Editor’s note: Contributor Ashkan Karbasfrooshan is the founder and CEO of WatchMojo, he hosts a show on business and has published books on success. Follow him @ashkan.
“I thought the analysis of content vs other video companies very convincing. But I’m curious: the content game hasn’t worked out so well for AOL and Yahoo. Audiences are fickle. Are you predicting a rosier future?” – reader comment in Is Tech a Zero-Sum Game?.
Infrastructure, Platforms & Content
Today, the Web’s infrastructure is built, and we’re filling the pipes with content — mainly free, ad-supported content.
It might seem like the real opportunities are in user-generated content and aggregation, but anyone who’s worked in those fields recognize their limitations: Simply put, marketers want to advertise alongside professional content. Tim Armstrong left Google (the mother of all aggregators) and joined AOL to remake it into the Time of the 21st century. He didn’t double down on Bebo.
Content is marketing; Marketing as content
Content – video in particular – may be promotional or commercial, in either case it’s a means to an end.
Traditional Media Companies (TMCs) need to make their content commercial; new media producers are leveraging their content as promotional, sometimes giving it away to build value.
However, when it comes to making money directly from commercial content, the genie is out of the bottle, according to Seth Godin: “Who said you have a right to cash money from writing? Poets don’t get paid (often), but there’s no poetry shortage. The future is going to be filled with amateurs, and the truly talented and persistent will make a great living. But the days of journeyman writers who make a good living by the word — over.”
TL;DR
Content isn’t only increasingly free, it’s also short. Godin clarifies: “Shorter, though, doesn’t mean less responsibility, less insight or less power. It means less fluff and less hiding.”
With 60 hours of content uploaded every 60 seconds on YouTube, producers face three challenges:
– 25% of views come in the first 4 days;
– Viewers only watch the first 30-60 seconds;
– The average video generates 500 views throughout its lifetime.
It’s no longer enough to be a good storyteller; you have to cut through the clutter and make the numbers work.
The Economics of Content
“Network television costs $50,000 – 100,000 per minute to produce. Reality shows can be cheaper, with the lowest-end costing $6,000 – 8,000 per minute”, according to GRP venture capitalist (and occasional TechCrunch contributor) Mark Suster. New media producers leverage deflationary economics to produce shows for $500 – $1,000 per minute, on average.
My company does it for $100/minute. Once you cut costs down, the real challenge is revenue.
Fred Wilson’s piece on The Future of Media suggested that the right approach is to:
1 – Microchunk it – Reduce the content to its simplest form.
2 – Free it – Put it out there without walls around it or strings on it.
3 – Syndicate it – Let anyone take it and run with it.
4 – Monetize it – Put the monetization and tracking systems into the microchunk.
For example, 5Min borrowed a page from Google’s AdSense playbook, making it easy for publishers to syndicate the company’s video content, on its way to a $65 million exit to AOL.
“But content doesn’t scale!”
That’s the common critique of content companies from the tech industries. The truth is, bad content scales, good content doesn’t scale – the scale comes from distribution and monetization. Demand Media’s “content farm” model scaled but it has since moved upstream to win over Madison Avenue, realizing that unless your clients are on Wall Street or Sand Hill Road, quality trumps quantity.
Profit is a Short-Term Move; Value is a Long-Term Focus
Content was an art. Today it’s a science as well. It will always be about Influence and Authority.
Bloomberg will lose $20 million on BusinessWeek, Washington Post sold Newsweek for $1 (plus the assumption of debt). That doesn’t imply that there’s no money in content, it’s a reminder that disruptive innovation can come from new content creators who can be more disruptive to TMCs than any technology ever will. TechCrunch, for example, generated less revenue than BusinessWeek and Newsweek combined but sold for more.
Revenues come and go, after all. However, managers typically don’t care that much about long-term value creation because their compensation is tied to short-term profits.
Goodwill is the Driver of ROI
The best storytellers realize content is about Authority, Influence and building a brand. VCs who made their fortune on software and semiconductors can’t wrap their minds around content (“it’s a hits business”). But despite the 1% annualized return that VCs have generated, they will continue to invest in the latest mouse trap and shun content, despite what the experts say.
The Worst-Kept Secret in the Publishing Business
The Web doesn’t just shrink markets, it also kills sacred cows, in particular Warren Buffett’s argument that “the most important news in the newspaper are the ads”. Indeed, Google outsold U.S. newspapers $37.9 billion to $34 billion in 2011. I know, those are global Google revenues — give it a couple of years.
So yes, content may be king, but it’s the throne that retains the value, even if the throne was seized under dubious circumstances, according to an anonymous publisher: “Many of the big wins in digital content have gotten big by stealing other people’s content, and, once they get big enough, they build an original content layer (…) You can make money with quality content on digital. The challenge is it requires expertise in more than just content development.”
Of course, once you build your audience, you realize you don’t need to create content; licensing it is a more profitable short-term bet, but it creates less long-term value. Similarly, ad networks have successfully intermediated between advertisers and publishers, but commoditized themselves in the process.
Why Content Has Stumbled
The TMCs actually get it: online remains small, and the faster they embrace it, they faster they die. The issue is how management has a short-term outlook to maximize profits, instead of being focused on long-term value creation.
The irony is that over time, technology plays come and go: One winner emerges from within a given category and largely kills off its competitors. The real threat to content creators may in fact be emerging content companies with no traditional business to defend. After all, journalism is stronger than ever while newspapers are dying.
But TMCs that have their own content catalogs, producers and brands may not see much value in emerging companies, which remain small until they become category killers, just adding to the tragic fate reserved for most.
While we live in a world of “good enough”, ultimately the company that can i) create the best content at ii) the lowest cost possible will create most value over time.
Disclaimers:
– AOL is the owner of TechCrunch
– I am not an employee of AOL
– AOL acquired 5Min
– My company WatchMojo has a distribution deal with AOL/5Min and YouTube.