The Flawed Online Video Model: Same as Newspapers (Part 1)

A decade ago a few media outlets were looking to distribute their content online, make it open, free, and gain a new revenue stream with an ad supported business model. These bright companies were newspapers. Now, over ten years later, those same companies are faced with the worst advertising climate in decades, negative circulation numbers, some pesky thing called social networking, and let us not forget all these unqualified bloggers robbing them of valuable unique visitors. These companies are all looking at this disastrous mess – the kind of gunk that’s stuck to the bottom of the trash can even after it’s flipped over but you’re too lazy and disgusted by to clean – while scratching their heads in amazement as to how they got there in the first place and more importantly wondering how they’ll get out. Sigh.

Today, there is so much content from so many different sources that supply dwarfs demand and the advertising dollars, in the form of CPMs, supporting these outfits are in rapid decline.

If you think about it, the newspapers were unfortunate to have to take first stab at becoming successful on the internet. The only reason the music and movie industry lagged behind was because of the cost and technology needed. Only in the past few years have streaming capabilities and bandwidth speeds for video content to be delivered to the masses in the way that text was in the mid 90’s. Now, the studios and networks can begin to offer their entire library of shows and feature films at the cost of simply a few pennies and with a little advertising every once in a while they can even turn a profit. But that’s actually where the similarities between the thriving online video market and the dying online news market emerge.

The only difference between the two industries, is that the TV and movie studios haven’t seen the dramatic decline in viewership that the papers have with readership – yet. What happens when people start embracing the convenience of watching practically any show they desire at any time they like for absolutely free (save for their already existing ISP cost)? Furthermore, what happens as the distinction between computers and cable boxes continues to blur? Hulu desktop was just announced, platforms like the Xbox 360 and PS3 have streaming capabilities integrated, and practically all computers can now support HD video and even have the same HDMI port as one’s cable box. This overlap of what used to be just TV technology and computer technology will only continue and soon enough more and more people will abandon their set top boxes for the free and easily accessible VOD services like Hulu.

In one way it sounds great for Hulu but it’s actually not. Yes, traffic to Hulu will grow and therefore ad inventory will as well but TV viewership will decline. In today’s market, Online pre/mid/post roll is relatively cheap compared to a TV spot. So what happens to Hulu? Well Hulu will essentially be at the same point the newspaper companies are at today: delivering high quality but high cost content while seeing a decline in their main source of advertising revenue (TV ads) and only a trickle of a revenue stream from their online efforts. Then they’ll start blaming it on Google or come up with ways to put a paid wall after years of not having one. Sounds awful yet familiar because it’s exactly what has happened to newspapers.