Yesterday, Mashable's Mark Hopkins put together a summary and analysis of our recently posted industry report and article "Internet TV Platforms Come of Age". In the summary, he brings forward some criticisms and concerns about our ability to generate revenue for professional publishers. It’s great to engage in the dialog, so here are some thoughts that I hope clarify where we stand on the questions raised.
As a starting point, it makes sense to clarify our business model. As noted in our industry perspective piece, Brightcove is as an Internet TV Platform. Our core business model, which has been our focus since the launch of our platform in Q4 2005, is to license the use of our technology to publishers on a usage basis. The model is very similar to other software-as-a-service (SaaS) companies including Salesforce.com, DoubleClick and Omniture. The media companies and other institutions that use the Brightcove Platform pay us usage fees. These customers either sell their own ads or don’t use advertising. (We count many political, non-profit, marketer, education and other publishers as significant users of our platform.) . We're experiencing a lot of scale and growth in this part of our business right now.
In addition to our core business model, in Q4 2006 we introduced an edition of our service geared towards independent producers and emerging video publishers called the Brightcove Network. Instead of paying for the service, Network publishers get to use a version of it at no cost in exchange for taking ads from third-party ad networks (we don’t actually sell advertising ourselves). They also get to share the revenue generated by those ads. I believe the Mashable folks were focusing their concern and criticism around this edition and model.
Mark is right that the revenue from video ad networks that aggregate niche publishers has fallen short of expectations. Our sense is that this is being experienced by all but a few of the most popular and successful video publishers regardless of which service they use (Brightcove Network, YouTube, Revver, Blip.TV, etc.).
The challenges in this model are rooted in several fundamental structural problems, that have become more clear over the last year. To fully explain those challenges would require a journey deep into the advertising rabbit hole, which goes beyond this post (will post more on that latter). The very short summary is that brand advertising in niche video properties sold through networks doesn’t generate big returns, and the models for direct response advertising in online video are not established.
The good news is that if you have some scale on your property and an ad sales team, there are strategies that are getting traction including branding through deep sponsorship and comprehensive audience targeting (in-stream and in-page), among others. Although, these strategies are very hard to implement through a video network, many of our commercial platform customers are using the Brightcove Platform to implement them, and they’re having success generating revenue. The non-media companies are also seeing great returns from using video to market and communicate with their audiences. All of that’s translating into deeper investments in online video in 2008 and growth in the Internet TV Platform market.
At the same time that our platform business is growing, we’re also continuing to work with our Network publishers as new strategies emerge for publishers who can’t implement their own advertising sales, and we’re optimistic that the industry will find ways to make this model more effective. (Again, we’ll post a more in depth exploration of these issues.)
One other key point made in the Mashable post was about downloadable content and rich media portability. We are definitely on the same page as Mashable, and should have mentioned this more explicitly. In our paper, we discuss how publishers will be focused on building 'Audience Networks' where the focus is on getting your content broadly distributed. Audience Networks drive requirements for being able to easily push your content out to sites, desktops and devices. We explicitly call out desktop distribution opportunities such as Joost, AMP and iTunes, all of which support and use H.264 video, as an example. We are definitely on the same page here and you should look forward to enhanced support for new distribution options and formats with Brightcove in 2008.
We look forward to continued dialog and discussion.