Thursday, July 3, 2008

Why the online video industry is like a dysfunctional super-hero with issues.

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. 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 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 into 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. It’s an evolved animal that we try to force fit a television ad model into. It’s like discovering Wolverine from X-Men and wondering why he can’t fly like Superman. They’re different. They both have their strengths, but one isn’t using them because he’s trying to figure out why he can’t fly.

On the consumer side, Wolverine knows who he is. He understands his strengths and is rewarded with a large active audience, but on the business side he’s trying to appear more like superman to advertisers, but all they see is a hairy beast in a red cape. They ask him if he can fly. He says no, but he’s working on it. This is where Wolverine makes a crucial mistake. He spends his time and energy trying to fit-in. He doesn’t realize that it’s futile. He will never be Superman. It’s not possible because he’s mother-F’in Wolverine – and the game he’s playing is the one Superman invented. Until he owns up to that and plays to his own strengths, Wolverine will never realize his full potential.

While Wolverine tries to work through his issues, Superman will grow some facial hair and get knuckle-blade implants as a hedge. He’ll insert himself into the void by trying to mimic Wolverine while leveraging his own strengths with advertisers. Superman’s plan may have some merit. It will work as long as Wolverine feeds from the same trough of advertisers as Superman. This is the key insight Wolverine must address. Otherwise he’ll be left with preening his ridiculous cape promising to do more than Superman for less money and gradually die from exhaustion.

Okay, enough Wolverine.

Let’s move on to how the online video industry is like a mullet. Business on the homepage - party in the back.

Just kidding – sort of. More to come…