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TECH TALK: Video on the Internet: Business Models

July 18th, 2006 · No Comments

So, how do broadband video companies make money? This is what Mark Cuban has to say:

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 and shows ( Because of the limited number of channels, investment in a new tv and differention of presentation , research shows its far different for HD nets. Thats for another 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.

How does YouTube, the poster child for Internet video, intend to make money? In an interview to Fortune, the founders discussed their future business model:

Hurley: We’re going to sell sponsorships and direct advertisements. But we are building a community, and we don’t want to bombard people with advertising.

Chen: If we wanted to, we could instantly turn this into $10 million in revenue per month by running pre-rolls [short video ads] on the videos. But at the same time, we’re going to make sure that whatever revenue model we’ve built is going to be something that’s accepted by the users.

Hurley: We’re building relationships with studios, networks, and labels because they’re looking for ways to reach new audiences, and we have a great platform and a great stage to make that happen.

David Beisel believes that well see an emergence of a wide variety of pricing schemes emerge (paid and non-paid) that match consumers desires to the content.

I agree that the ad-supported video model is currently underrepresented and carries huge potential. However, in the medium- and long-term, I believe that well see an array of sustainable digital video pricing models emerge. In the same vein as analog television today, we have ad-supported pricing (broadcast), ad-supported plus subscription (basic cable), subscription (premium cable), pay-per-use (pay-per-view and DVD). The same models break out for other media as well, like print (which has free pubs, periodicals, exclusive newsletters, books, respectively) and music (radio, music magazines, CDs, etc.). Whats interesting to note is that the digital video, unlike modern media radio of and analog television, started with pay-per-use, as opposed to an ad-supported model.

As the field matures, well see a mix of pricing which will discriminate among customers tastes for immediacy, location, viewing screen size, and whole number of factors. Ad-supported will likely emerge as the predominant driver of revenue, but the mix among the pricing models will change over time as technology and tastes change evolve.

Tomorrow: PCCW


TECH TALK Video on the Internet+T

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