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.
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