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.

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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?

The Husky, Heineken, Heavy Trifecta

As some of you may know, Husky was born out of Heavy's technology and video advertising "prowess". We leveraged all of that know-how into Husky. That said, there's a great post today about Heineken's video campaign on Heavy. Heavy delivered over 2 million streams of The Heavy List with Heineken integrated into the fabric of the show as well as our interstitials and video-skin units wrapped around the video experience. The results speak for themselves - 7% click-thru rate on the skins! Wow.

I think that speaks volumes about both the format AND the creative put into these ads. Nicely done guys!

Some very cool words from Fanpop CEO, Dave Lu

Fanpop has been running Husky for a couple of months now and we have been very pleased with their results, and ours with them. Dave Lu, the Co-Founder and CEO of Fanpop had some very nice things to say recently and I thought I'd share. We are very proud of our partnership with them.

"The Husky Platform implementation couldn't have been simpler. We dropped tags into our video templates and they were up and running in no time. It takes less than a day to start seeing new revenues."

"The Husky video interstitials and skins were a perfect complement to our existing display ad inventory because no one else offers as slick and streamlined of an experience. It doesn't disrupt your video playing like pre-rolls or other interstitials and most of the ads actually look really cool.  The premium rates are also right up there as one of our top revenue generating networks, so all in all Fanpop has been very happy with the Husky Platform."

– Dave Lu, CEO/Co-Founder of Fanpop.com

Thanks, Dave!

The vCPM (viewing CPM)

Video is an awesome format that happens over time, and the online video industry has been sorely missing this obvious benefit by building business models around video views as impressions on a one-to one basis: "see a video, see a pre/post-roll". That kind of model leaves a lot of value on the table and it doesn't scale - can you imagine a pre-roll, a mid-roll and a post-roll jammed into a 2-3 minute online video? Ouch. No matter how many pre-roll studies you throw at the problem ("people really do love commercials") the model will not make real money.

The same is true with overlay. Are you going to add significantly more overlays to each video to increase yield? Some might, but I'd be willing to bet that they risk losing their audience.

Okay, now that I got that off my chest - so what?

The industry needs a model that offers a scale-able vCPM (the "v" stands for "viewing"). A vCPM is the aggregated dollar amount of advertisements per 1000 video views. But the industry can't have one without formats that use time as a way to manage yield and effectiveness. The format needs to be effective for advertisers (gets RESULTS and is PRICED RIGHT) and effective for the audience (i.e makes it easy to watch more video - doesn't kill the experience).

The Husky video-skin is one of those formats. It doesn't interrupt the video experience, it gets massive engagement, it's priced right, and can be optimized based on time.

Example: 3 minute video wrapped in husky skins that refresh every minute will get anywhere from $15-45 vCPM. Compare that to running a pre-roll in front of every video, or an overlay. The vCPM is higher.


Now imagine being able to add formats to your vCPM with a mix that works for your audience. Maybe pre-roll is okay, as long as it's not every video - maybe it's okay to have a commercial placed as the 4th video in a sequence - which means you add 1/3rd of the pre-roll cpm (let's say $7 for a $21cpm) to your new vCPM. Maybe you want to add overlay to your mix - add that to the vCPM - you get the idea. The vCPM is additive and adjustable by format and driven by having choices. That's powerful for a publisher.


Television is an awesome model because it's able to sell 16 commercials against one half-hour show. They wouldn't dream of selling just one "impression" for that length of time and neither should you - of course, don't get me started on the commercial format on television - we all know we're skipping them when we can anyway, but that's an argument from 2005.

Our goal is to make video more valuable which is why we're committed to the vCPM idea as a model for Husky moving forward. At the right price, it's valuable for advertisers - and with the additive vCPM model it's more valuable to publishers and content owners. We'll be developing all of our video advertising product with this in mind and will encourage and evangelize others to do the same. It will move our industry forward.

Husky is a performance monster!

We've been seeing some amazing click-through rates for Husky Video-Skins and thought we should share what we're seeing.

Since launching about a month ago, we've served 25 million husky ads with average click-through rates of 3%. To put that into perspective, the average click through rate for a standard IAB image ad is .1% (according to DoubleClick's research) - and that's not a typo - there is a point in front of the 1!

Okay, you say, "but what about in-stream video ads? I hear they perform well."According to Doubleclick's same research they do perform well compared to the industry standard .1%, but they clock in at .74% - again, no typo - there is a point in front of the 7.

So what does this mean? It means the video-skins outperform all of these other units by a hefty, scratch that, by a HUSKY margin!

The Husky Video-Skin is a pretty interesting unit. It outperforms other ad units without being an interruption. It doesn't interrupt the video. It doesn't obscure the video (like a lower-third/overlay).

Consumers are happy. Advertisers are happy.

I love it when that happens!

BitTorrent gets Huskified!

This is awesome. BitTorrent has gone live with Husky. Check it out!!

CBS SPORTS and Husky sitting in a tree...

K-i-s-s-i-n-g! That's right, Husky is now live on CBS Sports. You may recall we did a deal about a month ago - well now it's live! Props to the CBS and Husky teams who worked diligently to get this thing up. CBS is using the Husky Platform, as opposed to the Husky Network. What's the difference? The difference is CBS sells, tracks and serves all of the Husky ads on CBS Sports. This gives their team the ability to control their own inventory and gives their sales people a totally new unique (not to mention kick arse) video ad product to sell to their advertisers.

It really looks great on the site. Check it out by watching The Burly Sports Show (an original Heavy production, btw).

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…

husky and broadbandsports.com live!

BroadbandSports is an awesome sports video site with a ton of extreme sports lunacy. We're stoked to see them up and live with Husky! Go and check them out!

Vidshadow.tv now live with Husky!

Vidshadow, a new and great looking video site, is now running live with Husky! They're also live with a new feature that is being baked into Husky as we speak. Vidshadow wanted the ability to auto-launch their videos from any of their video pages. This eliminates the need for the user to have to click again to launch a video. For example, say you're on the vidshadow homepage and you see a video you'd like to watch. You click on the video and Husky will take you to that specific video page AND launch the video wrapped in Husky. Pretty cool. It will be a feature for everyone soon. We'll keep you posted.

Thanks to Vidshadow for making this suggestion and helping to implement. Their coders dove in and made some magic - and now it'll be a new feature.