Tuesday, September 9, 2008

The Online Video Value Gap

AdAge published a byline I wrote last week and while I understand their need to edit (it is their publication afterall!), I thought I would post the unedited version on this blog. The edited version can be found here.


When will online video be the behemoth business everyone always crows about? Everyone seems to be down You Tube’s throat for not pulling their weight at Google. The television networks make a pitiful 1% of what they rake in for their broadcast outlets with the same videos. And the so-called “me-too” video-sites are VC money machines of the burning kind.

And yet, the video market grows every quarter. There are now more people watching video online than on cable television. What the hell is going on? How can this not be a business that prints money?

To be fair, the market is not exactly a desert. Over one billion ad dollars will be spent around online video this year, and the number may be even higher as most of the analysts don’t take into account all of the other ads that junk up the web page gutters around an embedded video on “non-video” sites.

But let’s be honest – everyone thought the online video marketplace would be doing far better than it is today. And by better, I mean making money for publishers while making a clear, visible impact for marketers. The path to profitability was paved with the promise of capturing all that broadcast ad money - $70 billion in the USA alone. All one need do is build a better video mousetrap to capture a large audience and the dollars would be siphoned. A redistribution of wealth was in clear sight. A windfall of cash would be funneled from broadcast TV in the same migration patterns seen in the flight from print to the web. But this is clearly not happening. At least not on the timetable many had hoped for.

So, what’s going on? Why haven’t those TV dollars moved in droves?

Online video is not TV. Sorry to state the obvious, but it bears repeating because people’s business expectations for online video is that it will eventually steal the broadcast and cable ad pie. But here’s the thing, online video is a different medium than television. We all know this, so why are we trying to force-fit a television ad model over it? The answer is simple, because publishers are trying to divert TV ad dollars to their online video platforms. In order to do this they feel the need to use the same language and formats as television. They do this thinking that it will help them bridge the knowledge gap between the two different mediums and make it easier for TV media buyers to understand why they should shift their dollars to online video.

This is a critical error. The two mediums are so fundamentally different that making comparisons in format and language will eventually stunt the growth and impact of this new medium for creators and marketers alike.

Let me make a comparison. Imagine if Google’s search business didn’t include AdSense. Imagine a world where marketers paid a CPM, or flat fee to be listed within Google search results just like the Yellow Pages, or a newspaper. This does two major things: First, it makes the search results unusable to users because it’s placing “paid-for” placement above anything more relevant. Second, because the search is now not as useful, it’s future audience potential diminishes. We would have never experienced the incredible benefit that Google eventually provided to users and marketers. They could have easily gone down this road, but they didn’t. They knew their medium was fundamentally different from print and used a new ad model that best suited it.

Okay, so what are the fundamental differences between the two mediums, and what is the model?

Let’s start with what’s different.

The fundamental difference is how people USE them. Television attracts “watchers”, while online-video attracts “users”. When I mention this to people they always take issue with me and state that fundamentally they are similar because people are, at the end of day, watching video. Sorry to state the obvious again, but this often gets overlooked – too much in my opinion: Just because television and online-video use moving images does not mean they are similar. It’s like comparing Google to a magazine, or a newspaper. The fact that they all use words and paragraphs does not make them similar. The difference is how they are used.

The Internet is a noisy feedback machine where billions of people can provide input. This is the medium’s inherent strength. People participate, while with television, people observe. This is not the same argument as the old “Lean forward, versus Lean back experiences”. The differences between the two are far greater than simple body positioning. One provides a way to feedback, while the other does not.

So what does this have to do with online video? Everything! People can share, embed, create, and sculpt their own video experiences with extreme ease. They become part of the experience, as opposed to being observers of it. Online video companies try to facilitate and encourage this kind use. The “show” is not the experience, the user’s activity is – not unlike the way we think of the difference between TV and video games. You don’t watch video games - you play them.

Because of this difference, video gets consumed in a number of ways and on many different sites, blogs, feeds, social-spaces, etc. It even has a myriad of formats – short, long, big, small – as well as many different “qualities” because “quality” is in the eye of the beholder. I have seen expensive, professional video get smoked by a home-made video of a guy dancing at a high-school talent show, but an advertiser is more interested in the expensive professional video than the one (er, many) that people actually watch, share, embed, comment, and blog about.

So why are we treating this inherent strength of the medium as a weakness? Even worse, why are we blindly accepting that the best way to build online-video markets is by applying an ad model from a completely different medium like television?

The answer is very simple, because that’s where the money is. Why is the money there? Because marketers put it there. They see video on new boxes and think, “Hey, it’s another place to put my video” and miss out on the real strength of the medium. Even worse, online-video companies feed this mentality by trying to showcase what the marketers think they want, “quality content”, and dismiss the entire feedback system that tells them what the users are actually doing. “Quality content” is not the thing holding back the market. It’s certainly not holding back usage. People are not saying, “Gee, I like the idea of video on the Internet, but I’m not going to spend time with it until there is more quality content.” The exact opposite is happening. Usage keeps growing. Users find, consume, comment, create, and share videos by the billions every day.

There is a value gap. The gap is between what people are actually doing and what advertisers think people should be watching. They are simply out of sync, and until we get those two things aligned the market will putter along, and great new opportunities could potentially be lost. People are moving to this new medium with or without the marketer’s involvement, that much is clear. The question is, will marketers see the fundamental value and exploit it and will the current online video companies step up to the plate to get them there?


Guilerme said...

I doubt flash overlays will narrow that gap...but maybe! I hate those pre-rolls, Husky's skins are pretty cool though

George said...

As everyone knows by now, video is very exciting. I think in the next few years people will discover that video is appropriate for certain areas of the consumer market, right now it seems like everyone wants to use video for everything. I think the small business arena will benefit the most from video which is pretty much the thesis behind Jippidy.com

Jippidy.com - Video Yellow Pages

Peter's Blog said...

I experience this problem while working at Zadby (www.zadby.com). We offer CPM deals to online video producers who already have established audiences on YouTube or Myspace. Even then, advertisers have difficulty understanding the need to advertise online in this way. They think if they make a flashy video, people will automatically watch it. As we all know that is not the case. If they want to continue to work on promoting their brands, then it has to be done in ways that work well with popular video producers.