Monday, October 8, 2007, 10:41 AM ET|Posted by Will Richmond
Two conversations I had last week, with executives at two separate independent video content companies, one based on a pay model, and the other on an ad-supported model, struck the same theme: the "grass must be greener" for other's model.
These conversations were illustrative of others going on across the video landscape today. Everyone's grappling with which model offers more profitability, stability and growth. At least for now, ad-supported appears to have the "greener grass".
Paid sites are struggling with the fact that so much video has come online in the past couple of years that the bar to get users to open their wallets moves higher each day. The question becomes, "what sorts of video are consumers truly willing to pay for when so much is now available for free?" Of course, the more free stuff there is, the less compelled users feel to pay, even to get something good. Thus a major struggle ensues for pay sites to generate sufficient volume to become profitable.
The rising supply of video makes life equally tough, if not tougher, on the ad-supported sites. Breaking through the noise with quality content is no simple trick. Great content is table stakes. I think the real differentiators are great marketing and distribution which leads to significant awareness, traffic and revenues. So skills like knowing how to create a viral wave, strike partnerships with portals that have real teeth, and syndicating to many smaller players, are all paramount. And that's all before the skills required to sell ads and actually generate revenue.
The grass will remain greener for ad-supported for some time to come. When broadband to the TV becomes widely adopted, Hollywood is willing to cannibalize DVD revenues, formats are further standardized and consumers are better acclimated to broadband delivery, the pay model is going to take off. The ad-supported model is no layup, but with the right ingredients, success is currently attainable.