The Online Video Shakeout

Online video is a great service offering. That Google continues to plough money into YouTube is more than enough validation for many that online video is the way to go for the future. Club that with rising viewership online, and you have a potent combo of an online service. However, the troubling part is, online video is not a great business to be in, at least currently.

The recent demise of Joost should serve as a warning to the fledgling industry that all's not well. Despite having a top-notch starcast (started by Kazaa & Skype founders), and being pre-funded to the tune of $45 million, Joost has consistently struggled to make the cut, be it in terms of being a preferred destination for the viewer or for the advertiser. The company has now decided to shut down its consumer offering and offer 'white-label' services to other content providers (a fiercely competitive space where Yahoo! just ditched its $160 million acquisition of Maven Networks). So, what did it in? While there are a lot of reasons, in a nutshell, lack of compelling content. Hulu, on the other hand, has consistently ensured that content is something that it doesn't lack. Luring away Disney from a possible Joost deal was probably the last nail in the coffin for Joost. Likewise, Veoh, another video aggregator that topped $70 million in funding, recently cut its staff and changed its focus to a browser-based plug-in. Other aggregators such as Metacafe have moved on to focus on professionally-produced content, while Crackle cut off user-uploads a couple of months back. And Microsoft, of 'em all, has acknowledged that user-generated content might not really have a major role to play in the future. The Redmond giant has decided to re-focus Soapbox, its long-time also-ran in the online video space.

There appears to be a tangible shift away from user-generated content towards professionally produced content. The success that Hulu is seeing, it is estimated to now account for over 10% of all online video ad revenues, coupled with YouTube's losses, is encouraging video aggregators to move towards professionally produced content. It also helps that consumers are increasingly showing clear preference to consuming long-form video content on the Internet. Media companies are increasingly watching the action unfold with glee. Unlike the long-drawn battle that music labels have been having with online music streaming, large media houses are increasingly preparing for a future where they are the distributors themselves, or own portions of aggregators such as Hulu. And till the time that Google or anyone else can figure out an easy, and inexpensive way of monetizing user-generated content, and compelling content is made available by large media players at a fair revenue-share, online video sites will continue to flounder.

Whose content is it anyway?

Hulu's snagging up of Disney network as an equity partner begs that question. Whose content is considered more exclusive, more desirable, and consequently, more monetizable?

While youtube has always led the numbers game, in terms of all kinds of user-driven metrics, however, Hulu appears to be fast catching up on the more-important financial metric of bringing in monies. While ever-rising traffic at Youtube only leads Google to mounting operational expenses in terms of hosting and streaming costs, the converse appears to be true at Hulu. With all of its content monetizable, without legal baggage, Hulu offers advertisers a far more compelling proposition, and naturally, has been on a high. It doesn't help that under 10% (far less than this by other estimates) of videos at youtube are deemed monetizable.

What does this show? Well, for starters, that content continues to be king. And that's the good news.However, that doesn't mean that there is no space for user-generated content and scope for commercial exploitation of the same. UGC has been a hallmark of web 2.0 and will continue to remain so. However, online video sites as well as media players have to look beyond a model where there's a straight-forward content-advertiser relation. The Hulu model, for instance, seems atavistic for reasons more than one. It continues to build on the traditional advertiser-content owner angle and basically extends that practice from the Television on to the web. While the system in itself is a fine example of how the web can create all-round value, for all parties involved, yet, through its inherent reliance on large content companies, it fails to recognize the power of the web.

Youtube showcases all that is representative of the future state of the web, albeit at a staggering cost, and how UGC will continue to be one of the key producers of content. However, it has to make out a compelling case for a model where UGC can harmoniously exist along with professionally-produced content. The media players, and the UGC community, have to recognize the fact that compelling UGC has almost always come out of a right mix of both forms of content, and to that extent, neither is dispensable nor can be wished away and same goes for legalese involved in it all. All stakeholders involved need to recognize and appreciate the contribution of each of the parties involved, and build ad-supported/subscription models that are more reflective of the changed realities. Until that happens, it is going to remain a messy road for Youtube, while others such as Hulu will continue converting the web into a Television.