Comments on: More on Cuban’s The Ala Carting of Video on the Net - Will it lead to disaster?

By: GARY

GARY — Mon, 02 Jun 2008 07:00:00 +0000

The economics don’t seem to be there for web-based entertainment. At the same time, we have seen the web, technology and “free” kill the music industry and the TV sitcom.

I offer the terribly happy thought that Jake and Mark are both right. Digital TV may be the future of entertainment but perhaps the web will be (as Jake suggests) an enduring player within that kingdom. For example, maybe comedy and music will drive the web while drama, sports and special thrive on DTV.

This sill leaves us with the question of whether content on the web can support a viable economy making worth anyone’s time to produce anything. Sadly, I am not smart enough to offer a real theory on how this is possible. But because I am a writer, I can tell you that I hope all of this will trigger a higher level of quality in what we produce because I do know that people will pay for entertainment it it’s good and no one watches crap because it’s free.

By: Gloc le Roq

Gloc le Roq — Wed, 28 May 2008 21:01:05 +0000

GO WARRIORS!!!

- MF DOOM

By: jake

jake — Wed, 28 May 2008 16:51:20 +0000

@Mark,
You’re right that you can’t beat the economies of scale for broadcast distribution. TV and radio may always be most cost effective means of pushing content to consumers. Licensing to TV may be more profitable today, but you’re assuming that distribution that doesn’t scale means that there is no opportunity for profitable business and that’s just not true.
It’s about the margins.
There are several examples of proven business models which include content distribution that don’t scale particularly well.
For instance, movies. Digital cinema is coming, but today every film print that is sent to a theater costs ~ $2K. It doesn’t matter if one person is in the theater or 400, the print costs the same. Studios do their best to forecast demand to adjust their print count up until the release date, but ultimately the cost of distribution is passed along to the ticket-buying consumer.
So how do margins work in web video? Hulu is a great example. When Hulu was developed it was modeled such that the CPMs would cover the cost of streams and other operating costs with a sufficient margin. The cost of HD streaming is still prohibitive, (to get there bandwidth costs will have to continue to decline or CPMs will need to rise), but the bottom line, in theory, is that because the content is premium the CPM can be relatively high ($40), when every individual consumer watches a video, Hulu makes money on their margins.
There are several steps that need to be taken to ensure proper margins. Advertisers need to create better web-based ads and agencies need to do a better job of reporting analytics to their clients. That’s a whole other discussion…

You’re right that independent content creators will have to license their shows or bear the costs themselves, but that’s not very different than the way things work in the entertainment industry today. If you can sell a show or a film, you’re generally giving up your ownership. If you’re lucky enough to be proven, bankable talent, then you can negotiate for ownership and get a bigger piece of the pie. In some ways we’re reverting back to the mean.
Saying that the future of web economics gets worse needs some more qualification. I think the future of web economics gets more exclusive. Premium, relevant content isn’t easy or cheap to make. People who can deliver a consistent stream of compelling stories are a valued and scarce resource, and have been throughout history. Web video may not supplant TV as the most lucrative distribution outlet for creators, but if that’s the case it’s not because the economies of scale of distribution aren’t favorable.
In any case, I’d love to continue this discussion and thanks for responding to my post!

By: Mark Cuban

Mark Cuban — Wed, 28 May 2008 14:16:59 +0000

Thx for reading my blog. In response, I actually have fully taken into account where i think web video is going in the future. The economics get worse, not better.

Why ? Unicast vs broadcast. Traditional TV is broadcast. One stream is all you need to reach everyone. Even in newly switched digital environments. one stream fits all.

On the web, all web video is 1 to 1. Which means, the more people that watch your video, whether its one video to one person, or 100 videos to 1mm people, the more expensive it is to deliver.

Delivery costs escalate because not only do your bandwidth costs go up per viewer (compared to Tv, where costs go down per viewer as audience increases), but your server delivery and quality management costs escalata even faster.

All of this is masked right now because Youtube as the largest video host basically subsidizes the video delivery cost of the net. Since you are referring to commercial delivery of content, which is a violation of Youtubes terms of service unless you do a license deal with Google, you are missing the very big point that “All your video is belongs to us” being chanted by google every day.

So the future, as its setting up right now is that independent content creators either license their content to Google, maybe Myspace on a COMMISSION basis, or they take on all the cost themselves. In either situation, they likely make no money

I dont see that as a better future than licensing content to TV networks.