The Difficult Economics of Long Tail Video

One of the first comments/questions on my blog (from Preetham, who appears to work for an upstart competitor to Brightcove, Marcellus TV), was around "cost-drivers for high quality online video services in the non-mainstream content space."

There's plenty to write about here, specifically talking about cost-drivers for a business like ours.  But it got me thinking about a perhaps more important topic, which is the cost-drivers and fundamental economics for Long Tail video content creators and publishers.

When we got started, we had a belief that video publishing would become open and global and supportive of a long-tail of niche video publishers, and that free publishing platforms supported by advertising would make this possible, and that dozens to hundreds of new distribution channels would emerge to support these long-tail publishers.  After launching our software platform business in Q1 of 2006, we tried to leverage the brand reputation and technology we'd built for premium publishers to make an offer for long tail producers and publishers.  That effort really only lasted about 9 months, as our software business gained hold, and as it became clear to us that there were some fundamental challenges (at least for us) in supporting long tail video.

When asked what happened differently than i expected or hoped in the emergence and evolution of the online video industry, i often remark that "the long tail of video has failed to materialize."  

At one level, this is obviously NOT true -- the volume of video publishers, of niche channels, and of emerging creators is higher than at any level in the past.  So clearly both cost-effective and free publishing and distribution platforms are making it viable for smaller creators to get content out onto the Web.  As a medium of expression and storytelling, online video is clearly powerful and still emerging for the independent creator.

The comment has less to do with the volume of publishing and more with the fact that there has not been a viable business model to emerge, and that for the vast majority of independent producers, online video has been reduced to being a valuable marketing tool, not an income generator.  At the core of this is the fact that it just doesn't pay.  Even break-away smash hits are generating tiny revenue streams, and the very best productions are licensed for TV distribution and syndication (ie. online is essentially a loss leader marketing tool for these examples), and it is hard to find an example of an online show that went to broadcast that actually created sustainable value for the creator.  The high-profile examples have been failures.

The other reality that few have been willing to admit has been that the economics of online video advertising just do not yet support small producers.  The CPMs generated by online video ad sales networks for mid-tail to long-tail publishers are low, and after revenue shares to ad networks, video platform operators, and then to the producer it is really a bit of a joke.  After producer costs (it is expensive to create video), i think it would be extremely hard to find a producer who is making real positive gross margin on their labor, let alone any net income after all of their other costs.

I'm not willing to write this arena off entirely, however.  Costs of production, distribution, technology, etc. all continue to improve; online audiences for online video are still emerging; and, the fundamentals and economics of online video advertising are still new and will improve over time.

There's also a very different and in some ways more exciting and powerful long-tail of video emerging, as video ubiquity starts to kick in across the web and as organizations of all shapes and sizes start to embrace video as a communications medium.  Not tied to the fundamental economics of ad-supported media, these video publishing use cases are incredibly exciting, and a topic for future posts here.