80 episodes in total, and it will air first on MySpace, and on other outlets 12 hours later, including mobile platforms. Sam Raimi is also getting into the game, creating original content for Fearnet.

All this got me to wondering about whether we are really entering a new age in broadband content legitimacy, or if it is all just a bunch of experimentation that is being prematurely hyped by the media.

For awhile now, I have held the view that professional content will have a rough time with broadband distribution for the foreseeable future. For starters, gaining awareness for a project is very hard. For every Lonelygirl15 and Ask a Ninja that comes along, there are hundreds of equally compelling content properties that are spoiling on the vines. There are a lot of outlets for web based video. And on each outlet, the choices are dizzying. Right now, it seems breaking through that clutter requires one of two things. Either you produce a high quality property that is very germane, create a killer viral marketing plan, and pray like crazy for hits and some media buzz, or you spend so much money on traffic generation or talent that profitability is rendered largely unattainable. (For perspective on this, just buying prime product positioning on some of the largest video sites can cost as much as $80K per day.)

Moreover, sufficient monetization of these properties is still a very difficult task. Most of the sites with broader reach tend to share revenues on a CPC basis rather than a CPM basis. This is a serious issue, since click through rates on post-reels and contextual ads surrounding video are understandably low. Further, CPC doesn’t really extract the maximum value of the exposure the way CPM does. Granted, many sites have indicated they will entertain, or shift to a CPM based model, but most have not implemented such as of yet.

Finally, in the back of my mind, I have a nagging suspicion that broadband CPM rates will not inflate nearly as quickly as people think they will. There are a few reasons for this. First, the enormous inventory of cheap video space, and contextual advertising around UGV, will work to keep CPM for higher quality ads down. Advertisers will ultimately make a value decision whereby buying huge impressions of cheap video ad space (synonymous with buying, say remnant or run of schedule cable) will end up being more effective than buying prime spots within premium programming (synonymous with buying prime network or even prime cable). So long as the former sells for $1 CPMs or less and is readily available, it will be hard to justify $50 CPM’s or higher on the later.

Second, as more research is done into exposure effectiveness, I think we will run up against some troubling findings. The current environment around which ads are shown are absolutely horrendous. That hasn’t mattered much because the exposure itself is so cheap. But before the cost of that exposure can increase 40 fold or more, the quality of the exposure will have to increase to improve traditional branding type effectiveness statistics like recall, etc. Static post-rolls will need to be converted into full motion pre-rolls and mid-rolls. Exposure environments will need to be cleaned up and made less cluttered. And targeting and dynamic insertion technologies will need to be improved upon. Furthermore, very little is being done to develop ways of measuring the effects of audience engagement in properties that involve community. While everybody suspects community begets engagement and engagement begets recall, until some hard numbers are put forth, advertisers will be wary to pay significant premiums.

What does all this mean, economically for a property? An example, might help here. Lets assume paying talent with beer and pizza is not a sustainable business model, but that you are still trying to do things on the cheap. If your production costs are a cheap $2000 per minute, a five minute clip costs you $10K. At a $40 CPM, you would need 250,000 views to recoup your money. And that doesn’t even take into account things like revenue sharing. How many web properties out there are actually commanding the required 350,000 – 500,000 views per episode required to just break even? A handful at best.

$40 CPM’s are too low you say? Well, factor in the monetary investment needed to build a core audience with either enough reach, or compelling enough demographics to demand a premium CPM. One ad per view is not enough you say? How many ads do you think people are really going to be willing to sit through, online, for a five minute clip? I suspect the answer is somewhere close to one. Maybe two if the content is really high value.

The fact is, prospects for making significant returns on broadband content are still a ways away, in my mind. That is not to say legitimization won’t happen, or to say that the path towards legitimization is unclear. That will have to be the subject of a different post. Either way, we should watch the space very closely. Involvement of major players should not be seen as a validation of current models of distribution and monetization, and shouldn’t even be seen as a validation of the partners with whom they are working. Rather, I see this period as one of intense experimentation. With formats. With modes of marketing and distribution. And with revenue models. And who knows. If a few of these experiments really take off, showing significant viewership and audience engagement, the road to legitimization might get really short, really fast.

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