No Clear Path to Profit for Online Video, Say Executives

Cnet.com’s coverage of last week’s RBC Technology, Media and Communications Conference paints a bleak picture for the current—and perhaps future—state of online video publishers’ ongoing struggle to attract big ad budgets.

While online video’s current advertising market is about $1 billion, it’s a far cry from TV’s estimated $50 billion. Executives are split on their predictions for the future. Some make a distinction between user-generated and professionally-generated content, e.g. YouTube vs. Hulu. Others say the entire web video market is handicapped, regardless of the content.

I don’t think it’s right to throw the baby out with the bathwater, though. I do see some problems with user-generated content, all of which essentially boil down to a lack of control:

1. Poor relevancy. Advertisers can’t be assured that their their ads will be well-matched to appropriate content. Even the best algorithms can’t determine the relevancy of video content to an advertiser’s message.
2. Negative brand association. Advertisers don’t want to be associated with poorly produced, crappy content. Surely, not all the content on YouTube fits that description, but the vast majority does. Most big brands (with correspondingly big budgets) don’t want to sully their image by standing next to a home video of yet another Jackass-wannabe taking it in the nuts.
3. Legal landmines. Copyright infringement, libelous speech and other legally dangerous content abound on user-generated video sites. Advertisers can’t afford to have their message associated with such shenanigans.

Professionally produced content, like the videos on Hulu or on the major networks’ sites, seems to mitigate these issues by providing relevancy, quality control and sanitization. What these outlets currently lack, however, is volume. There’s simply not enough inventory for big advertising dollars to flow freely in the direction of online video.

Yet.

We’re in the middle of sea change, with networks finally waking up to the fact that people are spending more and more time watching their favorite shows online (or via online delivery methods like Netflix), and less time “tuning in” to their boob tubes. TV is, in many respects, becoming like radio: A noisemaker that sits in the corner and provides a constant background wash of content, most of which we pay very little attention to.

This is a debate about distribution models, not content. Content is—and shall remain—king. Sustainable content that can attract big advertising dollars is the result of good writing and solid production. There are anomalies that create spikes of interest, but advertisers can’t bank on spikes. They need mountains. They need huge, consistent numbers across several seasons.

YouTube is a loss leader for Google, and as such, it’s a successful means of keeping people hooked on Google-juice. But most user-generated video sites don’t have Google’s deep pockets. I predict that over the next few years, we’ll see more and more user-generated video sites either dying or starting to sponsor sustainable content that can be packaged more easily to advertisers. I think we’ll also see networks loosening the reigns on their properties, allowing for more Hulu-like sites that encourage the distribution of professionally produced content.

What do you think will happen?