Publishers are turning to new video monetization technologies in order to remain competitive. However, incorporating video has met with limited success because many of the current models are either outdated or costly and ineffective. Publishers are faced with the seemingly insurmountable challenges of delivering unique, informative, and authoritative content—all while reducing cost, enhancing brand integrity, and increasing profitability.
Newer video streaming platforms offer the promise of making video much more appealing from a business standpoint. For example, recent developments make possible the following improvements:
- Reduced cost of content acquisition and marketing
- Flexibility to present and aggregate engaging content
- Equitable, transparent compensation among all stakeholders
- Scalability to handle even the largest volume of traffic
- Opportunity for viral marketing and overall market penetration
- Precise, in-depth, and real-time data for market analysis
- Architecture based on the latest security technologies
- Greater return on investment for publishers
Evaluating the Obstacles to Monetizing Video More Effectively
None of the current methods of monetizing news and informational content has proven to be terribly successful in the digital age. It isn’t even clear that they can support the overhead of building and maintaining the required websites.
Most online publications depend heavily on advertising, which has not been particularly profitable. Furthermore, the problem is only getting worse because of the increasing prevalence of small screens and ad blocking technologies. What money is made from advertising comes at the expense of degrading the user experience and the publisher’s credibility. Moreover, quality and reputation suffer from greater dependence on “sponsored content”. Almost inevitably, the need to boost traffic for advertisers leads to sensationalism, exaggeration and obnoxious interface gimmicks.
Recognizing the inadequacy of giving away free, ad-sponsored content, some sites use a subscription paywall. Aside from cannibalizing print subscriptions, paywalls tend to reduce organic search traffic. In any case, the wealth of readily available free material makes it difficult to sell subscriptions.
The presence of so much free video content has also created a psychological barrier to the notion of paying to watch videos. However, video streaming tends to be an expensive proposition. There’s a significant cost in skilled labor as well as software, hardware, and bandwidth, further complicated by the need to support many different kinds of devices. Even the most valuable video content is difficult to market and sell on an a la carte basis.
Subscriptions Versus Item-by-Item Purchasing
What has been shown to be more effective is an all-you-can-eat subscription model, as demonstrated by Netflix. Apple was once the leader in the delivery of online movies, with a 61% share in 2010. By 2011, only a year later, the research firm IHS reported that Apple’s share had dropped in half, to 32%. Apple’s iTunes’ item-by-item purchasing model for entertainment videos continues to decline in the face of subscription services like Netflix and Hulu.
While the “buffet” subscription video channels generate plenty of sales, they all have trouble generating profits. Even the most successful, Netflix, has a relatively paltry profit margin. Its 2015 operating profit was only 4.5%, down from 7.3% in 2014, and its net profit was a mere 1.8%, down from 4.8% in 2014. Though Netflix reported a healthy profit for the first three months of 2017, it missed its own projections for revenue and subscriber growth. Its profitability in 2018 is due to higher prices and a maturing business overseas.
While it remains to be demonstrated that a subscription video channel can be truly profitable for newspapers or magazines, the growing success of subscription channels in the instructional video space points the way. Despite the challenges of incorporating video (outlined below), newer video streaming platforms and monetization models offer publishers tantalizing opportunities to increase both revenues and profits.
Finally, publishers currently use an affiliate model aimed at encouraging outside parties to participate in selling their subscriptions. For a variety of reasons, however, such programs frequently disappoint both the publisher and their affiliates. For starters, they generally fail to adequately motivate a wide range of potential affiliates, such as bloggers, content providers, fans, and other outside parties. Just as content owners require the assurance that they will be paid promptly, fairly, and verifiably, the same is true for affiliates. Likewise, with the proper infrastructure, affiliates can easily be paid not only for subscription sales but also for viewing that they cause. This greatly enhances the benefits of participating as an affiliate.
For example, the publisher might pay a 20% commission whenever an affiliate makes a sale. Similarly, content owners might give up 20% of their usage payment to an affiliate whose webpage led to viewing their video. In this model, publishers get the affiliate compensation whenever their websites or links lead to subscriber viewing. Similarly, owners of content and fans can have an incentive to drive more viewing, and the more viewing, the better, when it comes to retaining subscribers.
The Challenges of Building a Video Streaming Website
It’s expensive to build a video streaming website, not only because of the software and hardware infrastructure, but especially because of the high cost of acquiring content. Whether a publisher creates its own content or negotiates for existing content, there’s typically considerable up-front risk and expense. Furthermore, in order to retain subscribers, it’s necessary to continuously add new material and renegotiate terms.
Aside from the cost of acquiring content, another critical expense is the cost of acquiring customers. A compelling offer requires a low subscription price. But it’s extremely challenging to keep marketing expense per subscriber low enough to assure profitability. Typically, the acquisition of video content also requires risky, up-front payments or guarantees, and expensive contract negotiations. The burden of effective marketing is difficult for publishers to bear by themselves, because the cost of marketing imposes a need to raise the subscription price. As a result, it becomes difficult to attract enough subscribers without losing money.
A Win/Win Formula for Profitability & Success
The cost of high-quality content can be greatly reduced if an arrangement can be constructed that avoids the need for up-front payments and individualized contracts. Such an arrangement must provide assurances to content owners that they will be paid fairly and quickly. For example, payments could be proportional to actual viewing times across all subscribers. This would be a reasonable basis for compensation, achievable through a rigorous, metered system of usage monitoring. Thus, print publishers could attract content to their video channels with no up-front expense from experts, other news and media organizations, and individuals with smartphones and cameras who capture important events.
New video streaming technology also offers a more practical, credible, transparent, and revenue-driving affiliate mechanism. An affiliate mechanism must be very simple and versatile enough to be used in the digital universe, so affiliates should not be required to have any special programming skills or sophisticated tools. In this way, a publisher can leverage the largest possible sales force to market his channel and keep subscribers coming back.
One of the simplest conceivable ways to build an affiliate mechanism is to require HTML links for embedding, using a unique affiliate ID as a qualifier, and pointing to items in the subscription channel, making the process appear as an integral part of the site, and providing a more seamless user experience. An affiliate mechanism of this sort has what it takes to encourage independent organizations, experts, and enthusiasts to promote channels by simply embedding affiliate links.
Finally, video channels that pay content owners based on metered viewing and transparent, fair division of revenues can foster a more vibrant and trustworthy information ecosystem. Success of such systems depends on establishing trust among all stakeholders – publishers, content providers, editors, advertisers, affiliates and subscribers/customers. Video streaming platforms leveraging blockchain technology could provide the needed level of trust for large scale subscription video-on-demand channels.
Integrating videos into well-edited channels and paying everyone based on actual subscriber usage is a good formula for improving publication growth. As video becomes more ubiquitous, its seamless incorporation into news and magazine websites is necessary and inevitable. With the right model, it could also be highly profitable.