Commentary: It's Time for a New Interpretation of Monetization

The phrase "monetization of video" has seen a little revival in the last few weeks. Perhaps it's been the holiday build-up, or perhaps there is some other cause. Whatever the reason, it came up in a discussion at a Christmas gathering I went to and I found myself (needless to say not in the least influenced by the mulled wine) throwing out an idea that has stuck with me for a few days and I want to share here.

For many years the cost of delivery of video over the internet was very significant. Our kids will laugh when we tell them that it used to cost us more to email a video than it did to post a DVD.

Now, merely 15 years since internet video first emerged it costs even low-volume distributors just a few pennies to deliver a film over the ‘net.

Yet in all this time there has been a regular cry from various analysts, cynics, pundits and onlookers asking "How do we monetize all this video delivery?" Enough so that everyone in the industry shifts uuncomfortably their shoes when these questions are asked-even though we have all seen our sector explode around our ears.

Initially publishers had to pay a significant amount to send video data-measured in gigabytes (GBs) of data transferred, still the staple economic measure of the content distribution networks. Accordingly publishers knew that for every GB of data delivered they would incur a fee from the CDN and unless they mitigated this with some form of business model that directly offset it, there was a risk that the CDN fees would scale disproportionately to the publishers income and they would end up with a cost they couldn't bear.

This was most certainly true when CDN fees were as high as they were a decade ago. It would have been unthinkable to launch YouTube if every GB of data cost $1.50. Even Google's pockets are not deep enough to sustain that level of cost.

So everyone started looking for ways to "monetize."

Actually I believe that while the industry players looked to "monetize video" they focussed too closely on a direct return measured against each GB of video. This has led to publishing models that either attempt to drive ad revenue or subscriber revenue models-and few, if any, other revenue models get talked about. [Actually, they're beginning to get talked about, and were at this year's Streaming Media Europe-see the video at the end of this article for a panel discussion called "Where Is Video Monetization Headed?"-Ed.]

So my hypothesis goes like this: If we had been talking about "quantisation" of video delivery (and not "monetization") and if we had spent the past decade looking for many more ways to quantise and measures to relate the delivery of video to its effect on the economics surrounding the video, would we have been less tunnel-visioned as an industry on the relatively limited CPM or PPV/subscriber revenue models?

Had we looked outside that tunnel and included the rest of the picture we would have seen video actually driving more money and economics than we currently think about when we talk about "monetization of video delivery"-a phrase that implies direct ROI alone.

In some ways it's a question of measurement, but not simply of cash. Instead it's a question of measurement of value. If the value of the delivery of the video can be quantised computationally in a direct, analyzable, and accountable way, then perhaps a justification of the cost of delivery can be worn more comfortably?

So a decade of trying to insert CPM measurement pixels into playpists has just about kept the interstitial and pre-roll ad model alive. With DRM's unpopularity not helping with the subscriber models (for on-demand content at least), the CPM and PPV/subscriber models have struggled to mature to sustain the demand for video. Those that run for any length of time are usually propped up by a sponsor who (and note this) gets indirect value from that sponsorship-and I think this perhaps begins to validate my hypothesis..

If we could roll back time and if we had had lower raw GB cost in the first place, I think we would have spend more time in this decade showing how paying for the delivery of videos that are FREE to the end users can be measured to show quotients of value measuring factors such as upsell, brand loyalty/engagement, stickiness, viral reach, proliferation, awareness, and so on, rather than obsessing about direct ROI against the video delivery itself, we would have all found ourselves in a better place sooner, with more organisations justifying larger spends on video delivery online and its associated infrastructure and workflow.

Those niche models such as education and porn where subscription models work, and those short-form, YouTube-like clip services sponsored by CPM advert models would have worked out too-it's important to note that these are very key cornerstones of the industry, particularly as it relates to the traditional broadcast video delivery industry.

But rather than endlessly trying to convince analysts that the only model for commercial success is where every GB delivered has to directly drive a dollar value or ROI, if we actually stand back and look at the bulk of video delivered on the net today, I believe that relatively little drives direct monetization.  It's the indirect and so far immeasurable ROI that is actually sustaining and growing most sectors of the industry. The quantisation and analytics that would be so useful to companies using video as an ancillary engagement tool to their primary business, therefore, are taking a considerable time to mature.

Many of the CDNs I know mention that their clients are online retailers using video to support their e-commerce sales, and the video itself is not actually being sold-it is a loss leader to drive product sales. These clients are not about movie rentals online. They are about instructional, informational, and promotional video ensuring that consumers buy product.

Despite this, there are dozens of OVPs and publishing infrastructure providers emerging that will try to dazzle you with talk of analytics that are geared toward the holy grail of monetisation of the video itself.

Yet there are less than half a dozen companies focussed on just providing analytics solutions worth speaking of, and I have never seen a demo by any of them that can show me any data about how much value adding video to my e-commerce online retail site has really brought me. That is something the publishers always have to construe themselves by comparing sales figures against website engagement statistics, and comparing with how this data coincides with the separate video analytics data. There is little in the way of "off-the-shelf" analytics that can bring all this information together in a meaningful way to really measure the value that video is bringing to the life of the average net user.

So perhaps we should start 2011 by stepping back from the hunt for direct monetization of video and get stuck into providing quantization of a wider range of statistics that truly measure the value of video delivery to all involved.

Those analysts and cynics may find that we have been getting it right all along; we have just been using the wrong terms to measure the successes.

Have a Cool Yule and here's to continued growth in 2011.