Content versus distribution: who is actually going to invest?
With investors more interested in platforms and broadcasters happy recycling existing content, Ben Shepherd asks what the future holds for the production of online video.
Currently, on online forum Quora, there is a relatively simple question that despite over 300 views has not generated one single answer.
What venture capitalists or angel investors are interested in investing in quality content companies focused on media/internet?
The reason this remains unanswered is probably because there is no current answer. Content is not an area that traditional internet/digital investor types
are interested in. Right now there’s easier, seemingly sexier opportunities in group buying, transactions or data.
In the US, at least, there are a handful of companies who have an interest in content. In Australia the situation is more dire with content makers struggling to find funding.
The reason content has had a hard time exciting investors is the notion it doesn’t scale. While technology platforms can be built once and sold numerous times, content has to be updated daily, weekly or hourly.
So what does that mean for a medium that has boomed due to an infinite supply of quality content? What happens if investment bypasses content creators and goes straight to platforms or distribution?
In October, US venture capitalist Mark Suster announced the next big thing on the internet was television. With Americans watching an average of 5.3 hours of TV a week, Suster sees significant opportunity for investors. It’s surprising this has taken so long to be said so publicly.
Yes, online video has been hailed as the internet’s saviour for the best part of the last decade, but rarely has this discussion extended to investing in the creation of original content.
The digital approach to video to date has been creating video hubs full of repeat programming.
On the flipside, US companies are now developing content with the singular purpose of online distribution. Sites such as College Humour, VBS.TV, Funny or Die and DumbDumb are four good examples, creating high quality series while working with advertisers to develop custom content for brands. What’s more, this content is slowly but surely finding its way on to TV, mainly due to one thing – the quality.
The commercials around this integrated model are sound and the market opportunity is obvious. Consumer demand for online video is increasing. Advertiser demand for high quality original content is significant. As a general rule, creative agencies are not currently resourced to cater to this need, and TV networks have been slow to move, preferring to aggregate content they’ve already created and focus on pre-rolls.
The hysteria around video in Australia to date has been less about creating good content and more about revenue. Yields for pre-roll and video content are significantly higher than banners. What we’re seeing is companies putting pre-rolls in front of anything that barely resembles video.
This is working for the parties involved, but it does little to build a real sustainable economy around video. It dilutes returns to content creators and places revenue in the hands of those who aggregate and don’t create. At some point the ‘a-ha’ moment that ‘you need to invest in more content to increase video inventory’ will happen.
And when it does, who in Australia will be positioned to capitalise on the opportunity?
Ben Shepherd is the commercial director of Sound Alliance, publisher of In The Mix, Faster Louder and Last.FM.
- This article first appeared in the relaunched print edition of Encore magazine. To subscribe, click here
Spot on Ben, as always.
Content is not cheap if you want long-form broadcast quality. The only way you get to make such content is with up-front backers – or simply make it on the cheap (thus defeating the purpose).
There is a fundamental disconnect between what the consumer wants (free quality content on-demand) and the capacity for online ad revenue to generate the necessary dollars to produce that content.
With the low CPMs (what are they now .. $3, $5?) a 22-minute episode that cost $100k would need 20m views to pay that back even if all the ad revenue flowed back to the content creator. And how long would it take to accumulate 20m views? All that time the backers would have had to have cash-flowed the content at their own additional expense. However if each viewer paid a half a cent then it would be funded (apart from the cash-flow.
Unless we move to a subscription of pay-as-you-go model, then the financials simply don’t stack up..
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I think that when Mark Suster talks about television being the next big thing online, he is generally talking about platform agnostic long form high quality product, delivered online and accessed on any number of connected devices, most importantly large flat screen Smart TVs. No one in their right mind would develop TV content purely for online distribution. Why would you limit your audience.
This is about TV production companies, broadcasters and aggregators pushing their content out via broadband. This is about making TV content available on any device that can connect. Most recognise that the future growth of the internet is as a platform to deliver TV. Somewhere between 15-20% of online bandwith used in the UK is the BBC Iplayer.
Thank God no one has answered the question in the affirmative, you would have to be an idiot.
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spot on Researcher – the proper question to ask isn’t ‘where are the backers for online content’?’; it’s ‘how can purely online content compete with multi-platform content’? the VCs already know that the answer is “it can’t”.
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Hmm, I’ve bought a sub to Encore mag – is there anything in it I havent’ read on here? 🙂
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Hi Madison,
Thanks for the opportunity for the plug… there certainly is! 68 pages worth.
But the other argument I’d make is that while the online format lends itself to individual topics – and the place to host a disussion – a magazine design still lends itself to a longer reading experience. I hope you feel your $109 is a worthwhile experience!
Cheers,
Tim – Mumbrella (and Encore)
Maybe this investment is better suited to traditional movie/hollywood types than “traditional internet/digital investor types”
I’m more hopeful – those who aggregate may very well be the ones that invest in production.
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