Advertising Chicken
Fred Wilson posted a back-of-the-[digital]-envelope estimate of YouTube’s potential to monetize their traffic yesterday. I think his estimates of the percent of content that is “high quality” and thus monetizable is pretty high, but that’s not the point of this post.
I was struck by this line:
I realize that there are many people (including possibly YouTube management) who think introducing a 10 second pre-roll will negatively impact the viewing activity. It could certainly cause the audience to move elswhere in search of ad free video content. It could also reduce the amount of views.
As everyone wonders just how and when the various video sharing sites will start to be real businesses this line really brings into focus one of the major issues of any online endeavor — switching costs that approach zero very quickly. If it’s true that even a 10-second ad could send users searching elsewhere for their video content (and I suspect it would have a more dramatic impact than Fred does) then it seems all of these sites are playing a game of chicken — each seeing how far they are willing to go before pulling the trigger on advertising, in the hopes the other guy loses his nerve first. OK, so that’s a stretch as a metaphor, but it makes for an amusing title to this post. The point is that if it’s true that people (”that’s we — as in you and me) will seek out ad-free content over ad-full content (assuming relatively even quality and selection) then it’s going to be tough in this ramp-up phase of video sharing for anyone to go whole-hog into the advertising game. Of course, the even quality/even selection is a big assumption — there are definite advantages to going where everyone else is in terms of critical mass of content/viewers, but how long before meta-networks of video sharing make that a non-issue?
I think about broadcast media, where the percent of advertising content that can be tolerated is a well-known science (or, at least, I bet it felt well known prior to the YouTubes of the world changing the entire media landscape). In the peer publishing world those percentages are not yet known — we are still in very early days of figuring out how all of this content is going to make people a lot of money. Perhaps more interestingly, how it will make a whole lot of people just enough to make it worth their while rather than just a few big companies getting most of the revenue. In Fred’s post he digs into numbers on revenue sharing with someone like Lisa Nova and YouTube — in his scenario, she doesn’t exactly get rich, but she’s making a lot more than YouTube is from her own content. And that’s how it should be, but it really demonstrates how power is shifting in medialand. Can Lisa Nova graduate from YouTube and not even rely on them for the revenue share? If people end up with decent tools to aggregate the content they are interested in (uber-TiVo for the web), the power of the “channel” (formerly NBC/CBS/etc., now YouTube, etc.) diminishes even further. Although today measurement makes such a scenario difficult, how long before someone like Lisa Nova can just sell her own ads through the various ad networks (the AdSense model for video that many are working on) and has enough brand recognition such that YouTube can’t wait for her to upload more? In that scenario YouTube becomes just a proving ground for talent to rise to the top, and those that do can build their own little empires (and they only need economics attractive enough to be better than a day job), as Lisa Nova is on her way to doing. Which is not to say that YouTube won’t still have millions of videos being watched, which should still make it possible for them to be a “very big business”.