I started up a conversation with Benjamin Wayne, the CEO of Fliqz -- a white-label video-streaming-solutions provider based in Emeryville, Calif., that counts Major League Baseball, VH1 and WebMD among its major clients -- after I quoted his rather provocative views in my column. In a post titled "YouTube Is Doomed" at Silicon Alley Insider, a division of Business Insider (a site that has a content-sharing agreement with AdAge.com), Wayne wrote that "Google's massive video folly is on life support, and the prognosis is grave."
He was reacting to a recent report by Credit Suisse that suggested that YouTube was on track to take in $240 million in ad revenue in 2009, against operating costs of $711 million, for a net shortfall of just over $470 million. Since many observers think of Google, even in this recession, as having more money than God, the numbers didn't really sink in until Wayne -- an online-video guy who actually understands the P&L implications -- weighed in. "Believers," he wrote, "would have us think that Google will sustain YouTube, indefinitely if necessary. Proponents of online advertising argue that increased understanding of the medium will lead to more advertising dollars at better CPMs, lifting all boats in a sea of monetization." Wayne offered a contrary take: "YouTube is soaring towards the future like a pigeon towards a plate-glass window."
YouTube's nearly half-billion-dollar loss would come, he added, "after more than a year of feverish experimentation in various forms of advertising, cross-product embedding, licensing and partnership deals. YouTube is adamant that ultimately they'll find an advertising solution that will enable the ungainly behemoth to reach profitability. Looking at the math, it doesn't seem likely."
For this latest installment of Dumenco's Media People -- a continuing series of conversations with media grandees -- Wayne and I had virtual coffee via Skype video.
Simon Dumenco: Did you hear from anybody in the Google camp in response to "YouTube Is Doomed"?
Benjamin Wayne: We didn't hear from anyone directly, although we got a sudden burst of traffic from the Google folks on the Fliqz website. [laughter]
Dumenco: I found it amazing that a lot of other observers initially just brushed off the thought of a half-billion-dollar loss, as if Google could just cheerfully absorb it.
Wayne: Consumers are basically unwilling to believe that anything bad could ever happen to YouTube because they've become emotionally attached to a product that they believe should continue to exist and that Google should continue to subsidize. But from a balance-sheet perspective, it's just very hard to make the numbers work over time. And when you look at the impact in terms of the overall market capitalization of Google, it's pretty significant. And so in a recessionary environment, when the cost of capital is so high, you have to wonder how long a company like Google can sustain that.
I think that the real problem is that YouTube is taking all the stuff that's good that they can monetize, and they've already monetized that stuff. If you look at the way in which content is growing on YouTube, the user-generated novelty content and the copyright-infringement stuff is growing much faster than the content they can monetize. So whereas, with most businesses you'd say, well, over time it gets better, I think YouTube has a business where over time it continues to get worse, because the proportion of content you can't monetize continues to outstrip the portion of content that you can.
Dumenco: What about Hulu in this mix? They made the very strategic decision to keep out the non-monetizable riff-raff and make these extensive strategic partners with A-list content creators. And now they have even Disney onboard.
Wayne: I love Hulu, but problem with Hulu is it's kind of a non-repeatable phenomenon in the sense that they took content where the cost of producing the content and building the brand and attracting the audience had already been absorbed in the TV world, and they took that content that already had this rabidly loyal brand audience, put it online and monetized the fact that they didn't have to absorb any of the cost of building the brand or building the audience. Whether or not you can do that when you have to absorb all those initial production, distribution and marketing costs -- I'm not sure the value equation still works. They're monetizing the Long Tail effectively because they've already monetized it first on TV, then through DVD and cable, and now they're monetizing it again online, so it's all found money from their perspective.
Dumenco: Let's talk about place-shifting a bit. How much monetization upside is there, really, in the growth of the segment of people who are willing to regularly consume news and entertainment content on their cellphones?
Wayne: We can't make video monetization work on the web -- it's very hard through advertising, anyway -- and so it's very hard to believe they're gonna shift it to mobile and make it pay for itself there, which means that people have to pay for subscriptions, which is a hugely unproven market still today.
Dumenco: Do you have a client you think is deploying video in a way that's really strategically interesting?
Wayne: Yeah, I'll give you a couple different examples. We have three broad categories of the way people use video. One is people who have online communities of some form and they're using video as a tool to drive more page views, because they have a media-monetization model where, even though they can't monetize the video itself, they're monetizing the sponsorships and the banner ads and the other things on the page. We have people like Military.com, who have a video section called Shock and Awe. And in the two years that we've worked with them, they've grown their consumer base in terms of views by over eight times, which represents over 100 million new page views for them.
Another example is VisitMaine.com. They realized that in the recessionary economy, more people are taking trips with cars than planes, so they put video front and center in the site to drive people into planning a virtual vacation through the VisitMaine.com website. And they're seeing a four to five times uptick in terms of the number of people who are planning Maine vacations as a result of interacting with their video content.
I think what marketers need to avoid is what I could call video for the sake of video, which is why most people did it in the first place. They need to think that, as marketers, our goal is to find an audience and attract them to our site. And we can do that through search-engine submission of video, which is 53 times more likely to get you a first-page Google result than a text page will, or through viral distribution. We see people getting as much as 40% of their video viewership though videos that are being virally distributed and ending up in places like Facebook pages and private websites and blogs -- places that marketers could never get access to before. And then we're seeing real-estate sites like Re/Max that, when they list rental properties and they put up a video listing, they're getting conversions that are four times higher than when it's just images and text alone.
So there are ways that I think video can really drive a business. But you really have to start at the ROI and then work backward, as opposed to saying, "We just spent a lot of money on a video solution, now what the hell do we do with it?"
Dumenco: Back up to the video search-result differential -- that 53 times figure you cited. Explain why it's that dramatic.
Wayne: There are two factors. The first is that the amount of video content that exists in the world is much, much smaller than the number of web pages. So, from a sifting perspective, Google now shows blended search results, where they'll show video search results along with regular search results, so video has a better chance of showing up, relatively speaking. The second is: Google's search spiders can't read Flash tags, so the only way video shows up in Google search results is if the site submits it to Google. But not that many sites are submitting their video content in the first place, so if you do that, you're much more likely to end up at the top of the pile than you are with traditional SEO techniques.
Dumenco: I presume Fliqz helps to automate that process.
Dumenco: How much do you worry about video standards and video-marketing standards -- pre-roll vs. overlays and all that?
Wayne: There's a big push right now to establish standards, and that's not fundamentally the problem in the market. That's kind of everyone saying, "We're all drowning from an industry perspective, and if we all agree that the life boats should be the same size, that will solve the problem for us." What we really need to do is figure out how do we make video easier for marketers to use; give them the right rules of engagement to make it successful; and focus on how do they integrate it in their overall approach to the market so that it really drives core business. We need to focus less on the technology and more on what the technology is good for.
Dumenco: I'm going to ask point-blank anyway: What's your preference? Are you a pre-roll guy? An overlay guy?
Wayne: "None of them works" is the short answer. [laughter] Look at it this way: Say your site is doing 10 million streams a month -- that's massive content delivery. Now, let's assume that you can put a video ad on 50% of that, so you're down to 5 million streams a month that you can actually monetize. And let's assume that you can get a $5 CPM. It works out that that's $25,000 in ad revenue, so at the end of the day it just doesn't matter. There's not enough there that it matters whether or not you have pre-roll or overlay or whatever, because you won't get enough aggregate views so that the math works. So people hate pre-roll, but if you've got really high-value content you can do it, and it is effective. Overlay, people love because they think it's a good user experience, but it fundamentally just doesn't work, and the reason is: If you're watching, say, "Seinfeld," and a Head & Shoulders ad pops up at the bottom, the chances that you're gonna interrupt Seinfeld to go away to a website to look at a consumer product is zero. So it's a good user experience except that it's completely ineffective.
Dumenco: It's too good for the user. You're depressing me here, Benjamin. OK, where's the light at the end of the tunnel? Is it a question of people being cautious about their P&L and their ROI and then just hoping that the market continues to explode and then there's critical mass where you can, instead of the $25,000, maybe next year you're making $75,000 and then maybe it's a quarter million dollars three years from now? Is it a waiting game?
Wayne: Well, to a certain extent yes, but I'd put it a different way, which is: Video is massively expensive, which is why everyone hoped that advertising would be the great white hope that it would solve all problems from a video-cost perspective. But fundamentally it's not different than using e-mail or using photos or any other form of media or marketing that you'd use on a site. So you have to think about it within the same rules. For the consumer sites, proprietary content is the only stuff you're gonna be able to monetize. If you don't have proprietary content, you're not making money off that unless you can drive some other marketing goal. If you're a business and you're using video, you got to think of it like every other form of media. It's not an end in and of itself from a monetization perspective, but it's a very effective tool for driving the same types of goals you would with other media.
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Simon Dumenco is the "Media Guy" media columnist for Advertising Age. You can follow him on Twitter @simondumenco.