Online Video

YouTube does a fantastic job of generating zillions of video views for its community. Yet it does a relatively poor job of helping their users earn money. This is likely to due to a couple of reasons. Advertisers have been reluctant to pay premium rates for ads against user-generated content that they haven’t vetted.

And YouTube can be stingy about sharing video revenue because there hasn’t been any serious competition that can deliver viewers at such scale… Until now. Just like scores of entrepreneurs have hollowed out or unbundled Craigslist by building specialized marketplaces, entrepreneurs and companies are setting their sites on hollowing out YouTube:

…Many entrepreneurs are working to build businesses that target some of the larger YouTube categories, specializing the user experience within that category and/or sharing a higher portion of proceeds with their users. Some early examples focus on short-form videos and video ads, online video lessons, or unbundle a specific topic with a devoted community around it (as with makeup tutorials).

…Leading platforms are entering the market. Facebook and Twitter have both launched serious video efforts that appear to be targeting YouTube. Both have the potential to generate distribution and ad sales that can rival YouTube/Google. And in Facebook’s case, it could potentially change the video advertising game altogether and impact ad spend overall. (Remember the Thank You Mom ad by P&G? Or the Ice Bucket Challenge from this summer?)

…Other larger players could enter as well. Yahoo is reportedly working on a big video effort. Beyond its obvious video options, Amazon got into a new video platform game through Twitch. Meanwhile, other distribution and messaging platforms (like WhatsApp, which just announced a web-based version) are all viable contenders in the video space… And cable companies may soon enter the fray too. Online video will be very crowded soon.

Some implications of all this are that:

— There will be new business models for video beyond traditional advertising. The reality is that without the scale of a YouTube or Facebook, platforms will have to find more creative ways to make money, whether it’s through subscriptions, micropayments, exclusive previews, community benefits, or other methods.

— Video advertising itself will change with new models for distribution. Which makes sense if you think about the fact that the most dominant online video platform is owned by a search giant. Something analogous to what is happening in the media world with native advertising should happen with video, given that many advertisers in video have been worried about the compatibility of their brand positioning against user-generated content.

— The age of platforms not taking care of makers may come to an end. YouTube “stars” generate tons of views for YouTube, but those views don’t translate into meaningful earnings for most of them. As the size of the entire pie grows bigger, there needs to be a piece for everyone. In most media businesses, rents typically acrue to the creators. And this is critical to the long-term success of any two-sided marketplace that connects providers and consumers.

None of this addresses what happens to the video landscape once new or newly popularized mediums (such as podcasts, animations, mashups) or entirely new platforms — VR, AR, and so on — become more popular and create new forms of content that live in different ways next to video.

What we do know is that online video is far from done… so it will be interesting to see what even a little competition will do here.

— Jeff Jordan




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