As any company in the video-hosting/streaming space will tell you, it’s hard to make money giving away video clips online. But it might be easy compared to web video’s next big thing: Live, streaming video services that promise to turn anyone with a web camera into an Internet broadcaster.
A flurry of live-broadcasting startups launched last year and are raising cash, and a few have gained traction. Ustream, for example, launched a year ago and just raised an $11.1 million series A round.
“Our goal is to be the largest public-access new media company that there is,” Ustream CEO Mike Hunstable told us. “We view ourselves as a new form of the public broadcast system or public access channel.”
Ustream’s strategy in a nutshell: Cultivate a top tier of semi-pro Webcasters and sell advertising against their shows; stream live events of interest to advertisers; and licence the system for corporate use.
Our doubts about the business: It’s at least as expensive to run as conventional video sites, with even fewer opportunities to make money. One obvious exit strategy is to find a deep-pocketed acquirer. But now that Yahoo has launched its own live service and YouTube has one in the works, that door seems slammed shut.
Said Hunstable: “I don’t think there are going to be any big acquisitions. There will be fire sales. I do think there will be consolidation of some sort.”
Live streaming services have one cost advantage over traditional video sharing sites: Few licensing issues, since almost all of the stuff is home-grown. But while they generally aren’t paying for content, they still have to split ad revenue with their top stars or most popular events, like live footage from the Daytona Speedway.
But live-streamers still have the same basic problem as any other Web site that streams video or audio. Every additional stream costs money.
How much? Ustream says it can pay as little as 2 cents per user per hour, by managing bandwidth costs and offering a lower-resolution stream than traditional video outlets. But experts we talked to are sceptical about those estimates. They think some streamers may have to pay as much as $2 per user per hour, and that the majority are in the 50 cents to $1 range.
At the low end, that would mean streamers would need to generate $500 for every 1,000 viewers served each hour. Conventional web video sites get rates in the $20 CPM range ($20 for each 1,000 streams). An hour of live streaming lasts a lot longer than a typical 2-3 minute web video, but you’d still need an awful lot of $20 CPM ads to clear those costs.
If live streamers are paying Ustream’s 2 cents per user per hour, they’ll end up with a more manageable $20 break-even cost for every 1,000 users. Assuming much of Ustream’s viewing occurs on its top 15-20 shows, and they share 50% of revenue with the producer, the gross-margin break-even is $40 (before sales, rent, overhead, etc.) So even low-cost live-streamers will need to serve up tons of ads to clear their costs.
Mainstream marketers — the ones who are going to pay $20+ CPMs — are already gun-shy about sticking ads next to user-generated content on sites like YouTube (GOOG). But at least YouTube and the like can theoretically vet the videos they sell. Live streamers, by definition, can’t.
Could a few daring advertisers take a risk on someone like iJustine, who passes for a star in the live streaming world? Maybe. But in order to do that you’d have to establish that Justine has a consistent fan base and can keep them without resorting to content that will embarass her sponsors. Could that happen? Yes. But better for Justine to simply tape her shows then upload them to MySpace and YouTube — as she’s already doing.
An alternate, more plausible business model: Sell services. The Republican National Convention in Minneapolis, for example, will pay Ustream to broadcast the proceedings this summer. Mogulus is staking its future on a “pro” version of its service, which would allow broadcasters (and in some cases media companies) to sell their own ad inventory.
Live streaming offers creators and viewers the chance to make and see some interesting, and potentially compelling, video. But we don’t see many of the companies who make that possible surviving for long on their own.
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