How To Lose Money Making Web Videos

The New York Times ran a great story this weekend on John Sloss, a sales agent for independent films. John is starting up a company called Cinetic Media that "will act as sale agents for filmmakers who have been left on the sidelines". Hmmm, what an altruistic guy, you must be thinking. Well, read on, the article said his "goal is not exhibition in theaters but rather distribution via the Internet and other growing delivery routes like cable on-demand services". Oh, I see, venues in which filmmakers actually lose money.

It seems that YouTube's video streams don't make it all the way to New York, because if they did Mr. Sloss would realize that there is no money in web video. Just last week Akimbo threw in the towel after trying to sell video on-demand over the internet. How are all these people losing money on web video?

This is the brutal reality of content on the web. Without scale you will never keep your visitors' interest. Thus we end up with people like Mr. Sloss that are out there trolling for scale ("Hey, if everyone gives me their content then I can sell it all as a package and charge boths sides for the service!"). But the internet is littered with the bodies of people like Mr. Sloss. Take the example of Akimbo.

Akimbo had some Comedy Central content at the outset, which must have cost them an arm and a leg, along with a multitude of the no-name content that Mr. Sloss is now going after. It offered a somewhat decent set-top-box (STB), which allowed their content to be shown on a TV, but which no one wanted to buy. They hoped to live off of video on-demand dollars from the no-name stuff, since the Comedy Central content was either 1) a full pass through of revenue to Viacom or 2) an actual loss leader. Not getting that STB out there was a killer for them, but even had the STB been a huge success the business model for web content is fundamentally broken. You can't make any money from the no-name stuff. Google Video figured that out about two days after launching (it just took them a year to save face and close the shop down).

It's as if these internet content businesses are all run by the underpants gnomes:



The first phase involves getting a critical mass of no-name content, they have no idea what they are going to do next, and at the end of the day they expect to be rolling in profit. But what someone needs to tell the John Sloss' of the world is that no one is going to pay to see hillbilly vampires (an actual movie that Akimbo promoted heavily). There's just no reason to collect all those underpants.

What can filmmakers do to survive in this environment? The first thing you need to do is to make sure that you do not hand your content over to some guy that sees you as another paycheck. It's so simple to add your content to the existing video portals, why would you pay someone to do it for you? Next, filmmakers have to find a way to get a better revenue split from the ads that are displayed before and after their films. If, as a filmmaker, you could approach a major advertiser and guarantee 86 million hits on a short film that pre-rolls their commercial your only remaining problem would be to decide between granite or marble for the kitchen in your beach house. Of course you may not have this kind of following yet, but YouTube pays out ad revenue at many different tiers. The key thing is to get a following and then look around for opportunities to monetize that following.

But whatever route you take, don't give your underpants to John Sloss.