Online Video: That Sound You Hear Is The Dam Bursting
By various measures there are some $500 billion spent globally on advertising. About 40% of this goes to TV, which is why Oxygen is worth a billion dollars to folks like NBC.
Yesterday I saw a press release in which Sony announced more content partnerships, with folks like CondeNet and Sports Illustrated, for the "Internet Video Link" service it packages with its BRAVIA high-def television sets. Sony gets unique content it can sell ads against. The online publishers presumably get a rev share on video assets they've already produced, and extra traffic going back to their sites. If I understand how the service works, this completely bypasses the cable TV infrastructure by using whatever broadband you have available. Memo to cable company, re: $100/month digital cable subscription: "Ask not for whom the bell tolls..."
(Ok, you say, but why buy an HDTV if all you can watch is low-res Flash clips? Not so fast. See this interesting announcement from Brightcove and BitTorrent yesterday? How long will it take Sony to add BitTorrent nodes into the Internet Video Link modules on its sets?)
So, how do we know if Sony's video content bet is ultimately better than NBC's?
NBC paid $12 per Oxygen channel subscriber. According to news reports, there are about 300k Oxygen viewers in prime time. Let's assume of course that different people watch different shows each week, and that prime time is as popular as all other times combined. So I figure that 300k prime time viewers translates into 1.2 million unique viewers per month (cross-check: Oxygen.com has 1.2m uniques). OK, so $900 million (Oxygen's acquisition price), divided by 1.2m = $750 per unique viewer. (NBC also has to continue producing programming and pay carriage fees to cable networks to continue to reach those viewers.) Against this up front and ongoing cost, Oxygen gets about $7/unique (per month of course, ~$100M in sales/ 1.2m uniques/12 months). Figure a 15% margin, and NBC's netting $1/unique out of that top line (Oxygen Media LLC didn't disclose income AFAIK).
I don't know the terms of Sony's rev share, or how they are placing those ads with advertisers. Let's assume the overall split is 1/3 to each party (Sony, content partner, video ad network). Let's assume a $30 gross CPM for the premium content. So Sony's getting $10 CPM. If I assume each unique is good for 25 impressions per week, this translates into $1/unique, but that's essentially cost-free (no programming, no carriage fees, no amortization of acquisition costs) if you ignore the cost of the Internet Video Link network infrastructure. So, Sony's getting the same $/unique.
Now for the sound of the dam bursting: if I'm an advertiser and I can pay an ad network $3/unique (split three ways between publisher, ad network, and Sony) to reach my audience of women watching TV via, say CondeNet content, vs. paying NBC $7/unique, and get better targeting and measurability (remember, this is *Internet* video), which do I prefer?
Seems to me Sony's got the better growth/ scalability story, though reach is more limited in the short term.
I'm not criticizing the Oxygen deal; there are sure to be cross-promotional opportunities with iVillage that add to Oxygen's value to NBC (if a small fraction of iVillage's 15M uniques go to Oxygen, that's a huge leg up). And of course, there are near-term limitations of Sony's Internet Video Link value proposition to advertisers: low reach (the number of people with Internet-ready HDTV sets), and low availability of content from its partners. Plus, there are a number of apples-and-oranges problems with my analysis (like, are these ways of reaching viewers really the same? Do they ultimately reach the same viewers? Are viewers in the same frame of mind?).
The broader point, though, is about the significant arbitrage that is appearing for advertisers between reaching TV viewers the old-fashioned way and the new-fangled way, and about the dramatic shifts in fortunes that will occur over the next couple of years as dollars flow accordingly. It's a good time to be long high-quality video content, and to be aggressive about getting online with it.