Live Streaming: Very Sexy, But Still A Terrible Business

This is a report from our premium subscription research service The Internet Analyst.  To subscribe or sign up, please visit www.tbiresearch.com.

*Update: We clarified in this report that the events we focus on are international, professional events streamed at high-end bit rates with many concurrent users.  We’d like to thank Dan Rayburn for his feedback and help.

There have been a lot of reports recently about live streaming events reaching TV-sized audiences.  These types of premium, high-end live events has caused folks to go bananas about the live-streaming business opportunity.  But an analysis of the economics underlying a live stream broadcast suggests it will be a while before these events become a money-maker.

Various industry executives confirm that the costs required to stream premium professional events at scale still significantly outpace their revenue potential. 

Streaming costs are lower for non-professional content because the audiences are smaller, which has enabled some companies like justin.tv to get closer to profitability.  But advertisers are much less interested in sponsoring user-generated content, which makes the revenue opportunity much smaller than it is for professional events.

PROFESSIONAL LIVE-STREAM BROADCASTS ARE VERY EXPENSIVE

An international, premium live broadcast requires a large amount of personnel, equipment, and bandwidth, which all lead to an expensive operation.  For example, international live events with 100,000-plus concurrent users streamed in high-quality 1 MBPS format for 30-minutes could cost upwards of several hundred thousand dollars using a premium content-delivery-network (CDN) that includes call costs, customer service, and some production/web design.  Events with less users and lower quality streaming/production would cost less.

Rates for live streams are negotiated on a case-by-case basis.  For a premium 30-minute broadcast like the one above, industry sources say, CDNs for these type of special events typically charge $3 to $5 per concurrent user.  In addition, broadcasters negotiate these rates prior to the broadcast, so they have to pay for the full audience even if no one actually watches.  We believe the largest live streaming sites like CBS or MLB are able to negotiate lower rates given their clout and bargaining power.

The fees are negotiated upfront because the CDN must reserve that space in order to ensure the necessary bandwidth is available.  As a result, there is an opportunity cost to holding this space, which is passed onto the broadcaster.

Note that these economics are very different than television economics in that cost is incurred per viewer.  With TV, the cost to add an incremental viewer is zero (or close).

MASSIVE CPMS ARE NEEDED TO COVER THE COSTS

For the above-mentioned broadcast to 100,000 viewers, the broadcaster would need to charge effective CPMs in the $3,000 to $5,000 range just to break even.

We believe recent broadcasts sponsored by Coke and Anheuser-Busch were likely sold as flat-fee sponsorships that incorporated several types of ad inventory throughout the broadcast.  Still, even the most expensive sponsorships rarely reach that high of an effective CPM price.

ONE POSITIVE NOTE: PEOPLE WATCH LIVE STREAMS FOR LONGER

Live broadcasts do typically offer better engagement metrics than stored video, which support higher ad rates.

For example, according to research by TubeMogul, the average length a viewer watches a live stream on a video site is about 4 minutes (this number decreases some when the broadcast is syndicated to other sites as well).  This is longer than almost 90% of archived streams

We estimate the average archived stream is watched for closer to two minutes.  In addition, there is more action-based interaction occurring during these streams since viewers typically chat with each other on the video page while they are watching the broadcast and cannot pause and replay the broadcast.

CDN costs continue to decline – some estimate 20% per year – so live-streaming costs may eventually decrease enough to turn live streaming into a business.  However, for now it is still a big money loser.

Thanks to RampRate, TubeMogul, and special thanks to Dan Rayburn among others for their help in this report.

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