When video gets democratized, who wins and who loses?

1Executive Summary

TV viewership is still on the rise, with the typical American watching five hours a day now, according to research by Nielsen. That hasn’t slowed the growth of online video: In fact, the amount of content streamed is accelerating, too. At the end of 2010, comScore reported that viewers watched approximately 14 hours of video per month on average. By the end of October 2011 that number had increased about 50 percent, to 21 hours of online video per month on average.

While it hasn’t yet made a dent in traditional TV ratings, the overall trend in online viewership suggests that at some point in the future new streaming players will begin to steal share and audience from existing TV networks. But who is likely to win or lose when that happens?

The price of democratization

When the cost of content production and distribution falls to the point where it is easy and cheap to reach mass audiences, markets are primed for disruption. We can look to the publishing industry as an example of this.

For decades, newspapers and weekly news magazines were the main way that readers got their news. And while multiple new distribution outlets for news have arisen over the years (everything from radio to cable news networks) newspapers and weeklies maintained a relatively robust business — that is, until the Internet and self-publishing made it easy for anyone to create a media brand of his or her own.

The introduction of publishing tools like Blogger and WordPress (see disclosure), as well as the ability for anyone to cheaply purchase a domain name and hosting service, has paved the way for a number of independent news sources to emerge and compete more or less directly with the established press. Nowadays tech savvy readers are just as likely — if not more — to get their tech news from GigaOM or TechCrunch than to read it in a weekly news magazine or trade publication. This “democratization” has inevitably led to massive reductions in newspaper and magazine subscriptions.

However, many of the large traditional players continue to survive in this environment. News that originates on the Internet might have stolen mind share, but it hasn’t replaced content produced by giants like the New York Times or the Wall Street Journal. Nor has it had much effect on highly differentiated, premium weekly magazines like The Economist or the New Yorker. The reason is that those outlets have the budgets to produce high-quality content, which independent web publications generally can’t match.

On the other hand, niche publications — entertainment, lifestyle and leisure publications, for instance — usually can’t compete with the immediacy and relevance of their Internet-based peers, especially when one considers the costs associated with the traditional publishing model. Nor can they compete with the price structure of independent web producers.

Why video is next

How does this apply to video? We expect that market to undergo a similar transition as the democratization of online video outlined above is poised to cause massive disruption in the way content is created, distributed and discovered by users.

The relatively low cost of high-definition video cameras and editing equipment has made the act of producing professional-looking digital video content accessible for independents, which has already led to a wealth of new content creators. Much like free or inexpensive blogging software that led to more and more specialized websites, over the past five years, we have seen a number of these independent video creators emerge with web original series — many of which are indistinguishable from “professional” video content being produced for TV.

While the cost of producing video has already reached an inflection point, the one thing that was missing was the ability to distribute that content cheaply and easily. But we are reaching a point, too, where original web content is winning audiences that are similar in size to what one might expect from cable TV programming. The top five channels on YouTube, for instance, get the same number of average daily viewers as the top five U.S. cable channels.

And we have already seen a number of independent networks achieve mass scale without having to go through more-traditional TV models. A case in point is independent online video network Machinima, which creates video game–related content and recently saw more than one billion video views — in a single month.

Furthermore, YouTube is committing more than $100 million to fund 100 new original channels. The site’s channel strategy will go a long way toward offering a low-cost alternative to a good deal of cable TV content. The plan is to use that money to open the door for other creators to compete with some of the existing major media organizations.

The power of connectivity

Consumer electronics manufacturers are part of the equation, too: Increasingly, they are enabling content creators to bypass the traditional method of distribution through TV networks and cable distributors, thanks to the introduction of connected TVs, Blu-ray players, game consoles and other devices. With open software development kits, CE makers like Samsung, Google, Roku and others have given those companies the ability to distribute their videos to TVs by streaming over the Internet.

Doing so allows independents almost as much exposure in the living room as traditional content creators have. When applications from distributors like YouTube are as easily accessible as live and on-demand TV, there is a good chance that viewers will tune in to content that they might have previously passed on when they could only view it on their PCs.

The quality question

Traditional media execs are quick to point out that web video can’t compete with the quality or star power of content produced for cable or broadcast TV. That might be true to a degree. Few independent producers have the budget to create shows with exactly the same production values as the big broadcast networks like ABC, CBS or NBC. And few movie and TV stars are willing to take a major pay cut to work in web originals.

That said, there are certainly types of video content with which original creators can compete. They might not be able to produce 20-minute shows with special effects or big-name stars, but in certain verticals, web-original budgets don’t need to be huge to compete.

Take cooking shows, for instance: When you strip away the celebrity chef, studio audience, and professional camera and lighting technicians, what you’re left with is a host in his kitchen. As a result, to the amateur cook, there is little difference between what a cable programmer like the Food Network might produce and what an independent YouTube producer could create on her own. In fact, web-original content might actually have an advantage over the cable-produced programming, due to the fact that it can be produced and distributed so much more cheaply with little actual loss in quality. The same is true for many types of home and garden, DIY and instructional video content.

More importantly, there is an opportunity for independents to create content for niche audiences that wasn’t previously sustainable in the old pay-TV model. Let’s take the Food Network example a step further: Network TV economics might not support the creation or distribution of vegan cooking shows, due to the relatively small number of viewers who might tune in, but on-demand availability on sites like YouTube creates a real opportunity for new types of content to be created and distributed. Consider the same application for niche programming like extreme sports or alternative lifestyle programming, and suddenly the online video space begins to resemble the world of online publishing — a place packed with specialized and democratized content vying for its own share of attention and revenue.

Mapping the winners and losers

So who will be the winners and losers when video gets democratized? Clearly, independent content creators stand to gain the most through massive reductions in the cost of recording equipment and editing software, as well as the greater availability of streaming video service on connected devices. They gain new distribution opportunities for their content and greater possibility for monetization. Consider any of the top YouTube video channels, which probably wouldn’t be able to survive in the pay-TV universe but have created thriving businesses due to the cost structure online.

While independents will likely steal a greater share of video viewership over the years, this programming is unlikely to effect broadcast viewership too much, for the reasons stated above. Viewers will continue to find value in highly produced TV shows on ABC, CBS, NBC or Fox. Just as web news organizations didn’t spell the end of the New York Times or the Wall Street Journal, the major mainstream broadcasters are unlikely to disappear with the growth of online video.

Cable networks like AMC, FX and USA, all of which have increased the amount of original scripted programming that they produce, will also fair pretty well in the short to medium term. That said, premium cable networks like HBO and Showtime could see viewership decrease, simply due to the rising cost of pay-TV packages and the fact that most tiers of premium networks require viewers to pay additional fees on top of basic cable costs.

Where TV viewership will most likely recede — thanks to the wider availability of independently produced streaming content — is in smaller cable networks dedicated to food, lifestyle and DIY programming. As time goes on, we expect these types of networks to be squeezed, due in part to the emergence of online alternatives and what could be a resulting loss of viewership but also due to changing viewership economics in basic cable. As programming costs increase, cable operators will be looking for ways to lower costs, and cutting typically low-rated lifestyle, food and DIY networks is one way to do so.

While those segments are likely to be where the most disruption will occur, we believe there is a real opportunity for all types of new web original programming to flourish. That could include video news services, shows on fashion and entertainment, and even scripted web original shows that mimic prime-time TV programs.

Disclosure: Automattic, the maker of WordPress.com, is backed by True Ventures, a venture capital firm that is an investor in the parent company of this blog, GigaOm. Om Malik, the founder of GigaOM, is also a venture partner at True.

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  1. Completely agree with your assessments because change and democratization in these sectors will be in genre’s and not wholesale categoriacal death as proselytized by others. We’ve seen the disruption in the time-sensitive news business (way dead), but TV and many non-news magazines are alive and well, and IMHO are poised to grow.

    We’ve seen the DIY genre around for a while (e.g. 5min) without much impact so clearly there needs to be other ingredients in order to propel their audience growth and the subsequent ad or other revenues. Quality and relevance relative to the viewers needs are what’s missing. I watch the Food Network more for entertainment and inspiration, not how to bake cookies. But if I’m making a souffle for the very first time, I need explicit instructions, visuals, and tips because Giada’s edited segments just don’t cut it for me. But I don’t bother to look for those videos because my odds of finding quality and relevant content is still sorely lacking.

    But my overarching belief is that for the foreseeable future (5-7 years), we should be striving to increase the overall pie, rather than slice and dice it to nothing. As mainstream TV and publishing are going digital and creating new markets, the challenge going forward for content creators is to think about how their content will be distributed to create the right experience by channel, and how to be discovered amongst all the noise. I am hopeful that 2012 will be the year of discovery and curation for the overwrought consumer.

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