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Hoping to Reverse the Online Video (Cash) Flow

With studios and networks continuing to wade into the online video waters, the talk that has followed still centers on one main topic: exactly how to monetize that content.

While the NBC Universal, News Corp. and now Disney-ABC joint venture Hulu has drawn praise from users, the company is expected to generate only about $120 million in revenue in 2009, according to Screen Digest. Likewise, Google-owned YouTube, which dominates the online video space, is expected to bring in a similar amount (not including potential revenue from a discussed movie-rental initiative), thanks largely to the site's efforts to strike deals with professional content providers such as Discovery Communications, CBS and Disney-ABC.

Those numbers pale in comparison to what the traditional television networks bring in. CBS alone generated slightly more than $14 billion in revenue in 2008.

Meanwhile, users are tuning in more and more to video on the Web. A survey conducted in July by the Pew Research Center says that 62% of Americans have watched video this year on a major video site like YouTube or Hulu. And while online CPMs are comparable to TV CPMs, online outlets struggle to bring in what traditional outlets can, with the number of viewers for any particular episode being more often counted in the thousands than millions.

So content creators, looking for the best way to pump traditional profits through the gateway of new online material, have turned more and more to reversing the flow of content. In an industry still looking for a workable Web business formula, a new windowing strategy—taking material online and eventually sending it to television or DVD—has shown signs of offering a bright outlook.

With budgets to consider, DVD sales and the possibility of television distribution can help recoup the costs of online production. Joss Whedon's WGA strike-induced online project, Dr. Horrible's Sing-Along Blog, eventually turned a profit thanks to DVD sales. Dr. Horrible was produced on a shoestring budget of $200,000. Whedon told the University of Pennsylvania's Wharton School that after the DVD and iTunes sales were tallied up, the project brought in more than twice what it cost. Eleven months later, the DVD is still one of the top sellers on Amazon (No. 75 in Movies & TV at presstime) and on iTunes.


One of the biggest problems facing online video, according to Shelly Palmer, a consultant and managing director of Advanced Media Ventures Group, is its availability. Commercial time on a traditional TV show is by definition a scarce resource, so a network can charge advertisers a healthy sum.

“If I go to ABC during the television season and I want to buy 30 seconds during Grey's Anatomy, they can charge me a lot because they will put eight, 10, 12 million people in front of the TV set,” Palmer says. “The minute I take that same piece of video and put it online, I have the exact opposite of scarcity; I have ubiquity.”

A 30-second ad during Grey's Anatomy cost approximately $326,600 during the 2008-2009 season, according to an analysis conducted by Advertising Age.

Windowing helps combat that limit. Jordan Hoffner, director of content partnerships for YouTube, cites Family Guy creator Seth MacFarlane's Cavalcade of Cartoon Comedy shorts, which premiered on the site. Media Rights Capital, which produced the shorts, locked up Burger King and as sponsors for the series before it went into production, giving them integrated placement. An executive familiar with the deal said that Cavalcade was the largest they had seen in the online space, placing the value in the low to mid-seven figures. Following its initial run online, MRC and MacFarlane released a DVD box set of the 50 shorts.

“There is a lot of stuff out there from a lot of creators who normally work directly within the Hollywood cycle and want to go direct to the consumer,” Hoffner says. “It's great that [MacFarlane's Cavalcade] launched on YouTube, but it was packaged up and monetized in another way. That is where a lot of opportunity lies.”

Fox Television Studios has launched a digital brand, 15 Gigs, to develop talent and franchises that can eventually make the jump to a network, or at least turn a profit through DVD, online sponsorships or some combination (see “FTvS Launches Digital Brand,” Aug. 3).

“We said, why don't we start allocating smaller amounts of money to development of creative material we could launch on the Internet just to get a feel for whether things find an audience?” says Emiliano Calemzuk, president of FTvS. “As those things grow, we can decide whether they can be developed for television or continue to live on the Web, while being financially self-sustaining.”

Other studios have set up shop online in a different way, creating “destination” video sites targeting specific demographics. Warner Bros. skews toward young females, while Sony's targets young men. Both have explored windowing opportunities.

The Web series Angel of Death was sold to Spike TV as a 90-minute movie, and was also released on DVD in July. The David Faustino pseudo-biographical series Star-ving was also released on DVD that month. Likewise, has been shopping its comedy Web series Children's Hospital to cable networks, according to people familiar with the project. In addition, FremantleMedia sold its Web series Secret Girlfriend to Comedy Central.

Unlike 15 Gigs, Sony and Warner Bros. are still focused on building up their digital brands, shifting to other platforms only if the fit is natural.

“[Sending a show to another platform] is not the goal; this is a medium in and of itself that we are creating for,” says Eric Berger, senior VP of digital at Sony Pictures Television and the executive in charge of Crackle. “To the extent that something makes sense for other platforms, then that is something we think we are smart about in leveraging the rest of the studio and the other windows and distribution platforms we have.”

Smaller Web video sites, such as My Damn Channel, founded by former VH1 programming executive Rob Barnett, are also eyeing the opportunity afforded by other platforms. “We are looking at putting out the first DVDs, our first international deals, the possibility of some television distribution for the work we have already created,” Barnett says, adding that while the company is eyeing revenue from those sources, its focus remains on the Website. “The goal has been to win in this industry, not hope that the gravy is somewhere else.”


But profitability is still the main challenge. Barnett says My Damn Channel turns a profit thanks largely to its small staff, and by securing advertisers before sending most programs into production. and do not release their financials, but an executive at a media company with a significant online video presence believes the pre-roll CPMs on those two sites were in line with the standard rate of $25. The sites are also pursuing product integration and package deals, which would likely feature variable rates and much more prominent brand visibility.

With the current state of Web video advertising, Palmer says it is unlikely that many of the medium-size or large video sites are able to turn a profit. “If you want to make a particular kind of show, it must be able to earn a certain amount of income in order to pay for it,” he says. “If you could build a big enough audience to justify a million-dollar show, that would have to be a television audience.”

The challenge facing window-ready content creators, at least until—or if—the Web video advertising marketplace matures, is to show that Dr. Horrible wasn't a fluke and that Web programs can make the jump to DVD or television.

The path between the two has seen its share of failures (remember NBC's Quarterlife?) But with efforts from Sony, Warner Bros., Fox Television Studios and others, the window is beginning to creak open.