Monday, October 22, 2012

Content Is Still King -- Always Will Be -- Money Will Come

[NOTE -- this is a post I wrote earlier this year, but believe it is a worthy topic for those of you who missed it the first time; it is slightly updated here].

Janke Roettgers of Gigaom recently wrote a piece titled "Netflix, Hulu & the Golden Age of Content", in which his major premise is that we have reached a new high point for video content because virtually all major online distributors are now developing original programming (a la HBO). That includes Netflix, Hulu, YouTube, and even Amazon! His major point -- it's not just about the major studios and indie film-makers anymore.

And, yes, that is a big deal. But, why are all of these major online players now getting into their own major video content creation game?

Quite simple. Economics. Pure and simple. Economics.

You see, we are, in fact, entering a new golden age for video content creators. But, for very different reasons than Roettgers' main premise.

Here is the real deal. He (or she) who creates the video content, ultimately gets the gold. In other words, video content creators are now discovering -- or re-discovering -- that it is their content that ultimately drives the entire online video engine and machine. You see, there are scores of video distributors, all of whom essentially do the same thing. They aggregate videos and try to amass the largest library for distribution (which is precisely what has happened in the online music biz for the past 10+ years now).  Their mission is to bring you, the consumer, the widest selection of online video content.  But, ultimately, these online distributor (Netflix, Amazon, Hulu) will essentially aggregate the same content that the others can also bring you.  There will be no real differentiation there.  They will try to differentiate themselves from the others by offering the best user experience, recommendation engines, etc.

But, on the flip-side, the video content itself that they bring you is absolutely unique. No two programs are identical. And, if any online distributor wants to deliver that unique work of content to you, they must pay the content creator. And, those content payments (licenses) for online distribution are now finally becoming big, very big. All of these major online players -- Netflix, Amazon, Hulu -- are starting to pay big big bucks to deepen their pools of content. And, we are still only in the early innings of the online video revolution.

These licenses will substantially increase over time, as all major online video distributors will fight to offer the deepest pool of online video content to their users (and have the bragging rights that they do so). As noted above, we have already seen that happen in the online music business. All online music distributors -- iTunes, Rhapsody, Spotify, Rdio, Napster -- always boast, first and foremost, that they have gazillions of tracks to offer. The largest number I recently saw was nearly 20 million available tracks.  Providing a rich pool of content (in this case, music) is simply a price of admission to be a real player in the online music game, because consumers don't want to find "holes" in a service provider's catalog.  If they do, they bolt to a competitor.  

Same thing is happening in the premium online video game. Real bucks are being paid. And, yes, these major players are now trying to pull an HBO and augment (and differentiate) their libraries from the others with their own self-produced programming. But, the real bread and butter will come from shows they don't produce -- at least for several years.

And, that's great for all of the kings of content who retain the crown ....

For a deeper analysis on this subject, check out my guest post in TechCrunch titled "Apple Schooled Music Execs Then, Here Are the Lessons Online Video Should Learn Now."