5 Key Costs of an Online Video Business
An earlier post generated some comments from a reader, where he looked to summarize the 5 key operating costs and considerations for an online business. It’s a good summary of my points, and here are some additional points of clarification.
Preetam’s comments are italicized.
+ sales agents and sales costs (could you shed some more light on this?)
Online video advertising sales can have many component parts, all of which impact the ultimate net revenue to a publisher. If you are able to do direct sales of your inventory to a media buyer (which means you likely have 1M+ streams / month, since only every other stream is monetizable, that’s 500,000 streams /month), you are likely deal with CPMs that are $20-40. Let’s say $25, which is the average for premium inventory. The $25 is the Gross CPM, which is not the true CPM. Direct sales to a media buyer is actually direct sales to an ad buying agency who is buying on behalf of their client. They are typically taking a % of the sale as their agency fee, often 5-10%, so your actual Gross CPM might be $22.5. Additionally, you are likely employing your own high-cost ad sales team that are selling your advertising, and they are paid on a commission basis, typically 10% of gross so you are now down to sub $20 effective CPM.
If you don’t have high-quality premium inventory and brands, and don’t have enough scale to sell directly, you are employing an ad sales network. They are selling directly to media buyers and have their own full time staff of ad sales professionals, as well as the broader operating costs for their business. A top-tier video ad network can generate a gross CPM of around $20, but average a good bit lower. They will in turn negotiate a deal with you that will range between 40 and 60% of their net CPM, so you are likely looking at $8-10 best case, $1-3 worst case.
Also, if you have a sufficiently compelling content product, and a well defined and desirable demographic for the content, your best bet is likely to try and sell an integrated sponsorship that includes product placement and digital entitlements, as in a pure sponsorship it is less CPM driven and more ‘value-based’, which can mean that you can effectively garner a higher rate / value for your property. When you have very limited inventory, this is probably one of the only ways to gain advertising dollars in online video.
+ marketing, advertising, pr (seo, ppc, affiliate, ad networks, social networks, syndication, one-click publishing to top eyeball destinations, etc.)
While these are clearly the right list of online marketing tactics, my point about it still coming down to great marketing has less to do with employing tactics and more to the more ephemeral dimensions of great marketing and branding, which distinguish the great products, from the good, from the poor. Great marketing execution can make an enormous difference for any content property, but at the end of the day, also, if the content product is compelling, it will generate word of mouth promotion.
+ cost of content creation (- variable, obviously - )
And these costs can vary GREATLY based on what you are trying to produce. If it is news and entertainment, production values matter, and quickly you are getting into the thousands or tens of thousands of dollars per minute to produce. While there are examples of lower budget (thousands per minute is considered ‘low-budget’ in entertainment), you can see how pure play production for the Web is a loosing proposition right now. Companies that have strong assets they can re-use, or where they have very strong existing online brands and audiences stand the best chance for building profits at this stage.
On top of raw costs of production and post-production, there are also typically copyright licenses one needs to acquire, including music performance rights, and any other copyrighted material you are using in your production.
+ technology and service operating costs (video platform, cdn, storage, scaling, enhancements)
I pretty much group all of this into the bucket of ‘Online Video Platform’, at least in the sense that Brightcove offers. Our goal has always been to provide all of the technology and service operations needed to run an online video business, inclusive of the list you have and more. Fortunately, it is quite cost effective to license access to such a platform with very reasonable annual and variable costs, and gain access to years of R&D and a continuous innovation cycle on new software and platform services. Hopefully, too, platforms such as ours can also help facilitate ad sales, operations, and ad network integration, online marketing tactics, and with overall efficient service / site operations.
+ service operations(uploading, asset & community management, administration, metatagging content, etc..is that what you meant?)
Yes, basically, the human labor involved in running a content and community based website. Both the visual and web design, as well as the content management, editorial and community management needed for a decent sized property. This can range for a couple of people to dozens of people. Depending on the labor pool, demographics and geographic location, this cost can be in a pretty wide range as well.