These numbers are a double edged sword for publishers and small aggregators. While it is great that Netflix has shown that users respond to internet video streams; that there is an audience; Netflix already has an established brand and a loyal customer base. This takes care of the audience fragmentation problem that lesser known publishers and aggregators are struggling with. Crackle, a Sony subsidiary that focuses on internet movie and television streams, is only in business because Sony is still willing to wait for Crackle to find its audience so that it can be moved into Sony’s Playstation Network (Barnes, 2010; Kaplan, 2010). Publishers and smaller aggregators, who struggle to pay for video content with video and textual advertising, can’t pay hundreds of millions of dollars to buy more content in order to attract more advertisers. Their businesses could be unsustainable unless ad networks find these sites suddenly more attractive or they transform their business models. Advertisers have found Hulu’s premium content very attractive, which is probably the only reason why they have been able to stay in business and compete toe to toe with Netflix. Hulu is not just any aggregator. Hulu is in the top ten of total unique viewers at the end of 2011 with 32,242,000; just below AOL. Hulu employs a freemium revenue model to pay to stream television shows and movies. Next to Youtube, Hulu is the biggest publisher (host) of online videos, hosting over a billion each month (Schonfeld, 2011). Its business model is, “…an online video service that offers a selection of hit shows, clips, movies and more at Hulu.com, numerous destination sites online, and through our ad-supported subscription service, Hulu Plus. Hulu’s selection of premium programming is provided by more than 350 content companies” (Hulu). Its a simple business model that is executed with great content supported by big advertisers. As a result, viewers have seen an immense number of videos; 776,999,000 just in 2011; just below VEVO (Techjournal, 2012). Its ad impressions- how many ads user click on- is a staggering 1.5 billion. Hulu is the top aggregator in this category. This statistic helps explain why advertisers keep buying ad space.
A business that sells that product is “a merchant that deals strictly in digital products and services and, in its purest form, conducts both sales and distribution over the web.” (Rappa, 2010) That is a good description of their business, even though it is technical. Apparently, iTunes still doesn’t see a need to upload a description of their business, and that is perfectly understandable since they are a “dominant player in online movie sales” (Lawler, 2011). This is an extremely impressive feet considering the fact that iTunes has only been running since 2003 and that it only started selling movies in 2005 (Harris, iTunes Store History). Nine years later after its launch, iTunes, which is a small subsidiary of Apple, has already generated- what is today probably greater than, “nearly two-thirds of all electronic sell-through (EST) revenues” (Lawler, 2011). This only comes from its movie store and does not include its revenue from its internet Video-on-Demand movies and television shows (Amel, 2011). iTunes was the online movie store market leader during the first half of 2011, at 65.8% of the market share (Amel, 2011). “iTunes’ expansion of its market lead represents a remarkable achievement in light of intensifying competition from a slew of aggressive rivals” (Amel, 2011), those rivals are Microsoft’s Zune video store, Wal-Mart’s Vudu store, Sony’s Playstation store, and Amazon’s store. Netflix isn’t on that list because it doesn’t have an online movie store in which you can buy and store movies on your hard drive. In addition, according to a financial analyst from Gleacher and Company, Brian Marshall estimated that “rentals [for iTunes] generate more than $60 million in revenue per quarter, while purchases account for about $50 million,” (Hughes, 2010) which was already 10% of Netflix’s revenue from its rental service. Unsurprisingly, most of iTunes revenue has been from its rental service. For the year 2010, 75% of its television episode revenues were from rentals each quarter and 90% of its revenue stream from its extensive movie selection came in the form of rentals (Hughes, 2010). This, along with the dominance of Netflix, suggests an overall trend that users would rather have a movie temporarily in rental form, for a short period of time, than own one and store it on their hard drive. This is good news for small publishers of good video content. This data suggests that users will most likely want a quick and easy way to view content. And if they find publishers and watch their videos, advertising dollars will come. Despite iTunes success as pioneering internet video-on-demand and electronic sell through, iTune’s revenue stream is still a fraction of the size of Netflix’ revenue stream for similar products. In 2010, Netflix had revenue as high as $550 million (Hughes, 2010), while iTunes accumulated around $60 million in revenue. Their business model for iVOD is very straightforward and enticing, “For about US$7.99 a month, Netflix members can instantly watch unlimited films and TV episodes streamed over the internet to PCs, Macs and TVs” (Netflix.com). This excludes their DVD delivery service, but that is quickly fading away due to customers shunning DVDs almost entirely. In addition, Netflix can boast having over 23.6 million subscribers. Netflix also had over 20.2 million unique visitors in June of 2010, which actually beat Hulu’s 19.7 million unique visitors (Schonfeld, 2010). With a reported $719 million in revenues just last year and a net income of $60 million last year, their iVOD streaming business is doing very well. (Haselton, 2011) With their high revenue stream they can pay traditional media companies many millions of dollars for licensing fees in order to get keep on getting premium content from television and movie studios (Karbasfrooshan, 2011).
The business models displayed on some of the big online video aggregators’ websites make their service offerings clearer and look as though they really do care about their customers by providing a description similar to stories of how they provide value to their customers. The current biggest aggregator of online content is YouTube. YouTube doesn’t provide their business model on their site, or anywhere else actually. They do say though that they let “…billions of people to discover, watch and share originally-created videos…as a distribution platform for original content creators and advertisers” (YouTube). In addition to their four year old business model of selling “sponsored advertisement spots for certain search terms,” (Schroader, 2010) a business model that has contributed to their estimated one billion dollar revenue stream, (Schonfeld, “Citi: Google’s…”) YouTube also rents iVOD (internet Video-on-Demand) movies for low rates under a section called “Movies.” They seem to charge more movies that either did well at the box office, like The Immortals for example, or haven’t opened at the box office yet, like Goon for example. In summary, they have a 48 hour and 24 hour pass which is consistent with their pay-to-view model, that starts from $1.99 and goes to $10.99. Depending on how well the film did and other factors including the talent behind it, they offer users a period of 24 hours to 30 days (different for every movie) until their rental expires. Many older movie rental selections are free (Miller, 2011). Interestingly, the movie rental service didn’t do well, probably receiving $10,709 in revenue from 2,684 views (Helft, 2010). This could have been due to them charging around $3.99 per movie and only having independent movies. They have earned more at this point, but not enough to cause a stir in the media. They stream short form television shows for free- by free I mean you have to watch advertisements, but you can skip them- which is consistent with how they have positioned their brand around UGC videos. Interestingly, despite their last recorded revenue they recently started a new beta service for the U.S. only called YouTube Rentals Beta. Their new revenue model, what they call “pay-to-view,” also seems to be the model that they are using for their other rental service. “Providing content owners a new way to generate revenue on the site, YouTube Rentals allows partners greater flexibility to monetize a variety of videos, provides full control over their content, and allows content owners to tap into the world’s largest online video community” (YouTube). This business model tells the story of how YouTube wants to tap the large market of emerging filmmakers by giving them a stage through which they have the opportunity to monetize their movies. YouTube thinks that this is a new area from which they can earn millions. They need to complete that goal quickly or risk finding themselves in a tough spot of losing dominance in the online video space (Schonfeld, 2011). I don’t think that YouTube Rentals Beta will provide YouTube with that new billion dollar revenue stream because films have always been difficult for businesses to monetize if they don’t have extensive experience doing it. On the other hand, the poor initial performance could be due to competition from iTunes. They charge $3.99 per rental across the board, even for movies that are still in theaters. Plus, iTunes already has had a loyal customer base earning them hundreds of millions of dollars a year since 2008 (McCormick, 2008; Hughes, 2010). Apple’s iTunes also doesn’t have a business model written on its website, but it does sell electronic sell-through movies and television shows.
On the opposite side of the spectrum is the video advertisement and/or non-video advertisement revenue model. In this model, the only revenue stream comes from advertisers who pay to have publishers and aggregators host their advertisements. This way users can access online video content without being charged anything. Their only cost is their time because they have to watch advertisements before or during the videos. The last common type of revenue model is the freemium model. This model is a hybrid of the subscription and advertisement based models. The “mium” part of freemium refers to sites offering users premium content, or merely more premium content as is the case with Hulu. This is given that they have purchased a subscription. It is a popular model to implement because it serves as a good way to entice new customers. They are enticed to access this additional “premium” content (or just more content) by having access to the great films and television shows that the business already offers free of charge. It is also popular because is provides sites like Hulu with another revenue stream in addition to the revenue that they already get from advertisers. And in this very new, and largely untested, field of online entertainment, having the ability to implement additional revenue streams are always good for business. And last but not least is a revenue model based on purchasing movies, television shows, and rentals. Online video content websites like YouTube use it and so does Apple. Apple’s iTunes is not a publisher nor an aggregator, but they are great to talk about because they employ this model with iTunes and they were one of the first platforms in the early 2005 to rent and sell movies and television shows, acting as an entertainment pioneer (Hughes, 2010). Having discussed the most common revenue models for the online video (film, television, other videos) business, let’s put this business in perspective. This will illustrate the odds of publishers like Revision3 and Break are up against to avoid an unsuccessful future. The global video advertisement revenues were 3 billion dollars compared to the estimated two billion dollars that advertisers spent in the U.S. at the end of last year (Karbasfrooshan, “Rise of Video Ad Networks”). While only $1.3 billion of advertisement revenue went to publishers, $1.7 billion went to aggregators and video networks. It is unclear if online video ever going to grow substantially with such a small amount of revenue going to publishers and aggregators compared to other players like television. What is likely though is that video advertising dollars will not grow enough or quickly enough, to be able to justify expansion of the video publishing world.
The physical distribution of online video content is then carried out by an ISP and or a cable network depending on how the content is being uploaded and what service is being used to connect to the internet. This is a technical part of the process but a necessary part, and is needed for data to be distributed from the publisher or aggregator’s servers to the end user. Once distributed, media content is then viewable by consumers on their devices of choice. (Telco2.0)
The below figure represents the flow of monetary capitol in the beginning stages of online video content distribution process. Like the above figure indicates, studios are also involved in content creation, along with independent producers and the average user. A relatively minor but important detail is the inclusion of publishing software and networks that allow for cheaper and easier creation and publishing of entertainment content. Monetization is the phase in which companies like advertisement networks facilitate the selling of advertisement space on publisher and aggregator websites. The last stage of the online video value chain is the stage in which aggregators and publishers receive money from advertisers and put the content on their website.
There are relatively few types of common general revenue models that online video aggregators and networks like YouTube, Hulu, and Netflix. There is the subscription based revenue model. In this model users are offered access to content by purchasing a subscription for a certain period of time. Once that period ends, they are charged again.
The transition to newer studio models (release windows included) that include internet sales through distribution has been gradual, slowly changing over many years. A contributing factor to this change has been local markets from around the world and in the united states, that studios either didn’t know about or had trouble reaching, demanding stories that “[are] culturally specific that explore their own communities.” Also contributing to change in the studio model, especially the “established window structure” is the rise of the internet as the destination for most of the world’s population, especially America’s population (Finney, 2010). High volume e-commerce activities and traffic to entertainment media websites have forced the studio system to adapt its business processes to capitalize on the new internet phenomenon. Outside of the studio system, the independent film world has seen a direct benefit of marketing online and using e-commerce. “…direct marketing of DVD sales (in particular through the internet) has proven to be a profitable source of revenues that completely alters the standard ‘standard’ system that exists between the producer and distributor in standard contracts.” According to Perter Broderick, a film industry consultant, “…returns to filmmakers from direct online sales are higher than those made from retail sales” (Finney p 167). Unfortunately, three years later DVDs are nearly non existent. Today, nearly all of film and television is also online in the form of online video. I will now discuss the monetized state of online video, which includes movies, television shows, user generated content, and other online video like infotainment videos. Nobody knows when exactly online video became popular, but some notable events can give us hints. According to the CQ Researcher, in 2005 more people watched “Live 8” concerts online than they did on television and that same years Disney and Apple agreed to sell their TV episodes over the internet. One other event that indicated the high popularity of online video was Google buying YouTube for 1.65 billion in 2006 (CQ Researcher). Maybe the fact that YouTube was a cultural phenomenon also indicated online video’s tremendous popularity and cultural significance (Swift, “YouTube grows…”). I am doubtful that there was any one reason for that popularity, but the reason for movies and television streaming (video streaming) eventually becoming popular has most likely been due to YouTube’s wild popularity as the destination for user generated content. I say eventually because the movie studios came late to online streaming, not releasing their content online until 2010 (The Economist). Historically, they are known for resisting technological innovation. This due to them being very risk averse. They have always feared that new technologies threaten the demand for their traditional products and thus hurt their bottom line (Blank, “Why The Movie Industry Can’t Innovate…”). What it has done is change the value chain of the studio system slightly by adding new media marketing and new media distribution to the distribution end of their model (Finney, 2010). Finally studios, both in film and television, have started to catch up with aggregators, video networks, and publishers of video content. Arguably the most notable company studios have started to try to catch up with is Apple. The general structure for how revenue travels from initial creator to end user, the value chain, for the online video marketplace starts with content creators. The players involved in this are movie and television studios and the average consumer making UGC (User Generated Content). An aggregator of video content, YouTube for instance, hosts content on their site, and opens the doors to the possible monetization of content. Aggregation, in this less detailed process, is the method by which many videos are published online.
The internet has changed the way media is produced, distributed, and consumed. It is now unusual for any top film or television series to not make a legal appearance on the net shortly after its initial release. Even high profile studio releases are distributed online first through services such as iTunes before they hit television or movie screens. It is also very unusual for independent movies and episodic series to not show up online first. The rise of easy and fast internet streaming driven by consumers’ quick and heavy consumption of online media has created new business models for monetizing on the online distribution of film and television projects. Not to mention it has created new opportunities for independent filmmakers to get the right eyes on their material. In my posts I will first give background on how television and film were monetized in the past. Then I will discuss how online video, including television shows and movies, has been monetized in recent times via e-commerce and how it is being monetized today today through e-commerce. Before and during the creation of the internet, home video entertainment was mostly controlled by the film business. These were the VHS tapes that everyone enjoyed before DVDs exploded in popularity in the late 90s and early 2000s. The television and film businesses often worked together to release content for viewers because many of the properties that television exploited were first developed in the film business. The film business, which is still financially dominated by the studio system, is largely vertically integrated in order to hedge its risks- a practice that is very much still central to their business practices. According to Angus Finney in, “The International Film Business,” on the pre-production (development) end, a studio would buy the “underlying rights” to produce the movie. The studio would then produce the actual movie. Once the movie had been made, its “marketing and distribution operation [would] set about positioning and exploiting the product through its various windows” (Finney p 29). The distribution end, the side that is directly involved in e-commerce today, still is structured in “windows,” which are periods of time for strategic releases of each film (Finney, 2010). The window that used to come first, before video on demand, was the “theatrical release window.” The DVD window- the main moneymaker for the film business- came second, then the pay-television window; for example, HBO and Showtime, and finally the free-television window. (Finney, 2010) The diagram below is a simple and general description of the film value chain. It ends with distribution of movies, with DVD distribution being included in the home video window and broadcast licensing encompassing pay-television and free-television windows. The process of developing, producing, and then distributing movies in its various mediums; through movie theaters, DVD purchases and rentals, television, syndication, and merchandizing; allowed studios to maximize their control over profits while minimizing their risks. And since the studios have always been notorious for being very risk averse, their gradual bet on online video and online television has been a very risky for them.
Just as treasures are uncovered from the earth, so virtue appears from good deeds, and wisdom appears from a pure and peaceful mind. To walk safely through the maze of human life, one needs the light of wisdom and the guidance of virtue.