Jim Louderback

June 24, 2009

Web Video – An Industry out of Balance

Filed under: Commentary — Jim @ 11:56 am

image (note, this entry is cross-posted over at my friend Jack Myers’ MediaBizBloggers site, where I’m now a regular columnist.  Enjoy!)

In the seminal 1982 movie Koyaanisqatsi, the life is portrayed as out of balance. These days, when I look at our online video industry, I can’t help thinking that we’re just as unbalanced as that movie – particularly when it comes to driving audience and traffic.

Much of the imbalance, I think, comes from trying to retrofit the web display model onto what is fundamentally a different medium, one that values a view much differently than a web visit.

To illustrate, let me lay out an example of what a problem I was trying to solve yesterday, and the obdurate obstacles I ran into.

We’re launching a new show in the next few weeks. And we’ve got a sponsor attached with the show launch, one that we’ve promised a certain number of video views. Now I know we’re going to hit it out of the park – but I want to prepare for the worst. So I did a little research into how I might be able to drive a little bit of paid traffic to our new show.

Here’s where it all falls down. Our show sponsor is paying us a very nice CPM – $80 – which is far above traditional pre-rolls and overlays. We’ll probably run those units as well, which could add a few dollars to the effective CPM– in a perfect world. Chances are, we’ll probably end up with an effective yield per view of somewhere around a dime – which translates into a $100 CPM.

From what I gather a $100 effective CPM per view is pretty amazing in today’s online video world. But what’s more amazing is how much I’d have to pay to deliver a non-organic viewer to the show.

Let’s say I wanted to use YouTube’s videosense product to drive a view. Well, their minimum bid is ten cents per click – or ten cents per view on an auto-play – which means I’d just break even every time someone watches – if I’m the only bidder.

So I looked out to others who promise to deliver qualified viewers. I had an interesting exchange with one company CEO – who will remain nameless — who promised to give me qualified viewers for .20 to .30 cents per view. The amazing thing, to me, was that his pricing was low, compared to some of the other options I researched.

Talk about out of balance. I’d be spending a quarter to get less than a dime. New media, new rules, fer sure. But until we unlock the secrets of transmutation, it’ll never be profitable to spend digital quarters to earn digital dimes.

But that just leads to yet another “out of balance” problem when it comes to buying video views. Because these are CPC deals, you pay when the click-through happens, not when a video is completely consumed. As we’ve seen, even with our committed viewers, there can be significant drop off in the first few seconds – that’s why we don’t count a view until the program has been completely delivered. And when it comes to clicking on an ad, that drop off can be upwards of 60-70%.

Not to worry, says the video industry, and legitimized by the IAB. If someone watches for 3 seconds, we consider that a “video view” – even if those viewers never actually see the advertising message embedded into the video.

When I tried to explain this to my CEO friend, this was his response.

“I see your point….but the pricing is what it is.  If you were to buy a CPM ad unit from YouTube or anyone else the effective cost per view would be (very) high.  We are buying CPM in bulk and arbitraging back to you on a cost per view basis.  Right now we are mostly selling to ad agencies that are pretty accustomed to buying media.  As we get smarter on buying views I’ll knowledge share with you.”

Wow, so you’ve been able to find ad agencies that are willing to buy video on a $200 to $300 CPM pricing for what is effectively three seconds of watching a video. I guess the greater fool theory still works when it comes to buying video views. But from where I sit, this is no way to build a business.

In the end, I just couldn’t see clear to paying quarters and making dimes. I’m comfortable with the numbers we’re promising, and if we run into any issues, I guess we’ll just do a make good. But at least my customer can be confident he’s getting what he paid for.

Oh, and if any of you agencies out there that are “pretty accustomed to buying media” want a better deal, drop me a line. I’ll sell you a far better placement and far better results for less than a dime that’ll outperform those quarters – any day of the week.

23 Comments »

  1. What about CPC for less than a dime that sends them to a page with autoplay? Make it clear that they’re going to see a video. Might be worth a test at least.

    Paul

    Comment by Paul Colligan — June 24, 2009 @ 12:28 pm

  2. Yeah, but it would have to be more like a penny or less… because a page with autoplay isn’t always a great experience either.

    How about this, I pay 2 pennies if they watch more than five minutes. That’s still a $20 CPM

    Comment by Jim Louderback — June 24, 2009 @ 12:33 pm

  3. i agree with you on the page with autoplay – and it is a bit sneaky. you and i both feel the same way about those who force that and claim numbers accordingly.

    but a well done piece might be worth a test.

    Netbook Questions?
    Veronica and Patrick explain
    what you need to know – instant video!

    just a passing thought.

    paul

    p.s., a glass reference in a web 2.0 blog – excellent.

    Comment by Paul Colligan — June 24, 2009 @ 12:41 pm

  4. Jim,

    What you’re talking about is arbitrage. Arbitrage only works in inefficient markets. What you’re actually seeing is the maturing of the online video market — it should be impossible to get a “non-organic viewer” to your show for less than an advertiser is willing to pay for them.

    Yours,

    Mike Hudack
    Co-founder & CEO, blip.tv

    Comment by Mike Hudack — June 24, 2009 @ 1:47 pm

  5. You are not considering the viewer that comes back if they liked the show. Something brought me to Diggnation and The Totally Rad Show. It could have been an ad that cost you $0.30, but for the past two years I’ve seen over 300 episodes.

    I think you must account for the returning customer when looking at advertising costs, especially with a network like Revision3 that is able to cross promote from established shows. You are not simply bringing customers to one time event, but to a network of shows each with their own opportunity to earn revenue because of that individual.

    Comment by Jared Schnelle — June 24, 2009 @ 2:58 pm

  6. You are right Jared. Discovery that leads to conversion is important and worth a lot. But even with the tests I’ve done on YouTube, I only end up converting around 5% of those to regular viewers. I think it is still too much – especially when I was spending .15 to .20 per view.

    And Mike, yes, you are right as well, in abstract. But I would argue that it is still VERY inefficient today, because it is inverse arbitrage – ie you have to pay more to get the viewer than an advertiser is willing to pay for that view. That’s a sucker’s bet, every time.

    Comment by Jim Louderback — June 24, 2009 @ 3:54 pm

  7. Jared – that’s exactly the point I was going to make. Yes, you have to spend a quarter to make a dime, but if you hook that viewer for the life of the show, how much is that worth?

    It’s the same reason that a company like Netflix will pay $9.00 for a new customer that signs up for a free trial. They spend $9.00 and make nothing, but their model shows that a free trial turns into a longterm customer and that money is way more than earned back.

    Food for thought.

    Comment by Scott Parent — June 24, 2009 @ 3:56 pm

  8. Would it be more profitable to invest in gateways that would bring users back to the site? I would imagine spending money to have Apple advertise your shows within iTunes would be more valuable since the iTunes user could easily subscribe to automatic future downloads. This is coming from a web developer that has never subscribed to an RSS feed. Can you think of any other gateways that lead to an easy type of subscription such as iTunes? (We should make a Rev3 client)

    I’m also curious what it costs to deliver the show to the customer.

    Comment by Jared Schnelle — June 24, 2009 @ 5:14 pm

  9. I would be careful about comparing Revision3 to Netflix or Audible. They do their “loss lead” free subscription because they have just that, a subscription model. I am willing to bet a significant portion of their income is from users who don’t use their service, but remain subscribed for a variety of reasons. My Audible.com account with 4 months of credit is proof.

    Comment by Jared Schnelle — June 24, 2009 @ 5:27 pm

  10. The technical, techie, and quantitative answers as above are all well and good. I think that recognizing the innate difference between how people consume online content (including video) in general and television content remains important in this discussion.

    Passive people in a cushy chair, waiting and wanting entertainment from a television in a living room are STILL more likely to watch an ad in its entirety

    – especially when compared to –

    an active person in search mode sitting in an uncomfortable office chair, leaning forward with a mouse in their hand , with the ability to hit the back button or go to another window.

    I do wonder how long a TV viewer with remote control in hand watches an ad before they change channels. Does the same 3 second rule apply in the TV world? Can they even track this? I think not.

    Scale and overall consumption are possibly even bigger issues. The average online video consumed per month is still in the minutes whereas the average television consumer per month is in the hours.

    I think trying to make online video fit into an advertising model, based on what we are all used to with television, is still the wrong conversation at this point.

    Revenue is critical in the online video model, but to expect significant income from an advertising model is not right,imo. It is just not going to happen for 99.99%+ of the sites out there, in spite of Louderback’s confidence in his content. At least not yet.

    But it needs to!
    Jeff

    Comment by Jeff Bach — June 30, 2009 @ 10:05 am

  11. First:
    $100 CPM!! I just about pooed my pants. I would be a millionaire so many times over if I was getting that kinda scratch on my videos. I know…we’re talking a different kind of content than I produce, but still, I’m generally in sub-$1 range. Which is cool when you’re serving up a few million impressions per month…but it sure could be cooler…

    Second:
    If you could get a non-organic impression for less than you make from your video, you would just be printing money. You could do it infinitely and make infinite amounts of money. That doesn’t seem like it would ever ever ever happen. Am I crazy? That, to me, seems like the unbalanced market.

    Without an organic audience, there is no content in any media that has ever made money, you can’t expect that. I think this is what Mike (from Blip) was trying to say, apparently there’s a whole word for it.

    Comment by Hank — July 2, 2009 @ 12:33 am

  12. Jim,

    Let’s face it, the online advertising industry is really screwed up right now. I believe the CPM metric is fundamentally flawed because visitors to a webpage shouldn’t be measured in the same way as viewers who are engaged in watching niched video content from a well produced Internet TV show.

    If an advertiser is only concerned about CPM, I don’t do business with them because they don’t get it. I can deliver an audience of 100% small business owners who are hyper responsive to virtually all offers I place in front of them because they have a strong relationship with me as the presenter.

    I CAN and DO charge far more than $100 CPM because the advertisers who get it are very happy with their ROI for the reasons I’ve just explained.

    This is a bit like the FICO score to me. It’s an antiquated model that doesn’t represent an accurate financial picture of most people. It makes no sense, and I see a similar situation with online advertising metrics. It ignores numerous important factors about the audience.

    Personally, if I was selling gadget type products for geeeks I’d advertise on a show like Tekzilla any day over other media because of the responsiveness of the audience. The number of viewers alone means very little because 10,000 hyper responsive viewers are far more valuable to an advertiser than 100,000 casual viewers who couldn’t care less.

    Andrew

    Comment by Andrew Lock — July 16, 2009 @ 5:10 pm

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