Following the Rich Media money

I think Im jealous. In fact I know Im jealous. I cant tell you how many meetings I sat in trying to explain the value
of multimedia on the internet, in particular video and how valuable it could be to advertisers.

I used to always make the point that people go to the net for video that they cant get on TV. TV is easy to watch.
Internet video isnt quite as easy. Sure, with a broadband connection, its not much work. But its more work than it is
to turn on the TV.

The reality of TV viewing is that people watch the same 15 to 20 channels over and over. They arent going to
sit in front of their computers and look for video to replicate the experience of sitting on the couch or laying in
bed.

What we did learn at Broadcast.com, is that people will search , even if it takes some work, to find things they
are passionate about that arent on TV. If you are into bridge, you will find websites with videos pertaining to
bridge. If you are into Tall Ships, Collecting Coins, whatever. The beauty of the net is that you can find any and
every kind of video. Its the definition of Long Tail.

And those viewers wont care if they are watching on their PC screen, a laptop screen or even an IPOD. Post it and
they will find it.

We also learned that people will go to portals toexplore. People like to entertain themselves searching for
suprises.Today, most people know that thenewand interesting stuff is from individuals
whofind or createthem and post them.

We bought simplenet.com way back when and started developing the ability
for users to upload video, simply because we knew tht it would get easier and easier to create and with some help
from us, easier to upload video. Unfortunately Broadcast.com never got to implement user created video, but it
has sure come out with a vengeance with Youtube,
stupidvideos.com, Abum.com
and others doing a great job of hostinguser generated video. Everyone seems to have their favorite video
portal that they search for the things they like.

What never worked back then, and what i dont think will work today or tomorrow is recreating a TV station on the
net. Its not that its technically difficult. Its not, its easy. The problem is that there are no hits on
the internet. A hit being defined as appointment viewing.

Sure, there will be user generated clips that get downloaded millions of times. Then a few months later, its
of no interest to anyone except some late comers. A hit is a series people come back for over and over. The
closest thing to a hit i can think of are the Jib Jab videos, and theyonly come out every few months at the
most.

Lost, Idol, House (one of my faves), Desperate Housewives,Bones, even my new favorite,
The Loop, have millions to tens of millions who come back every
week to watch a new episode, and for some shows, they happily come back to watch a repeat.

There in lies the difference between video on the net, andTV shows. On the net, the value is in the network
aggregator. On tv the value is in the show.The broadcasting network is not really a big deal.

Youtube.com has tons of value because thats where people go to find the new stuff. No one goes to NBC to find the
new stuff. They channel surf their channels or check out the EPG to see if there is anyhing of interest.

On standard definition networks, people go purely for the live events, movies andshows ( Because of the
limited number of channels, investment in a new tvand differention of presentation , research shows its far
different for HD nets. Thats foranother post).

Which is a very long way of saying, that 99pct of the sites that are creating broadband “TV on the
Internet”channels are making a huge mistake.

Today life is good. Sampling is good. More importantly, the money is good. In fact its great. Which is exactly why
Im jealous. Build it and the advertisers will come is exactly what is going on right now. Advertisers
have found multimedia on the net and they love it. They are spending every dollar they can find on any inventory they
can find. There actually doesnt seem to be enough inventory for them to buy. Today.

Money is pouring in because its new ,exciting and its not a 30 second ad on TV. But have you noticed the ads
on some of the broadband networks ?It took 15 seconds of waiting for videoon National Lampoons TOGA
TV broadband channel before the commercials came on. As they do every time you load TOGA TV.

Then i went to MTVU, which i realize is an oncampus net first, broadband 2nd. It took about 15 seconds before a
series of King Kong DVD, Nintendo and Taco bell commercials hit.

so i switched to Overdrive. 10 seconds to a traditional Pantene Shampoo commercial. Some content. Then a movie
commercial came on, immediately followed by a requirement that I download a security upgrade for my Windows Media
Player. Now thats going to make me happy..

Broadband TV on the Net. So far is just TV on the net. Which isnt good for those doing it.

Like every network in the regular TV world, audience size is going to matter. Thats what advertisers are paying
for. Pretty soon the money wont be so easy.

It wont be long before we see happen tobroadband TV channels what we saw happen to TV audiences.
Everyone is so excited about the easy advertising money tht the expansion in number of channels will dilute audience
for shows. Except, instead of happening over a period of years, as has happened on regular TV, it will happen in
months. Easy money has that gravitional pull to it.

That seemingly inexhaustible supply of ad money heading towards the net will all of the sudden become very
discerning as to where they spend their money. Which is very bad news for broadband networks for two reasons:

1. Advertising is their only revenue source

2. It costs a lot of money to stream video content on the net. Particularly at regular TV quality of about
300kbs.

Which means that every time someone watches MTV Overdrive or TOGA TV, it costsmoney. Thats good today
because they get to brag about how many people are watching and how fast they are growing, pulling that easy ad
moneytheir way..

But when ad dollars slow because of competition andaudience dilution and they will, they will fall
faster than the cost ofbandwidth and content costs.

Its going tocreate a very difficult balancing act:Limiting your audience size, andthe
resulting bandwidth costs to match your advertising dollars over the long term that everyone seems to think
thatinternet TV is going to be popular. That wont be easy.

Put another way, it would be the equivalent of a rated regular TV network having to pay for every viewer that
watches. The more popular the show, the more money you have to spend. If your audience peaks before you can sell the
show to advertisers, tough. Your bandwidth bill is due.

Got a great show with an audience that is doubling every day, but youcant sell as much advertising as you
used to. Tough. Your bandwidth bill is due.

Personally , I dont think thats a good business.

Maybe Im not so jealous anymore.

37 thoughts on “Following the Rich Media money

  1. While they may not get the revenue that Desperate Housewives generates, they do not necessarily need to. If you can make enough to subsist, then there’s no need to pull in millions of viewers every week. That’s the beauty of the internet! You can produce things that belong to more of a niche market, and if it’s good enough, you’ll gain enough support to live off.

    Comment by runescape money -

  2. I wonder if the concept of On Demand feels a little too disconnecting to people. When I had a TV and had TiVo, I mostly used it to watch things several times but caught the shows I really cared about live when millions of others were doing the same thing.

    Comment by wow powerleveling -

  3. No Hits on the internet! You kidding? So the 400,000 REGULAR viewers of Rocketboom (and yes I know that it imploded this week) aren’t counted? Some days they get a MILLION hits. You’re wrong, I think. I reckon we are looking at Do-it-yourself internet television stations. It’s early days yet and we’re still trying to monetise the thing – Rocketboom had just started doing that.

    Comment by malcolm Lambe -

  4. Thanks Mark, for a nicely articulated vision of the challenges facing the video streamers.

    Comment by Joe Hunkins -

  5. Very well articulated vision of the challenges facing the video streamers.

    Comment by Joe Hunkins -

  6. Mark:

    I must agree with Rosario (above). You are lucky that you are American and that most (if not all) American TV network’s programs are available to you wherever you go. You probably don’t watch anything outside of the four big networks, and maybe a couple of cable news programs. But, for Africans (for example) in the diaspora, who have ready access to broadband Internet but NO access to their favorite TV channels from home, a service like JumpTV is a Godsend. If you doubt that a service like this will be used, the next time you see Charlize Theron, ask her when was the last time she watched “IsiDingo” or “Egoli” or “Om-I-Wereld”, and watch as her eyes light up. She may be a big shot in Hollywood now, but she was born an Afrikaaner, and I know that she would still love to be able to watch shows from back home. MNET, the South African cable/satellite network, I hear, is floating a JumpTV-like channel (or has already done so) whose intended audience is expats from South Africa. The model is sound, the audience is there and growing, and we all could learn from such initiatives. The idea is the same for Internet radio: being cramped into the same old radio formats makes you dream of some variety, hearing news and entertainment from outside of your shores. As Internet radio makes that possible, so too does a service like JumpTV.

    But in a way, I also must agree with you. Trying to make the business case for broadband TV can be hard. And if you are going the no-commercial route, it can lose you a lot of money. But I still feel it should be done.

    Believe it or not, Mark, even you could learn a thing or two from Africa and from African TV programmers🙂

    Comment by J Alabi -

  7. Mark,

    While I find you to be the consummate entrepreneur and enjoy your piece above, I think you might have missed a few points here. While I agree that there are at times high bandwidth costs associated with Internet TV and that ad sales might not make it a profitable business structure for some, there is more to online broadcasting than that specified revenue model you outline (MTVU and TOGA TV). I am the General Manager for Sub Sahara Africa for JumpTV (www.jumptv.com) so I feel that perhaps you haven’t completely seen the entire universe of online broadcasting. JumpTV is the world’s leading company for live online delivery of TV networks from broadcasters around the world. These TV networks are available worldwide to viewers with a simple Internet browser and Media Player. We are continuously adding new TV networks to its selection of channels. Most of our channels are not available anywhere else in the world except for in their home country. So an Ethiopian student studying at Georgetown in D.C. can watch the news LIVE from Addis Ababa and stay in touch with what’s happening back home. I invite you, and others reading this comment, to check us out at http://www.jumptv.com. Maybe now the jealousy is creeping back? ::)

    Comment by Rosario Davi -

  8. Mark,

    While I find you to be the consummate entrepreneur and enjoy your piece above, I think you might have missed a few points here. While I agree that there are at times high bandwidth costs associated with Internet TV and that ad sales might not make it a profitable business structure for some, there is more to online broadcasting than that specified revenue model you outline (MTVU and TOGA TV). I am the General Manager for Sub Sahara Africa for JumpTV (www.jumptv.com) so I feel that perhaps you haven’t completely seen the entire universe of online broadcasting. JumpTV is the world’s leading company for live online delivery of TV networks from broadcasters around the world. These TV networks are available worldwide to viewers with a simple Internet browser and Media Player. We are continuously adding new TV networks to its selection of channels. Most of our channels are not available anywhere else in the world except for in their home country. So an Ethiopian student studying at Georgetown in D.C. can watch the news LIVE from Addis Ababa and stay in touch with what’s happening back home. I invite you, and others reading this comment, to check us out at http://www.jumptv.com. Maybe now the jealousy is creeping back? ::)

    Comment by Rosario Davi -

  9. The bust will be in shows that are unable to acquire audience share rapidly enough to support their business model.

    Comment by Blue -

  10. The model isn’t any different than that of the radio industry. The two things that put high-volume internet broadcasting below the profitability line are: 1) radio (like TV) has periodic ads, while internet video only tacks ads onto the front or back of a video, if any ads are not just on the website; and 2) broadcast/bandwidth costs increase linearly with increased viewership – in radio they’re freactinally exponential.

    Comment by Mike Bijon -

  11. That diatribe was one of the smartest pieces i have read in a very long time. Thanks. You probably dont remember me, we met at BLVD that night you hung out to meet up with Kwame Jackson ( http://kwamejackson.com – i am his webmaster besides just being his friend )

    I watch Hdnet a lot. thanks, its some of the best 1080 that i see, and to me its sort of a crime that HDnet is not internet yet, soon the MS vista and Intel VIIV and whatall/whomever media centers units will be connected to the HDTV owning early adopter, basically where the endpoint of the HDTV display is.

    I am right now making HD ads ( authoring in 1080p with Vegas 6 and an HDV cam ) and making that stuff available in sort of an infomerical presentation lasting 1 minute or so that delivers using On2 codec in flash 8 and WMV-HD at 1080. Its about 8 to 13 megs usually – a do-able size considering that is equivalent to downloading 2-3 decent mp3 songs.

    I think a-la-carte net-based stuff will work in the near future, if only for the reason that HDTV screen prevalence and internet connected media centers ( and XBOX and PS3 whenever ) will enable it.. and just as you said, area of interest stuff ( news with a twist if you will ) will attract audience demographics of pre-qualified disposable income viewership based on the existence of the HD stuff in the first place. And as an HD content creator, i am loving every minute i spend doing it.

    Comment by Jeff Johnson -

  12. It will take a awhile until bandwidth is high enough to bring this to success…

    Comment by Laender -

  13. Webisodes are taking off big time.
    You should check out purepwnage.com to catch a glimpse of future hits.

    Comment by Orkun -

  14. maybe in the future bittorrent will be integrated into these broadband streams, but this bandwidth cost is what is keeping these methods non profitable, or risky at best.

    Comment by Yxing -

  15. Mark:

    What your business savvy told you when you were running Broadcast.com is exactly what we are betting on with our new firm and product. We believe home buyers will search, sort, and narrow their home purchase decision by watching short videos of homes on the Net.

    Our service may resemble a TV broadcast in some ways, but for most users it will represent the best of the Internet. It will be interactive. We will not be advertising dependent. In fact, we don’t use traditional advertising in our financial projections at all to emphasize this to home builders and realtors.

    Video (with voice over audio) will be what consumers will demand. It gives more information and THEY are in control.

    Comment by Mark Willman -

  16. Re: “Got a great show with an audience that is doubling every day, but you cant sell as much advertising as you used to. Tough. Your bandwidth bill is due.”

    Mark has a great argument about the coming bust in broadband content. But he has the economics wrong in the paragraph above. The finite resource in the media landscape is audience eyeballs. Web shows that are successful in delivering ad avails will continue to command ad revenues. The bust will be in shows that are unable to acquire audience share rapidly enough to support their business model.

    James Brennan
    http://strmz.com

    Comment by James -

  17. Ok, This is how I watch dl.tv and podcast only shows like command-n or TWiT. dl.tv contains advertising and other shows have sponsors to help support them.

    Comment by Nclutch -

  18. Most of the larger sites such as the ones you mentioned including my own site aBum.com all make good advertising dollars. For myself bandwidth costs are only 15% of all income generated.

    Some of these smaller sites though… some have it tough. But sites like youtube that allow you to upload video and then embed the video onto your own site can make your costs pretty much nothing.

    Ryan
    aBum.com

    Comment by Ryan Milnes -

  19. So, what I think Mark Cuban is saying is that it’s going to hard to replicate TV on the internet for business reasons, not technology reasons.

    Comment by Webmetricsguru -

  20. Re: Comment 13
    The creator of bittorrent was picked up by some company to do internet tv, I’m sure we’ll hear something soon about it. The trick is going to be making DRM work, since the suits won’t trust openness.

    Comment by Derek Tumolo -

  21. I agree 100% just look at Yahoo and their lack of a content winner. I think the internet as a content pipe will be better for VOD content that is a compliment to regular TV but not in compitition. I think the opportunity for video online is unique content that is complimentary to broadcast TV. Like watching extra footage or spin offs of Lost online or mobile or on TV with an IPTV integration similar to what AT&T will do coupling IPTV with Dish.

    Comment by Ben Bajarin -

  22. youtube is great for those small, amateur viral videos, not full-length shows (in fact, didn’t they just implement a size limit on uploads). yes, they have a bandwidth bill to pay.

    podcasting is having the same problem – how do we anticipate viewing numbers to get advertising dollars and also pay the bandwidth bill?

    maybe in the future bittorrent will be integrated into these broadband streams, but this bandwidth cost is what is keeping these methods non profitable, or risky at best.

    then comes selling shows as individual products (downloads). no advertising revenue needed, bandwidth cost can be factored into the price per download. people won’t be downloading hd content, mind you, but good enough for sd and they can watch it where and when they want. think itunes.

    Comment by Jason -

  23. the future of TV via the internet is people having the the ability to set up their own TV channels like Live365. With a few simple things, including a terrabyte harddrive, you’ll be able to crack your DVDs and have your own little station to program. You’ll be able to watch your station at work. And you can let your family and friends tune in to see the fun.

    Comment by Joe Corey -

  24. Let the lemmings go. 300kps sucks. Aside from seeing something idiotic like the pregnant Japanese tv reporter who let a cat suck on her nipple. Who cares about Internet video.

    Comment by Dirty Muffin -

  25. What about bittorrent or a similar technology? Apart from the fact that it’s used mainly for gray areas now (see the files on mininova.org for an example) – why couldn’t a video company host just a torrent and maybe some of the seeders? If they see a spike in demand, they could charge more advertisers’ money and then increase the number of hosted seeders.

    Comment by Ruan Caiman -

  26. Why can’t an internet company have their advertisers pay based on hits? This would allow flexibility for the cost of bandwidth. I’m not into advertising and how it works, but a flexible pay scale might be a solution.

    Comment by steve -

  27. House is a good show. (I got your back Mark. and if the sixers…ah, I hate to say it- when the sixers lose i’ll be all about the Mavs.) good post. love the blog. I still liked the blog with some of your stock positions the best. I’d like to know if your still holding Lions gate

    Comment by Adam -

  28. What about video podcasts you can subscribe to and receive whenever they get updated? This almost like the Season Pass feature on a Tivo since it downloads the new file whenever it’s updated. This is how I watch dl.tv and podcast only shows like command-n or TWiT. dl.tv contains advertising and other shows have sponsors to help support them.

    Of course the networks have opted to sell their regular shows on places like the iTunes store, and Apple just implemented their own Season Pass feature that automatically downloads new episodes when they are available. If episodic video podcasts of dramas or comedies start being produced that are good and compelling enough for people to downloaded (for free), then I think this might be a viable delivery option, especially for independent productions.

    Comment by Arnold Gatilao -

  29. I wonder to what extent people like to know that others are watching the same program the same time that they are. You’re right millions “tune in” to see the shows and they know that many of their neighbors are doing the same thing.

    I wonder if the concept of On Demand feels a little too disconnecting to people. When I had a TV and had TiVo, I mostly used it to watch things several times but caught the shows I really cared about live when millions of others were doing the same thing.

    On the other hand, turning my TV on to watch a show still feels very private. I guess potentially, when I sign on the internet to watch something with others I feel like they can almost “see” me if you will.

    I use my computer for any digital entertainment today and it suits me fine but I know it was disconcerting throughout the transition.

    Comment by Tim Taylor -

  30. Great points — especially pointing out the heavy reliance on the “easy” ad money now flowing. The long-term, big dollar spenders are brand advertisers. They are beginning to recognize the value of “clean content sites” and I believe, will aggregate toward them. Right now, the agencies are driving this train and could care less about CPMs earned in the seedier corners of the net. But this will not last. When brand execs begin to extend the same standards to the web as they do now on TV, the sites full of videos with college kids lighting their friend’s back hair on fire will be in serious trouble.

    Combine this with the inevitable downturn in national advertising which comes every few years, and many of these web 2.0 co’s will crumble.

    So many of these web 2.0 co’s lack one major thing — revenue diversity. That is a fatal error in brick and mortar or one’s personal investment portfolio and I see no reaosn why the same rules won’t apply here. Just my 2¢

    Comment by WT Lewis -

  31. Regarding your definition of ‘hits’ on the internet, how do you feel about Homestarrunner.com’s Strongbad videos? They’re released more or less on a weekly basis, and while I have no idea on actual audience numbers, I do know that the creators subsist entirely on merchandise sales. There are no advertisements on their site at all! While they may not get the revenue that Desperate Housewives generates, they do not necessarily need to. If you can make enough to subsist, then there’s no need to pull in millions of viewers every week. That’s the beauty of the internet! You can produce things that belong to more of a niche market, and if it’s good enough, you’ll gain enough support to live off.

    Comment by Rob Haining -

  32. Well, OK this is a great subject to discuss.

    1. Advertising is their only revenue source?

    And, so I think company sponsorship in the way of open-source/non-profit could be one of changing the venue. Fortune 500 companies and average consumers can for the first time have access to media that could be free to all and voluntary to participate in funding. Sort of like the open-source foundation.

    2. It costs a lot of money to stream video content on the net. Particularly at regular TV quality of about 300kbs?

    So, OK outsourcing the servers to India or China! There are many overseas streaming hosts and broadband hosts at very cheap prices.

    And, so, the reality of it is that once on the Internet the world is the limit of from where to initiate hosting of your video and/or content.

    Also, with the new technologies in Web-Services and AJAX. Soon, the flickering and waiting for video and audio may all be solved! I think using Web-Services in conjunction with AJAX(Rich Internet Applications) and load balancing over a clustered number of servers could solve most steaming delay problems.

    Comment by Mitchell -

  33. Mark–
    It’s interesting to remember the first commercials on televison were 1:00 announcements–because that’s what radio commercials were–then as creative people recognized the tools of television, commercials became filmic.
    To your point–very few are creating internet-centric programming–they are just re-purposing
    television content. Content will always be king–the internet kingdom will continue to mature–the key is making its indigenous value a value to users/viewers and the advertsiers who want to reach them.

    Comment by Bob -

  34. I just started paying for CNN’s PipeLine. I can’t get cable at work, so I can watch live CNN streams on the computer. It’s great. I get 4 different streams that I can choose between. All of them are live. I can also look at archived news clips. It’s only like $29 a year and you don’t get bombarded by advertising. The service has a few hickups, especially on that mac, but I’m sure it will all get worked out in time.

    Comment by Taylor -

  35. I think Tivo is the company to look to for developing a business model that aggregates and delivers user-generated content to the comfort of your own tv. It’s free on the Internet but Tivo makes it easy.

    http://www.groundbuzz.com/2006/04/05/church-asks-what-should-youtube-do/

    Comment by Sean Murphy -

  36. Mark,
    For the most part I agree, but with a couple additional points:

    .1 A large audience TV show like Lost can only accept wide sponsers (GM, Coke, McDonald’s) due to cost. However a niche TV show like “This Week in Coin Collecting” can accept much smaller advertisers. End result is a lower barrier to advertise on TV/netTV, hence more advertisers in total.

    .2 What the net does is provide some real metrics on who is watching. Right now local TV stations sell middle of the night 30 minute blocks to infomercials, based on some unmeasured ammount of mythical TV viewers. Not sure that Neilson provides accurate data for KGTV at 3am Thursday morning. With the net, it’s pay for performance. You call it bad business, I call it adjusting for reality.

    .3 Q:Bandwidth costs A:P2P Torrents

    Comment by Bill Paul -

  37. One of your favorite shows is house? I’m sorry.

    Oh I was supposed to make a smart comment relating to the post and the media and how it’s all hypocracy.

    but seriously, you watch house?

    Comment by Trevor -

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