So...YouTube's Toast?

Some traditional content companies finally got their act together and announced a communal video distribution site.  So is YouTube toast? 

No.

How is it not toast?  Let us count the ways.

First, there's the smart point that Fortune's Adam Lashinsky makes in his piece today: Hobbling YouTube would be a tough enough job for an as-yet-to-be-named-built-or-launched site run by ONE big media company.  So imagine how hard it will be when each of SIX big media companies is fiercely looking after its own interests, pointing fingers, spreading blame, demanding changes, etc., before the site even gets up and running. 

Second, big media video content is NOT the only kind of video that Internet users want.  On the contrary, a recent review of Vidmeter, YouTube's most popular channels, and compete.com's analysis of what happened to YouTube's traffic when the 100,000 Viacom videos were deleted (up 14% in two weeks, per the NY Times), suggests that Jon Stewart et al clips comprise a far smaller percentage of total online video content than most people think.

Third, online video will NOT be a winner-take-all game.  Even if BIGMEDIAVIDEO.com actually gets up and running--a real "if," in my opinion--and even if YouTube chooses not to license or otherwise distribute the content, there will be plenty of room for multiple players.  The experience and know-how that YouTube has developed over the past two years, moreover, will continue to give the company a major operating advantage, especially at scale. 

Fourth, unless BIGMEDIAVIDEO.com 1) maintains a chokehold on ALL professionally produced content--something that sounds next to impossible, given that many companies have yet to join the consortium--and 2) builds a powerful consumer brand, YouTube will still be the first stop for many Internet users interested in video clips.  Although Viacom probably assumes otherwise, many Jon Stewart fans probably have no idea what company produces his show (and, therefore, don't think to look on comedycentral.com).  By now, however, most consumers think that youtube=online video, the same way that google=search, so youtube may always be the first stop for many of them.  And once it decides to aggregate links to all online video, there is nothing to stop YouTube from employing--and making a lot of money off of--the same model that has made Google the most powerful media company in the world: sponsored search.

Comments

[Victor]

The crux of the matter is that designing a business by committee - especially when the committee is composed of companies with diametrically opposed interests - does not work. Who wants to bet that bigmedia.com doesn't have any traffic to speak of (relative to YouTube) within a year? I'll give you 3 to 1 odds.

[brian]

The only reason why BigMediaCos are so strong today in traditional TV spheres is because of the relaxation/repeal of the "finsyn" rules whereby network distributors like NBC, CBS, ABC and Fox who previously couldn't own the content they showed, now can. Moreover, for any new show to get on the air, unless it has a powerful creator (think Spielberg), the networks demand and get substantial ownership in the project. The Internet allows creators to bypass the network stranglehold on viewers and keep the ownership of the show themselves. What has been lacking up until recently--and this is still in its formative stages--is the ability of creators to get paid for their work at scale. When advertisers move a majority of their budgets to the Internet because it can demonstrate ROI better than the current Nielsen system then the power of the networks will likewise diminish.

In this new open video era creators no longer need the networks to distribute their works and the money for production and pormotion can come from alternative sources like private equity and hedge funds, especially if you have had some success behind you. Is it any wonder the Tom Cruise bucked Viacom through his new formed venture now that he doesn't need Hollywood to put up the money for his movies? If he can do it many other stars will have that ability.

[Karl G]

Actually, I'd argue that most viewers DO know that comedy central makes TDS/Colbert but they also know that comedycentral.com is not a pleasant viewing experience (more ads, worse quality, etc).

YouTube videos might have rather poor quality, but it's a known quality and experience. A side benefit is that only the segments that are actually funny make it onto youtube, so you have a sort of first order funniness filter going.

[TallTroll]

>> I'll give you 3 to 1 odds.

Victor, I think those are exceedingly good odds. Additionally, I would love to see Hitwise stats on YouTubes upstream traffic - where do it's users come from?

I'd bet that a vast amount of is comes, or at least originally came, from a search engine, and that Google was the search engine in question for many of them. Any putative BIGMEDIAVIDEO.com also has to get it's users from somewhere.

I guess it's a given that the big media companies will push it on the old media channels they control, but guess what? When people sit at a PC, they enter Googles realm. Only a vanishingly small percentage of users know that you can type a URL into the address bar, and navigate directly to a site.

Most of them use Google. Do you know what Googles top search term is by queries / day? Yahoo (it actually exceeded "sex" in 2006). People are that dumb.

Now, I'm not suugesting that Google would tank the competing services site, but it's a feature of it's ranking methodology that older sites tend to do better. Being say #3 for a given query would yield maybe 20 - 25% of the visits that being #1 would. That's not going to power anyone past the incumbent power any time soon, no matter who is backing them.

[Still Inside]

Everybody knows that Napster=online music. Everybody. iTunes does not have a chance against the already entrenched Napster.

Seriously though, YouTube's problem is not the legit content sites per se, but the same problem Napster had with illegal content: the law. How are they going to stop everybody from uploading illegal content in a systematic way? Maybe there's an answer here, and YouTube has a future, but without one there isn't one.

SI

[Henry Blodget]

I don't know, SI. You've made this case several times recently, and although I usually agree with you, I don't this time.

If YouTube really wants to get serious about preventing users from uploading pirated stuff--which it will in a hurry if the Viacom lawsuit goes anywhere--I think the first thing it could do is make users certify that the clips they are uploading either fall within "fair use" of coppyright law or that the users own the copyright. They could remind users of what the RIAA has done, suggest that the big media companies could use a similar tactic, and block users who violate the policy. For someone serious about uploading pirated stuff, this would be easy to get around, but my guess is it would deter the casual folks.

Second, any video that YouTube users can find on the site, Google can find. All the company would have to do is watch what users are searching for when they're looking for BIG MEDIA CONTENT and then conduct the same searches, nuking everything that comes up. (Then sending warning emails to users who have uploaded them). This will cost the company money, but I can't believe it would be insurmountable.

[Michael Stone]

Henry,

I enjoy this blog and most of the comments & opinions. I've been in the Internet space since 1996 and have seen "youtube" come/go a few times.

Google has three *very* challenging issues to deal with:

(1) They must invent a new Video ad system (their brainpower will nail this one).

(2) Legal/Rights issues: Many lawyers and lots of money can deal with this issue UNTIL a media giant OR foreign government, or both force Google to make compromises that detrimentally affect the integrity of the site.

(3) As you've said many times, Youtube's traffic is all about user generated content. This is precisely the major problem for advertisers. AdWords thrives - perhaps one of the best single products in the history of business. Why? Because human beings are searching for all kinds of things: cars, britney, diamond rings, patio furniture, metal brackets, etc.

Both consumer and business-to-business advertisers have found a great marketing vehicle.

On Youtube, people search for entertainment, jokes, fights, beer drinking, tits, iraqi snipers (blowing off someone's head) and many similar events.

How does Google "unring" this bell? My estimate is: they don't!

[Evan Peyton]

The faster these networks can get their own video content up and running on their own website, the better luck they will have keeping the clips off of YouTube. One would assume they could upload better quality clips if they are the ones officially doing it.

YouTube definitely isn't going anywhere, but if you look at the options that are developing for users who have produced their own video content, YouTube may need to re-work the way they treat their customers.

Why would a user put something up on YouTube when they could be paid to put it up on a site like Revver, or use a program like Tubes to share it with a specified group of friends without the YouTube restrictions...

[G]

Henry.... Henry.... you miss it completely.

I have one thing to say about your analysis - garbage in = garbage out. When you automate a mess - you get an automated mess.

I have first hand experience dealing with those clowns in Mountain View. They just don't get it when it comes to copyright protected content. Your comparing good quality content to UGC sound more like your ephoria with AOL's dial-up and chat rooms with today's braodband survivors.

They are two different things - UGC contributed to on-line video consumption much the same way file-trading contributed to the consumer mind-set for digital downloads.... And then one clear morning, Napster went to its grave - and the ghosts still haunt Bartlesmann and a few VCs (Hummer et. al). Just today Bartlesmann settled with EMI.

Google may not be toast - but YouTube's day of reckoning will be here soon.... that toast will be so burned, you will smell it for miles around!

[Still Inside]

Like millions of others I enjoyed Napster during its "heyday" when it had "EVERYTHING" (I've since replaced it with a huge iTunes music collection, but I'm a quality snob). It was precisely this "EVERYTHING" that gave Napster its value. All you had to do was think of something, and there it was. This was the value of the service.

In the search wars, people forget that despite all of Google's neat-o relevancy algorithms, the most important thing they did for users was to simply have the largest index.

The principle in both realms was the same. To your average consumer, a resource like Google or Napster or YouTube either "has all the stuff" or it doesn't. If you are searching the Internet you know Google is all you need. If it isn't there, it doesn't exist.

On ther other hand, if you are looking for car reviews you know there are several different sites you need to visit because there is no single location for all of this kind of content.

As I (ahem) mentioned above, I don't think it's impossible for Google to put filters on YT uploads, searches, etc. and for the FBI et. al. to put the fear of jail in YT uploaders of copyrighted stuff. If they continue to thumb their noses at copyright they are indeed toast, but one could envision them changing the policy in a hurry.

My point however was that a "clean and chaste" YouTube isn't 1/10th the valuable resource of current slutty one (even if it ends up having 90% of the raw material). And like Napster opened the door to iTunes, YouTube may very well create the market for a legit creator-backed system like iTunes, or maybe even several.

Which leads us back to my point way back. Why is Google spending valuable executive cycles with this kind of crap? Total domination of this market would be but a blip on the paid search revenue stream radar. If he end-game is game is to be an also-ran then it's a blip within a blip.

There's nothing wrong with a cash-rich company like GOOG having a lot of little child projects growing and trying new things, but YouTube is a problem child that constantly threatens to burn the house down (i.e. those massive copyright lawsuits can't be ignored or delegated to minions).

Payments (i.e. a PayPal killer) is a hard problem and a VERY valuable market. Where are the high profile purchases/partnerships in this realm? Sorry GOOG stockholders, "Payments" don't get the boys laid like the kewl Hollywood shit does.

SI

[stone]

Totally agree with SI's analysis. Youtube was barely a functioning company when Google acquired them. They have a long way to go. Critical mass is key for them but verticalization will eat them alive if they cannot solve all their legal/rights issues.

[Josh]

Victor I am happy to take that bet...

Here is my acid test...How many consumers (would you) pay $1500 a year for access to Youtube....well if you have cable TV thats how much u approx pay a year in NY? I would pay $1500 just for access to Heroes, Discovery Channel, Lost, and Entourage. Good big media content (although rare) is undervalued and addictive. There is definitely a place for youtube (amateur content) but amateur video is definitely the smaller segment in the space. I love the urban ninja clip on youtube and I have watched it 100 times but I have never clicked on an ad link on youtube (text ads next to video are not effective) and the song in the video is illegal (Rise against is the band).

Where do u work Victor, what type of job?

[Stephen]

Henry's analysis is dead-on, except that he misses an important point: advertising revenue. While the percentage of overall traffic that big media clips represent on YouTube might be small, what percentage of advertising revenue do they drive? My suspicion (admittedly just a suspicion) is that big media content represents an outsized portion of advertising revenue (or potential revenue).

In other words, while YouTube has a lot of other content, and while that content might be very popular with users, how easy is it to monetize that content? Especially in contrast to the traditional/big media content? People might like watching scrappy home videos more than professional/big media content ... but how do you easily link advertising to that content in order to drive revenue?

In this sense the big media players may have more leverage than their relative presence on YouTube might suggest. And in this way, their abandonment of YouTube (even if they never ultimately get their act together and form their own competing service) is potentially a lot more consequential than their traffic numbers would suggest.

[chrisco]

Here’s my take: Most people are having a field day pissing on this whole “big media” collaboration. That means expectations are low. That means an upside surprise is easier. My money’s on an upside surprise. Big time. Thoughts / comments?

Cheers,
chrisco

PS: I wonder what they're going to name this thing when it comes out? If you were "big media" what would you call your video site? StupidMadeUpNameThatNoboyCanRemember.com? I don’t think so. In fact, I think they’d get maximum impact by taking a big slap at all the stupid Web 2.0 names that are so prevalent now that they’re a joke. I mean everybody and their dog has had their turn at that crap. It’s turned from cool to stupid, boring and annoying. What would stand out from that noise is a clean, simple and descriptive name. Call me crazy, but in a land where everyone is using made up names the way to stand out is with the opposite. I.e. if you’re going to have a site showing big media video, why not call it what it is. Everyone will remember the name and know what’s there: Big Media Video. I.e. BigMediaVideo.com. Seems like a “duh” to me. http://www.bigmediavideo.com

[BJ]

Hey – since you’re a YouTuber, you might want to check this out… There’s a video company that’s recruiting
YouTubers and if they like your stuff, (and they should) they will actually pay you when your video gets a hit.
Here’s their link… www.flownetworkproductions.com/videorevenue.htm. It’s about time the people who make
the videos get some of the money instead ng to YouTube!

[BJ]

Hey – since you’re a YouTuber, you might want to check this out… There’s a video company that’s recruiting
YouTubers and if they like your stuff, (and they should) they will actually pay you when your video gets a hit.
Here’s their link… www.flownetworkproductions.com/videorevenue.htm. It’s about time the people who make
the videos get some of the money instead of it all going to YouTube!