A LOOK INSIDE THE ONLINE VIDEO INDUSTRY

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Analysts forecast the global online video platform market to grow at a CAGR of 14.15% over the period 2014–2019.
Online video industry shows impressive growth rates.

Does it make sense for investors to pour in big money in this industry?

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One of the latest post of Benedict Evans, regarding networks and platforms, affirmed: “You want to be part of a network — a platform — of some kind, not just a publishing tool. A platform can create new revenue models where a CMS cannot.”

We think that we can borrow this analysis for the online video industry.

Where is the opportunity to create new revenue models in online videos?
One answer might be: new revenue models can be built on top of the platforms. Creators are willing to pay for new products and services to stand out from an highly competitive crowd.

In the online video market we have at least 3 clusters of services:

1) publishing tools: manage, publish, measure, personalize your video contents with Ooyala, BrightCove, The Platform i.e.

2) online video platforms: publish, aggregate and distribute contents, such as YouTube, Vevo, Yahoo, AOL. These platforms are highly competitive and it is hard for creators to stand out.

3) platforms’ add-ons: tools empowering creators to develop their audiences, managing their products, programming, funding, cross promoting, managing digital rights and monetizing their contents. Multi channel networks are one of this kind of services: Maker Studios, Full Screen, Machinima and our portfolio company BuzzMyVideos.

In our opinion the big opportunity is exactly there, on top of the online video platforms.

Publishing your content is not anymore an issue. The real challenge is to stand out from the crowded networks and to make money.

Google Inc. nurtured YouTube into a cultural phenomenon, attracting more than one billion users each month. But still, YouTube hasn’t become a profitable business. The online-video unit posted revenue of about $4 billion in 2014, up from $3 billion a year earlier, according to two people familiar with its financials, as advertiser-friendly moves enticed some big brands to spend more. While YouTube accounted for about 6% of Google’s overall sales last year, it didn’t contribute to earnings. After paying for content, and the equipment to deliver speedy videos, YouTube’s bottom line is “roughly break-even,” according to Wall Street Journal.

As Mark Suster argues, YouTube represents the “Walmart” of the video: “If you produce candy bars you need to sell there because that’s where the customer is”.

We all agree. You have to be there, connected to the network.

What is crucial is not just “to be there” but “to be with” your followers.
It is not about aggregating videos on YouTube, but reaching an audience on YouTube. It is not about distributing contents but to exploit, manage and monetize the network effects.

The further question is: how “big” is this opportunity ? Is MCN Business Model sustainable and profitable?
Most of the well known MCN’s on the YouTube platform do not show high profit and some of them struggle.

We still see a huge opportunity. Why?

1) Numbers are impressive and growing

2) Big media companies are interested in acquisition: over $1.4B in M&A and strategic investment in mobile-driven content companies. Maker Studios Acquired by Disney in March 2014 for $500 million (plus $450 million in performance-based incentives); Fullscreen Acquired by Otter Media in September 2014 (for a majority stake); StyleHaul Acquired by RTL Group in November 2014 for $107 million (for 93.6 percent stake);BroadbandTV Acquired by RTL Group in June 2013 for $36 million (for a 51 percent stake); AwesomenessTV Acquired by DreamWorks Animation in May 2013 for $33 million (plus incentives).

3) MCNs margins can improve looking outside YouTube and developing new revenue models (we will discuss these topics in the future).

That’s why we think that today Online Video Platforms are commodities and Multi Channel Networks are not.