As the cost of delivering video continues to get cheaper every year and video syndication to devices and platforms continues to grow, it seems more and more people are under the impression that access to premium video content should be free.
Frankly, I don’t see where this idea of “free” comes from. Video content costs money to produce, to distribute and to consume. Yet even with those costs, many seem hell-bent on the idea that business models can somehow survive based on the consumption of free video content supported solely by an ad model. But in reality, that simply can’t happen.
If people are not willing to pay a content owner for their content, then it’s not worth anything. That’s the bottom line. Non premium content and some niche focused video might be able to survive on an ad only model, but even that would be rare. YouTube is a great example of this. While there’s been a lot of talk over the past 24 hours surrounding the details being released from their lawsuit with Viacom, we’ve always known that since the beginning, YouTube built a large portion of their business from displaying premium content from third parties, without permission. But years later, even with all the insane amount of eyeballs YouTube has, the business is not profitable based solely on an ad model. Not to mention, YouTube is only monetizing about 20% of all their video views. It’s no wonder that they along with Hulu are trying to move to a model where consumers pay for access to premium content.
Another topic that seems to be confusing some folks is the price of bandwidth and the rapid pricing declines we’re seeing each year. While it’s true that the cost of distributing video over the web is getting cheaper by the day, it will never be free. I’m now hearing some people in the industry saying that one day soon, delivering video will be so cheap that content owners won’t even think about the costs. What world are these people living in? It cannot be debated or even argued that there are no fixed distribution costs when it comes to online video. Cable and satellite distribution methods have fixed delivery costs, video over the Internet never will. Any video business model that relies on generating revenue only from ads is fooling themselves if they think they can sell enough ads to keep up with their skyrocketing distribution costs every time their traffic grows. That’s simply not the way distributing video outside a closed network works.
Why so many in the industry are so quick to bash subscription based video models makes no sense to me. When HBO came out with their HBOGO service, too many folks were quick to point out that it was behind a walled garden and that as a non-HBO subscriber, they would not be able to get it. That’s exactly the point. Why should HBO simply give away their content for free, knowing that ad revenue alone won’t make it a profitable business? HBO is smart not to offer a service that they know will lose money yet some chide them for it. Why do so many people seem to think they have the right to get all of their video content for free simply because the Internet is an open platform?
Of course many times, the argument that comes up is that people won’t pay for something once it’s been given away for free. That may be true, but if we look at some of the most successful content models on the web today, like MLB.com, they are from companies that never gave away their content to begin with. And why should they? Their content is worth money, the experience they provide is compelling and as we have seen for years, consumers think the content is worth paying for. While it’s good that the Internet has opened up video distribution to anyone, it’s also created the false assumption that all content is worth something and that all content owners will one day make money simply by running some ads with the content. For most content owners, even the big ones, that day simply won’t come.
More from Dan Rayburn’s Business of Online Video blog:
- Free Product Giveaway: Six Slingbox PRO-HD Units Up For Grabsl
- Adobe Preparing To Launch Multicasting Support For Flash
- Save The Date: Online Video Networking Event In NYC, May 10th
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