What’s the Next Act for Webisodes?

PoltergeistAs the online video market has evolved so has the content being made available on the web. Faster internet connection speeds and increased broadband penetration has opened up the ability for us to watch high-quality, full length movies over the internet. Combined with better, cheaper video recording and editing equipment, the type of content being created has also evolved from repurposing of Funniest Home Videos to the creation of original scripted video programming online- more popularly known as webisodes.

In 2007 there were three catalysts that brought attention to web series as a viable business opportunity (1) the popularity of Lonelygirl15 on YouTube (2) the launch of Vuguru by former Disney CEO Michael Eisner and (3) the airing of Quarterlife by NBC on network television. These events showed that industry newbies could gain notoriety and success from creating original video programming online (Lonelygirl15), Hollywood believed in the potential of the medium (Vuguru) and web series could make the lucrative transition to television (Quarterlife).

The result was a number of high-profile production companies receiving funding in 2007/08 to capitalize on the opportunity. The likes of Funny or Die, Katalyst Media and 60Frames were launched in conjunction with Hollywood elites Will Ferrell, Ashton Kutcher and United Talent Agency (respectively) while others such as Agility Studios, DECA and EQAL (creators of Lonelygirl15) were founded by Hollywood outsiders.

Fast forward to the present where some have already started questioning the long-term viability of webisodes, as the likes of ManiaTV (an early entrant in the space) and the aforementioned 60Frames have already shut down this year while other production companies have been sold or changed focus. While the economy is the easy excuse for what is troubling the webisode market, it has only served to expose the deficiencies in the business model faster.

The basic problem has been one of customer acquisition and retention. Actual show content and quality aside, without a sizeable enough audience to target, advertisers won’t spend the time or money sponsoring a web series. Thus, online video producers have two options for acquiring the necessary reach for advertisers:

Direct– spend money to promote a web series’ website to a potential audience. This can quickly get expensive, especially when you factor in that almost 2/3rds of a show’s audience does not return for subsequent episodes. That means additional dollars need to be spent on marketing to acquire a new audience and/or remind current viewers to return for future episodes. Without advertiser dollars to fund this acquisition or a portfolio of shows through which to cross-promote a new web series, additional funding is needed to build a sustainable audience.

Indirect- rely on YouTube and other video aggregators to drive their audiences to the web series content being uploaded onto their websites as well as provide the associated monetization. While this instantly provides a solution for both needs, audience traffic is greatly affected by site design changes and content owners only receive a portion (YouTube’s standard payout is 55%) of the associated ad revenues. Looking at data from the top 100 mid-tail video publishers on YouTube (many of which produce webisodes), on average they earn less than $50,000 per month from the site (assuming YouTube’s standard 55% revenue share and daily video views of 140,000, plus a generous 100% sell-through and $20 CPM on the ad inventory)- not a big enough business for most investors.

While there are plenty of webisodes that use a hybrid approach in combining these options, longer term this approach is inefficient. This is because the indirect channel undermines the goal, and dollars spent marketing, of the direct channel by turning a scarcely available product (with theoretically high economic value) into one that is widely available, thus reducing the economic value of each distribution point where the content is being consumed. Simple supply and demand is why ABC, Fox and NBC only make their videos available on their respective websites and Hulu.

So where does the webisode market go from here? The good news is that the opportunity will only continue to grow as video consumption habits evolve. The potential bad news is that traditional television studios might soak up most of this opportunity as the likes of CBS and NBC have started building out their own original online video presences.

For original web series producers that means they have two options: beat ‘em or join ‘em.

How to beat ‘em. Create a television network- for the online world. One of the main advantages that television studios have over a producer of a single show is the ability to aggregate TV show audiences on their network and spread the cost of customer acquisition and episode marketing Break_Originalsacross the entire content portfolio. Break Media is an example of an online property that has been able to successfully build such a network online. The company produces over a half-dozen webisodes that leverage Break Media’s network of male-focused web properties to deliver an audience to their original online video content. Because the company has built its network around a very targeted audience it has been able to differentiate itself, and thus thrive, in a YouTube-dominated market while providing some of the same video content (user-generated, 3rd-party webisodes and movies) experiences.

Another option is to compete on the networks’ terms by delivering webisodes to TV. Services like Boxee and even Hulu are providing web-based interfaces that are meant to be experienced through traditional television sets.  Blip.tv (the preferred video platform for web series producers, providing hosting, advertising, and distribution solutions) is taking this one step further by actually integrating its video platform into set-top boxes to allow Verizon FiOS users to view web video content through their television sets.

Blip.tvA truly audacious opportunity for Blip.tv, with its producer relationships, is to take the television delivery concept one step further and actually become a traditional cable television network. This would provide Blip.tv’s customers with direct access to the largest potential video audience out there and open up a new revenue stream in the process. This could be a lucrative opportunity while we wait for broader video consumption habits to evolve from today’s television network-centric experience to that of video on-demand over cable and internet.

How to join ‘em. EQAL has taken this approach by leveraging their online experience and success in developing original web series to help traditional television programs extend their TV show presences online. This makes sense, especially as it relates to primetime shows that do not produce year-round programming. Keeping fans engaged during the offseason, like NBC is doing with The Office, is more easily, and less expensively, done via webisodes. In the process of refocusing its business in this manner, EQAL retains its ability to work with multiple television networks while still retaining its ability to create its own webisodes.

Alternately, some networks like SpikeTV have decided to acquire webisodic content instead of creating it themselves and redistributing the videos on their cable channel. Having a show acquired is an all or nothing proposition for webisode producers, as the content needs to match with a network’s programming requirements. With only so many slots to fill in a daily TV schedule there will be many more losers than winners here.

Webisode producers- time to choose your story.

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Ad-Supported Facebook Applications Are In For A Rude Awakening

Rude Awakening

Dear Facebook developer, if you’ve banked your livelihood on banner ad-supported applications get ready for a rude awakening. The deceptive advertising practices that have increasingly permeated Facebook applications, and driven effective CPMs on banner ad units to double-digit levels in some cases, are starting to get noticed outside of Facebook (Nick O’Neill of All Facebook has done a great job of covering this topic), which is leading to involved parties being shut down in the process. The longer-term ramifications of this put into question the business viability of many developers on Facebook’s platform.

How Did We Get Here. As recently as the 2nd half of last year Lookery, a Facebook ad network at the time, was guaranteeing developers a mere $0.15 CPM for their application inventory. The combination of inexpensive banner ad inventory and access to Facebook users’ friends (via the social graph) was all savvy direct marketers and ad networks needed to test converting Facebook users into unknowing subscribers of mobile services (among other things) costing upwards of $20 per week. These very well integrated ad experiences that imply your friends’ usage of certain applications and services (as in these examples) QuizCrushare converting well enough on a an impression basis to generate upwards of $10.00 effective CPM for many large Facebook developers. Several ad networks have beem more than happy to deliver these ads since they are in turn getting paid roughly $15 to $25 CPMs by the underlying advertisers. It’s rather amazing actually that in the midst of an overall global recession that has seen the broader U.S. market indices fall around 30%, the effective CPMs Facebook application developers have received has grown upwards of 6500% over the same timeframe!

What’s Going to Happen Next. Before getting to the ‘what’ we need to understand ‘why’, which is actually quite simple- Facebook wants to go public. For this to happen, Facebook needs to show potential Wall Street investors that it has a growing, sustainable business model (so the stock price will go up) and that it runs aclean operation (so as not to make the stock price go down).

From a business perspective, among other well publicized initiatives, Facebook needs to get traditional brand advertisers to spend some of their $550 billion in global ad dollars on its platform in an effort to fuel revenue growth and justify what is sure to be a high earnings multiple it will trade at. As long as there is a perceived risk of tarnishing a brand’s image by placing ads on the same website where deceptive offerings are being run, agencies won’t allocate brand ad dollars to Facebook. In terms of its operations, investors need to feel comfortable that Facebook can effectively monitor its platform and ecosystem to avoid any potential public relation embarrassments or legal issues (privacy concerns aside) that could adversely affect the company’s profitability and trading mutiple.

In terms of the ‘what’, Facebook will become increasingly active in policing ads, networks and advertisers in their ecosystem in an effort to eradicate any potential issues that could affect the ‘why’. A prime example of this was the recent banning of ad networks Social Hour and Social Reach from advertising on Facebook applications. Facebook might even consider launching its own ad network for developers, to ensure the quality of advertisers remains high, at the expense of other ad networks.

The result of these types of actions will be a significant decrease (over 50% in many cases) in revenues seen by developers as the remaining ad networks on Facebook will have to deal with an increase in application inventory in conjunction with a decrease in advertiser demand (as deceptive advertisers are removed from the site). While I am definitely not suggesting effective CPMs will crater back to Lookery guarantee levels, like the stock market, there will be a reversion to the mean for ad prices. Regardless of where CPM rates eventually settle, there will be a flight to quality from an advertiser, as well as user, perspective. Bad experiences with certain applications will drive ad dollars and users away from applications that continue these practices, creating a death-spiral scenario in some cases (the situation where fewer users lead developers to place more ads on their applications to make-up for the lost revenue, which in turn leads to a further decrease in users due to a worse user experience, and so on).

What to Do. If you’re a developer, here are your options:

  1. Stay the Course. Continue to accept these deceptive ads in an effort to make as much money as possible until these ad practices and/or networks are shut down by Facebook. If the user and/or platform backlash doesn’t kill your application business, then try one of the remaining options or follow these ads and networks to the next social platform for exploitation.
  2. Go Virtual. If it makes sense, incorporate virtual goods into your applications. Game developers like Zynga have built successful businesses around the selling of virtual items to their user base, which alleviates the need for, or at least reliance on, banner ads for revenues.
  3. Try Fremium. This option is more geared towards utility-based applications, but up-selling features and functions for your applications (especially if you can tether it to a service or experience outside of Facebook) makes a lot of sense since it establishes a recurring revenue stream.
  4. Get Professional. Build a great application experience that makes users want to use your applications over the long-term. Work with established, reputable ad networks that have broader web reach than just Facebook applications (like Rubicon Project), inventory rep firms (like Appssavvy) or gain access to individual engagement opportunities (through the like s of my company Clearspring) to build credibility with advertisers and increase the perceived value of your applications’ ad inventory. Once you have the user base and operational scale, consider building out your own sales team (like Watercooler) to get a larger percentage of campaign CPMs.

Let’s hope Facebook application developers take the high road on this one.

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Why Twitter Needs an Official #HashtagPolicy

Hasgtag logoOne of the main utilities I get out of Twitter is being able to follow conferences that I can’t attend, but am interested in, via TweetDeck. Last week I got my fill by following 140|The Twitter Conference, D: All Things Digital conference and Google I/O Developer Conference at the same time. While the real-time commentary from attendees and participants was exactly what I was looking for, the process I witnessed for getting to each information stream left something to be desired. In each instance, official feature support for hashtags, in some capacity, by Twitter could have led to a better, more seamless, user experience and, in the process, enhanced Twitter’s business opportunity around real-time search through metadata.

Hashtags, like @replies (originally) and retweets, are a community-driven feature on Twitter. It is used to track and organize keywords in tweets around abstract concepts, breaking news and planned events. Since hashtags can be created on an ad hoc basis there is no central repository for registering or finding out about what particular hashtags represent (Mashable does a good job of highlighting options for identifying and tracking hashtags in a recent article). This has led to process laziness by organizers in setting up hashtags for their events in advance or, in many cases, leaving it up to attendees to decide on how best to track events. The result is confusion leading up to, and inconsistencies during, a conference. The most glaring example of this last week was during the All Things Digital conference, which coincidentally enough had Twitter’s co-founders Evan Williams and Biz Stone as its opening guests.

Follow D: All Things Digital conferenceThis tweet was from the morning of the event. As you can see one of the conference hosts offered up 3 different hashtag options for interested followers, one of which had a completely different spelling. If you happened to be following #allthingsd you would have missed out on all the #d7 and #d7conference hashtag streams. By not proposing one “official” hashtag, a lot of trending topic momentum was lost by the conference and, as a result, potential followers of the event.

What is #140tc tweetOn the other end of the spectrum, The Twitter Conference did a great job of highlighting the hashtag for its event right on their website (in addition to incorporating a Twitter feed of #140tc-related tweets by which to follow the conference). While this did help #140tc become a top trending topic on Twitter, there was still an information gap for Twitter users who didn’t know about the event but had seen the hashtag trending (one of many examples shown above), as there wasn’t an easy way to determine what the hashtag stood for.

Clicking on the #140tc hashtag only generates a Twitter search page with other tweets using the same hashtag. It doesn’t provide any background or meaning to the keyword to help someone decide whether or not to follow the topic- unless it is described in a tweet. Another lost opportunity, through no fault of the conference organizers, for users to find something of interest on Twitter.

Finally, in the case of Google’s Developer Conference, Google did call out their own Twitter account for people to follow at the event (@googleio), but the actual attendee discussion stream appeared under the #io2009 hashtag (among others). Because there were a lot of topics covered at Google I/O, Twazzup was used to aggregate information on related hashtags for the event, which was very helpful- if you knew to look for it, as there was no link or mention of the Twazzup page on the conference website.

Now imagine a world where Twitter supported hashtagging as a native feature. Gone would be confusion over what hashtag to use or follow or what specific hashtags meant for planned events, as Twitter could allow event organizers to own or rent a hashtag (product idea number 301) and provide the associated metadata for their event as part of the registration process (TwitterDaddy.com here we come!). By going through a sign-up process, and paying to secure a hashtag, conferences will be more likely to promote their hashtag as part of their event marketing, which inevitably would help Twitter grow its audience and usage of its platform. Twitter might also consider leaving the hash sign for abstract concepts and breaking news and provide planned events with a new symbol (maybe the ampersand or asterisk) that would still be captured in trending topics- much like StockTwits uses the $ sign for discussions around the stock market.

For abstract concepts (my car broke down) and breaking news (the nomination of Judge Sonia Sotomayor for the Supreme Court) Twitter could auto-suggest hashtags to users (based on similarly spelled trending hashtags for instance) to help group tweets on specific topics more effectively. This would not only help the trending velocity of topics, but provide a metadata layer to tweets. If Twitter could influence users to increase the use of hashtags in their tweets, maybe by taking hashtags out of the character limit, and enable better grouping of topic-related tweets, the search and discovery value from a user experience and monetization perspective would increase exponentially. Maybe then we might get over our intense fascination over Twitter’s business model.

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April Showers for YouTube- What Will May Bring?

YouTube_ShowerMay did not come soon enough for YouTube. Starting the first week of April when Credit Suisse issued a research report estimating that the site would lose $470 million in 2009 and ending on the last day of the month with Hulu, its main competitor, announcing a much anticipated deal with Disney, YouTube spent April taking a beating in the media over its business model and outlook.

Looking past the media feeding frenzy though, there were several data points from March released by comScore during the month that keeps me believing in YouTube’s opportunity and enviable position.

  • Video. YouTube created the online video market and now delivers over 40% of the online video streams every month in the U.S., making it more than 10 times the size of the 2nd largest online video property Fox Interactive Media (which includes MySpace).

Now you can’t tell me that Twitter, MySpace or even Facebook wouldn’t love to have YouTube’s audience and market position. For Google though, the challenge remains- how to turn this opportunity into more meaningful revenues and a profit.

The company has started addressing the challenge through a series of recent initiatives. The most noteworthy (running Google TV Ads online and Video Ad Sense on unauthorized versions of copyrighted content) attempt to address the gap between the estimated 9% of videos that are currently being monetized by YouTube and the 80% of content that is professionally produced on the site (thanks to Dean Donaldson of Eyeblaster for this data point on slide 36). The other announcements (paid video downloads and ecommerce opportunities related to music, DVDs and games) are geared towards increasing the average revenue generated per user session.

From a deal perspective Google is attempting to improve the overall quality of YouTube’s content catalog, and associated CPM rates, by striking deals for TV shows and movies from Sony, MGM and Lionsgate, and getting clips from Disney’s ABC and ESPN properties. Combined, all of these initiatives can turn YouTube into a break even operation, but they do not unlock the real business potential which is promotion.

YouTube should embrace the promotional nature of its platform (just look at the list of most popular online videos of all time– mostly music videos and movie trailers) and consumption habits of its users (they watch over sixty 3 1/2 minute videos per month) to help content producers and advertisers reach this video “snacking” audience more effectively. Some companies already see the potential and are running their own campaigns for free across YouTube or leveraging companies like 750 Industries and Feed Company to help generate virality for their promotional videos.

Google has tried to address this opportunity by applying the automated AdWords auction model to videos through YouTube Sponsored Videos, which in theory makes sense but has its challenges from a delivery and brand experience perspective. Search works really well for text where there is context for the information you are looking for in determining the best results. This doesn’t hold true for video search which relies on inconsistent metadata tags to determine what the content is and doesn’t take into account whether the content is original, copyrighted or mashed-up. This can lead to inconsistent search results and magnify less relevant content which just won’t work for most advertisers. YouTube’s solution needs to be more dynamic to address advertisers’ concerns around presentation and adjacency.

With the soft-launch of YouTube RealTime, Google has another shot at getting the solution right. Adding social features to the YouTube experience will inevitably drive better user engagement and additional content consumption across users. Combined with Google’s recently announced behavioral targeting capabilities, YouTube could actually push targeted, relevant videos from advertisers as part of its video recommendation features and in the process enable video consumption to grow more virally across its users than is currently available.

For YouTube the key is being able, and open, to using the pieces it has at its disposal in unique combinations to turn this opportunity into revenue reality. This will require Google to think outside of its search black box, which can be difficult as seen with YouTube’s inability to capitalize on the Susan Boyle viral video phenomenon, and provide a more hands-on approach to delivering its solutions. If they can’t bring a media-type solution to media’s video promotion needs, then plan on continued rain in YouTube’s extended forecast.

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What Will It Take to Become the Bloomberg Service for Social Media?

social-bloombergThere has been a lot of development and press coverage in the social aggregation and activity-streaming space over the last month, which peaked last week with the release of Nambu, Seesmic Desktop, Sideline by Yahoo, enhancements from TweetDeck, a redesign of FriendFeed and an iPhone app from TweetStack, that lets you import your TweetDeck columns, to boot. All of these services are trying to solve the growing problem of managing your personal and/or professional activity across various social networks. Twitter is the one constant network across all these applications though, due to its focus on enabling activity streams, growing popularity and ecosystem that turn the river of Twitter’s network noise into useful streams of information. It’s because of the 3rd-party service TweetDeck that I’ve actually started using Twitter on a regular basis over the past month even though I’ve had an account for almost two years (if you’re unfamiliar with TweetDeck, the New York Times had a nice write-up on it last week).

What has struck me in the process of TweetDeck becoming a permanent fixture on my computer is how I use it like a Bloomberg terminal from my years in finance. For the uninitiated, Bloomberg is the de facto system for finance professionals to monitor and analyze real-time financial market data movements, place trades and communicate with other Bloomberg users. Replace ‘finance’ with ‘Twitter’ in the previous sentence and the services sound a lot alike- instead of following stocks it’s users/topics/events and instead of the NASDAQ stock exchange it’s Twitter streams.

With TweetDeck’s recent integration of Facebook Connect, it got me thinking about what a service would look like that brought the best aspects of the Bloomberg terminal to managing a social media experience. Here are my requirements for the ultimate social media terminal:

  • Real-time. Information streamed in real-time, or in near real-time is a must. The “more results” notification Twitter search provides is fine, but I don’t want to have to refresh my browser every so often to get the latest streams from Twitter or Facebook (which is supposedly being addressed by Facebook in an upcoming release) or any other platform- I need it delivered as it occurs.
  • Multi-platform. Access to multiple networks (Twitter, Facebook, LinkedIn, etc.) is also key since I use each one differently (for industry, personal or professional communications respectively) so I need to be able to respond to information en mass or uniquely by network or by user across networks- which can’t be accomplish through just one network (though Facebook is trying!).
  • Filters. The more networks you tap into and greater access you have to other user’s information streams, the more important filtering of information becomes. Without filters it becomes unmanageable noise once again.
  • Neutral. My social media terminal should be built by a 3rd-party and not by one of the underlying networks it provides access to. This ensures, or at least provides the appearance of, neutrality in how streams are handled and delivered. It also frees the terminal provider to build a client that is unencumbered by any legacy interface or platform functionality, and instead optimized for the stream aggregation experience.
  • Actionable. Just aggregating or customizing the presentation of information is not enough- I need to be able to respond and react to this information in real-time leveraging each network’s native functionality (or at least what they expose to 3rd-party services) through a single interface. A dumb terminal is a non-starter.
  • Intelligent. While the first 5 requirements are valuable from a time management and user experience perspective in making it easier to see information, understanding that information in a way that helps you make decisions is the value-add requirement in the list- and leveraging analytics is the best way to achieve this. While there are plenty of Twitter tracking and analytic services, there isn’t a single solution that allow you to define reports or alerts on an ad-hoc basis that automates the tracking of sentiment (positive and negative) or velocity (increased and decreasing) around people/topics/events (though Juice Analytics has an interested blog post on this topic). I would imagine individuals and corporations involved in social media would consider this service a must have to be successful and would pay a premium for it.

TweetDeck has made a good start in meeting these requirements for me to date (not too surprising since its founder, Iain Dodsworth came from the finance industry), but still has some work left to do on the multi-platform services side and especially analytics (though I haven’t seen anyone who has addressed this functionality yet). As such I give TweetDeck, which I feel is currently the best of the bunch, a 4 ½ out of 6.

Because TweetDeck leverages APIs that are readily available to other companies in building its service, it does face a growing number of competitors focusing on Twitter as its entry strategy (though according to Twitstat it is currently the most popular 3rd-party Twitter application in terms of usage) as well as on the social aggregation side. You can also be sure that Facebook will use its amazing size and mindshare to try and own this space (especially in light of their failed attempt to acquire Twitter).

Bloomberg was in a similar situation but succeeded in part due to the value added services its users received from using Bloomberg’s proprietary platform (by way of its in-network email service, trading capabilites, etc.). If TweetDeck or anyone else can figure out what its value added service is to its networked users, in addition to meeting the 6 requirements I highlighted above, it has a great chance of building something special.

    So what does your social media service look like?

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