This was a paper I wrote July 22nd, 2007 for a class at the University of Southern California. The assignment was to describe a system in the entertainment industry and explain how you think it could be improved. My internship at GoGooRoo.com, an internet video guide, inspired this piece.
The digital age of internet video and web streaming has undoubtedly revolutionized the entertainment industry as a new medium to reach mass audiences. You don’t need a distribution house to show your movie to the world anymore. But with such an easy and free process of uploading video on the web, how can a video site possibly make a profit? Like TV shows and motion pictures, the longevity and revenue of a particular video channel is largely dependent upon viewer popularity. Once a site hosts video content that attracts viewers and keeps them coming back, marketing companies will then compete and pay to advertise, which is the primary source for a video website’s income. (Rigler)
The most difficult aspect of the system involves keeping viewers at a particular video website despite the thousands of competitors available on the web, including the video juggernaut YouTube. To monitor what sites are most popular, the Nielsen/Net Ratings can calculate how many users go to a given webpage and how long they stay there. Recently, the latter has been the more important statistic in terms of drawing advertisers. (Jesdanun) So not only does a video site have to be innovative enough to find viewers, it also needs to be engaging and compelling enough to appeal to viewers for long periods of time. Video websites accomplish this through a variety of ways. Some offer a social network to accompany video content. Others list recommended and most viewed videos or organize content based on a user’s interests.
Whatever keeps consumers entertained though, advertising companies are willing to dish out huge amounts of money to display their ads on such video hotspots. Unlike commercials on TV and film, which are produced for a wide audience, advertising companies on the web find greater profit in presenting their ads towards a specific group. (Rigler) For example, ReelTV, a video site about movies, contains ads for NetFlix and FilmStew.com. In this way, advertisers present their product to people who are more likely to notice them. So for a site like GoGooRoo, which links viewers to a huge variety of video channels, the hope is that a broad range of companies will want to pay for ads on each specific category—movie trailers and advertisements on the film related channels and computer and software ads on the technology channels etc. (Rigler)
Advertisers pay video websites in different ways for hosting their ads. They may pay a certain amount for every user that clicks on their ad or for every user who buys their product of their webpage. (Moncur) But the industry standard has been to pay a video website a fixed amount for every thousand ad impressions (1) they display.
Advertising becomes problematic however, when viewer generated content is involved. Cynthia Littleton of Variety notes, “advertisers demand far more certainty on the type of content before they’ll spend big bucks on it.” Companies don’t want to risk their brand name appearing next to a video that infringes on copyright laws or is offensive in nature. (Teeling) Thus, while viewer generated content may draw the most viewers, it is more difficult to attract big name advertisers.
Nevertheless, I think viewer generated content is an area which can greatly improve the business of monetizing online video. The way the system works now, the majority of video hosting sites do not reward the producers and filmmakers who made them popular in the first place. Sites like Revver and Brightcove do share a certain percentage of their advertisement profit with the people who post viral videos and attract millions of viewers. (Pick) Metacafe awards 5$ to a video producer for every 1,000 views past 20,000. This is a smart and effective system and should be implemented by companies struggling to compete with YouTube and MySpace. First, it would improve a video website’s ‘time spent per person’ rating because users would spend hours researching what is popular and what would make them the most money. The video website would benefit from swelled traffic and advertisers would benefit from the increased chances of reaching their audience. Secondly, the system would help eliminate copyright and offensive content because advertisers would not invest in legally questionable videos, no matter how many views it received. Finally, splitting revenues with video producers makes people more understanding and tolerant of advertising. Since people know the ads are there to benefit them too, they won’t be as frustrated by pre-roll ads (2)or annoying popups and banners.
Another efficient way to monetize video content involves linking advertisers and users through contests and competitions. In this strategy, an advertising company would make a deal with a video website inviting viewers to create creative commercials or videos for their product. The video that receives the most views would win a hefty reward. This would directly link users and advertisers so that they’re working together; as the user promotes his video to win the competition, they’re also promoting the advertising company.
In sum, because the system of monetizing video is fueled by a buyer’s market, I believe video websites need to give more incentive for viewers to return to their sites. And if that incentive is money, then a cycle is created which benefits everybody–First, viewers are drawn to a video site in hopes of making a profit. Mass amounts of viewers will then attract advertisers. And the money from the advertisers will be split between the website host and the users who produced the content for it. With this win-win cycle, the medium of online video would distinguish itself further from TV and film as the premiere form of entertainment.
(1) An impression is an instance where the ad appears on the page.
1.) Littleton, Cynthia. “Sony Flips for Clips.” Daily Variety: July 16th, 2007.
2.) Jesdanun, Anick. “Nielsen scraps Web page view rankings.” Yahoo! News: July 9th, 2007. http://news.yahoo.com/s/ap/20070709/ap_on_hi_te/online_measurements
3.) Moncur, Michael. “Web Advertising Basics: Overview of Ad Revenue Models.” Website Workshop: November 16th, 2004. http://www.wsworkshop.com/money/ad-revenue-models.html
4.) Pick, Michael. “Internet Video: How to Monetize your Independent Video Content.” Robin Good: November 13th, 2006. http://www.masternewmedia.org/news/2006/11/13/internet_video_how_to.htm
5.) Teeling, Erin. “YouTube: Show me the Money!” The BivingsReport: September 19th, 2006. http://www.bivingsreport.com/2006/youtube-show-me-the-money
6.) Conversation with Thomas Rigler, co-founder of the GoGooRoo Internet Television Guide, about the system of monetizing video content. July 13th, 2007.