Is Online Video Really Disruptive?

I’ve been reading a lot of Mark Suster lately. Very smart dude, an early investor in Maker Studios, one of those rich dudes that shares his insights with the whole world and, thus, has managed to get himself pretty influential in a lot of different arenas while also getting wealthier. I like this model much more than the “INFORMATION IS POWER! IT MUST BE CONTROLLED AND CONTAINED” brand of venture capitalism.

One of those arenas he’s become influential in is online video, where he argues tirelessly (and probably correctly) that YouTube is ripe for disrupting television in the same way that blogs disrupted newspapers. 

Here’s a quick outline of how disruptive innovation functions:

  1. New ways of doing an old thing make doing the old thing cheaper
  2. The people making things in those new ways provide the product at a substantially lower cost
  3. The legacy industry scoffs and says “but the stuff they make sucks.”
  4. New markets and ecosystems are created around the people doing it the new way until their stuff stops sucking so much.
  5. Everything equalizes at a new, lower price, with the legacy industry all but destroyed because it cannot support its previous weight.

It’s called deflationary economics because, in the end, the same things are being created (and presumably purchased) at a much lower costs. This also often means that more people can afford the thing in question (or to create the thing in question) which creates entire new (and surprising) industries and opportunities. 

The idea that the internet is going to disrupt the shit out of television, I will not argue with that. That’s happening right now, with Hulu and Netflix and Vudu (and bittorrent) and yes, to some extent, YouTube. 

But online video, which I define as active, lean-forward, engagement-focused content, is not exactly disruptive in this way. 

Suster will cite the fact that online video content costs far FAR less to make than television, and since the cost is so much lower, it’s deflationary. But what no one in the traditional industry seems to get is that lean-forward online video does not directly compete with television.

Maker Studios is not competing for TV viewers, it’s satisfying a completely different need, need that was not being satisfied at all five years ago.

It’s like saying cars disrupted walking. Walking and driving are, at the root, the same thing…going from one place to another. But walking serves a whole different set of purposes… exercise, pleasure, dog poops…driving is for getting somewhere when you need to be there (online video) while walking is chillin’ out and relaxing with your dog (tv.)

I’m not saying that YouTube won’t take away from TV, but it does not create the same product at a lower price, it creates an entirely new product that scratches an entirely different itch.

I’m also not saying that TV is safe…it totally isn’t, lots of people in TV will lose their jobs…Netflix and Vudu and Roku and Hulu and (why do all of these words sound the same) yes even portions of YouTube will continue to erode viewership until traditional TV is fundamentally different with far less money to spread around. But HBO will keep delivering high budget content through different pipes. People will still watch football. Evenings with the boob tube will never go away. 

And online video, that new thing that even people who consume it religiously don’t quite grok, will grow. I’m sure it will cut into TV time as well…but not by fulfilling the same need more cheaply…by fulfilling an entirely different need.

And, from my perspective that’s really fantastic, because creating new markets is SO MUCH MORE FUN than disrupting old ones.

What if the “Real” Money isn’t Coming?

Online video doesn’t (at first) seem any less valuable than television, and so people wonder why online video makes so much less money. “Maybe advertisers are more comfortable with traditional programming,” they say, or “There’s just so much inventory online, it will eventually equalize.”  But I’m here to announce…TV-scale money isn’t coming to online vide, ever…let’s get used to it. 

It comes down to ad-density. Television has extremely high ad-density, up to half of a program (if you include product placements) on prime-time TV can be considered advertising.

Even if the CPMs of online video get to the same level as TV (upwards of $20 per thousand views) people watching online video will never watch two minutes of advertising for every two minutes of content. 

On the low end of prime time, say a $20 CPM with 16 ad slots, a half hour of programming watched on TV by 1,000,000 people will net $320,000. If Machinima.com builds an extremely valuable, beautiful show (like the BSG miniseries they did recently) they aren’t limited by the CPM (I’m sure they get a nice high rate) they’re limited by the number of impressions available. For an 18 minute episode they get ONE AD IMPRESSION! So for the same million views, it’s just $20,000 per video…6% of what it would make on TV, about a tenth of what it cost to make (the full series had a budget of $2M)

Now there are people trying to solve this problem. Creating systems like “TOTAL VOICE ADVERTISING” where the buyer gets pre-rolls, an episode integration, website skins, etc…basically, ownership of an entertainment brand for a couple weeks. Or (like with M.com’s BSG miniseries) they farm it out to SyFy to get the “real” money that TV can provide. 

And then there’s the craze to enact more “passive” online video, where consumers will accept more time-wasting. But, let’s face it, passive online video isn’t online video at all…it’s just TV on the internet. 

When I told a Machinima executive recently that I was worried the “real” money wasn’t coming, he said that the “real” money was at Machinima. That may be true, for now…but that “real” money isn’t coming from advertising. It’s coming from venture investments and TV deals that might not turn out to be sustainable. 

If that’s the case then maybe we should be prepared for yesterday’s shoestring becoming tomorrow’s norm. 

I don’t think that’s going to be a huge problem for online video…there will be ways to fund it (just like there always has been) and ads will remain a part of it, but we’re going to have to be thrifty…and clever. We’re going to have to make new models…or, I should say, continue making new models, to make keep it a strong, innovative, interesting industry.

Following Footsteps vs. Blazing the Trail

We all have our heroes, the people we want to be like, and whose lives we want to emulate. We are entitled to our obsession, our heroes (mine at least) were pretty badass. I want to be like them, I want to change the world like them, and when we get down to looking, we take inspiration from how they achieved what they achieved. 

This is fine, but I have witnessed (and experienced) an odd affect of this kind of interest. We tend to value the kinds of things our heroes did over the kinds of thing we are currently doing. I suppose this is normal, but it is not intelligent. 

The classic tale is someone giving up creative control, income, audience interaction, and time in order to move from online video to TV. The result is often a depressing mash-up of a failed TV show and an abandoned online audience.

And yet, we still do it, chasing after old models instead of inventing new ones. Why? Well:

  1. You don’t have to constantly invent new stuff, which can be stressful and tiring.
  2. It’s easy to explain to friends and family what you do and feel like your job is legitimate.
  3. It’s closer to the definition of “success” that we’ve all subconsciously built inside ourselves.
  4. It’s what all of the people who don’t do what you do are telling you to do (specifically agents and managers, who often don’t get a cut of your existing income…only of new income streams.)

Some people think it’s an unbridled honor to be approached by a television station. Like the TV people are in the position of power, and you should be flattered to even be in the same room with them. But that’s just not the case, both sides of the table have power, and often it ends up that an online creator has more than the legacy media distributor.

It might never really feel like that, but you’ve got to pretend your way to reality, I do it all the time..

But here’s the real deal…your idol (probably) didn’t become idolizable by playing the game as it existed. They redefined the game, took advantages of new technologies, innovated, and created their own, new models. If we truly want to emulate our heroes, we must not walk in their footsteps, but instead blaze new trails. We should emulate their values and their ethics…but not their paths.

It’s harder, sure. People won’t understand, and the midnight oil will burn, and your mouse-wheel will break and your keyboard turn to dust while you slave away coding, editing, writing, producing, or doing whatever it is you do.

But whether it was Sinatra, Sagan, or Armstrong (Billy Joe or Neil, you pick) it’s what they did, and maybe it’s our responsibility to do the same.