Video, the Gordian knot of audience domination

Dec 21, 2012
Video Dominates Web Traffic, But Monetization Remains a Challenge for Media Companies
Ninety percent of web traffic will come from video as early as 2014. The aggressive statement comes from a Cisco executive talking about the dance of traffic patterns that has been occurring on the Internet for a decade. If it is certain that the percentage of web traffic should come increasingly from video, the certainty does not only come from a paradigm in all digital companies - that betting on video is the next big thing. Streaming video increases in the number of clicks, of course, but also in its definition, something that greatly expands the bandwidth space it consumes. No matter how much buzz there is around video on the web, its monetization is still a knot to be untied.
In a report made by the Columbia Journalism Review in 2011 (a mandatory text for anyone thinking about working with digital), the conclusions have two common aspects. First, the overwhelming majority of digital competitors think they need to make more videos; second, with very rare exceptions (like, which has a larger sister that produces videos 24 hours a day), companies cannot make margins greater than 20% of the cost they have producing the same and have no idea how to reverse the situation. "The demand we have for advertising space is much greater than the audience," says the general manager of the New York Magazine, Michael Silberman, whose opinion is almost unanimous. Everyone knows (or at least thinks) that video is a potentially nuclear resource on the web. The problem is that no one knows how to trigger it.
There are two basic problems with this type of media, which is the cost of production. All expertise in video production is still inherited from TV. To make a video with a quality similar to that of TV requires, at least, high precision filming equipment, an editing island (which at least needs to be a computer with a robust configuration) and a studio, even if simple, with lighting and the like. In addition, the prices that the market offers as CPM (a standard metric relative to a thousand views) is much lower than the capacity of any video to convince the user to click. This difference represents a loss in the operations of media companies that do not have, like CNN, an industrial video production and already funded. Aside from the CNN model, only very strong brands (like the Financial Times or the Wall Street Journal), which have a recognized superior content and of interest to a niche that accepts to pay more, can hope to turn video into a stable source of resources.
Like any problem of supply and demand, the need here is to make the curves meet for the process to become viable. On the supply side, the obvious is the abandonment of the "TV standard". Reporters and Talking Heads are not an Internet language. As much as the format continues to be used, it is due to the lack of a better model, but visibly it does not work as well as it should. Creating scarcity is another path, but it is only really functional in the hands of those who have a bottle to sell, a.k.a. Wall Street Journal, Financial Times and the like. There will be no shortage as long as Youtube exists.
The way out is somewhere where production becomes cheaper (i.e. crowdsourcing et al). YouTube works as a model because Google took the cost curve and the risks off their side of the equation. Setting up a scheme to produce video and profit from it will only be viable when allowing advertisers a return compatible with the cost that the video generates. Another model that gives hope is that of LIN Media, where the markets in which the company has companies share the costs of a production center.
The trend is for media companies to act more as a platform and less as production poles when it comes to video on the web. On TV, large billings due to massive audiences in large periods of programming support the "TV model" (which in the future tends to shrink as well). Working as a platform and sharing revenues and risks with content producers not only makes the market more democratic. The amount of supply would bring the cost price down, attracting more advertisers.
Discovering how the video model can scale to an adequate amount is one of the gordian knots of the Internet (like the monetization of mobile). The sales departments of companies drool crazily thinking about what converting all these forecasts into results could mean, but they are still far from arriving. The problem has a technical reason (which is the development of platforms that make video compatible with less annoying advertising spaces than videos before the execution of the content), a financial reason (decrease in the production cost of each piece) and a reason linked to the process (companies will have to accept the role of intermediaries, with exceptions to those that have large TV operations). Until then, we will hear a lot about how we need to bet on video, but without knowing how to sell them.

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