A VC - Latest Comments in Trading Analog Dollars For Digital Pennies

Re: Trading Analog Dollars For Digital Pennies

AndyFinkle — Thu, 04 Dec 2008 10:09:13 -0000

I think that trading Analog Dollars for Digital Pennies is exactly the wrong mentality - and what is getting content providers nowhere but spinning their wheels in the Digital economy. Even if this strategy were to prove successful in "moving" money (people buying Mp3's instead of CD's as example) it does nothing to create NEW revenue streams, it only moves existing revenue streams over to digital.

I am a huge proponent that in order to really thrive in the digital economy, content producers need to think more "outside the box". As example of this, I wrote a comprehensive business plan for the music industry - 9thtrack.com. 9thTrack would allow an artists (band or label) fans to "mashup" the music on a track by track basis. So for example, I might enjoy a grateful dead tune, but always felt that a harmonica or Saxophone was sorely needed - or I didn't like the existing bass riff that had been layed down on the song. 9thTrack would allow me to manipulate and create BRAND NEW content that could then be vetted,voted up/down by a community (fans of that song), and ultimately offered up for sale. Now instead of simply offering the same song digitally, there has been created brand new content = MORE & NEW revenue streams, not just moving a revenue stream online...

MashingUp of ALL digital content is the real future, not just the pennies from existing content.

www.twitter.com/A_F

Re: Trading Analog Dollars For Digital Pennies

fredwilson — Thu, 04 Dec 2008 06:56:08 -0000

I think online video will actually shrink the market some, but not hugely as
volume will partially make up price decreases

I think this is true for all advertising as it moves from analog to digital

Re: Trading Analog Dollars For Digital Pennies

DaveGoulden — Wed, 03 Dec 2008 20:07:51 -0000

"The new model should spend money on creating something people actually want and engaging with the audience, deeply."

Good article yesterday about just that. http://adage.com/digitalnex...

Re: Trading Analog Dollars For Digital Pennies

gordonmattey — Wed, 03 Dec 2008 14:26:14 -0000

You are right, it actually doesn't make any sense for studios to put their content on the internet, it becomes very difficult (impossible even) to drive demand and equivalent revenues.

All forms of video storytelling and marketing around video were created to serve the economic drivers and technological constraints of TV, essentially a set of rules created over 50 years ago.

All we've done is take the existing norms (spot advertising, sponsorship and product placement), and map them to the internet.

I believe the real shift here is that the internet affords a completely new architecture for video storytelling and viewer engagement. The internet is not inert. There is a two way interaction between the creator and the viewer.

How do the economics change when you have 10,000 people deeply interacting with your show over one month vs 10,000,000 just watching at 8pm?

How does a non-inert platform like the internet blow up the number of options for brand marketing?

The old model spends money on distribution and promotion.

The new model should spend money on creating something people actually want and engaging with the audience, deeply.

Re: Trading Analog Dollars For Digital Pennies

Jeff — Mon, 01 Dec 2008 14:39:51 -0000

Fred, thanks for the thoughts. Are you supporting the notion that online video will pull dollars (or lots of pennies) away from television thus creating a larger online video market? Meaning that this 'trade' will be a good one. Or, are you suggesting that online will be more of an additive number thereby increasing the overall video (television + online) market? Thanks.

Jeff

Re: Trading Analog Dollars For Digital Pennies

oryx_orange — Mon, 01 Dec 2008 10:59:28 -0000

Interesting discussion about how those with big advertising budgets will evolve to allocate their mix to both existing and new channels, but what about the evolution of their strategy that works across all these channels? I see nothing in here about content-resident advertising like product placement. For instance, how many Macs are moved every time someone watches Entourage live or in re-runs as Johnny Drama uses his MacBook to iChat in full screen with his honey over in Europe? Technology is already being used to enable far greater integration of such "advertorial" content on the Internet, but I think you'll see it very soon even through traditionally analog, mass-market media delivery channels.

For example, for those who love your transaction-based models, how far are we from enabled impulse buying of such items through your television? I can already buy content on demand from my cable company. Notice how some tv advertisers (ie. Ford) in the US are now flashing the name of the song playing behind the ad? How long before you can point your remote at your set-top box, agree to a transaction, and have the song put in your iTunes and charged to your cable bill? For that matter, put a sponsor, a content provider, and a transaction service together and then the viewer points at Drama's Macbook Pro for the same result, or at least for a split-screen ad that highlights the product's features.

My point? Television eats Internet revenue models just as fast as Internet eats tv models. Until my whole family sits in front of our computer for the latest Amazing Race installment or a group of my buddies gathers to watch football on my Macbook Pro, tv will remain a big chunk of big advertisers' budgets. To that end, evolution of advertising strategy is every bit as important as evolution of advertising channels, and as long as there's money behind that strategy, the only thing analog dollars are changing into is digital dollars.

Re: Trading Analog Dollars For Digital Pennies

Alex Salkever — Mon, 01 Dec 2008 03:47:41 -0000

The scalability of Internet content transmission will go away quickly as CDN costs and other transmission costs drop with Moore's Law. Ultimately, the cost will go quite a bit lower than today. At the same time, production costs are going way lower, as well. Look at Current TV and its user-produced ads or Genius Rocket, where teams are building out ads that are essentially on par with those created by big budget agencies pros. Yes, the best content will draw more dollars but the lower barriers to entry for content production will certainly enhance diversity and make it harder for big budget productions to keep justifying their costs. Their response will likely be figuring out ways to lower costs yet maintain quality. On the advertising front, I don't necessarily see it as a function of CPMs crashing. Like any other classic popularity distribution, it will follow an 80-20 Power Law configuration. So top quality will draw top dollar and continue to do so, regardless of the capability to target specific audiences. Why? Because top content will give advertisers confidence that the audience is actively engaged in the published offerings. You can slice and dice and chop and slop as much as you'd like to build the perfect demo for your campaign but on the Internet, no one knows if you audience really gives a damn about the content itself. Sequoia said it a few weeks ago. The new equation for advertising will heavily involved concepts of engagement. And those are only now being developed. Ads can't be one way any more than the Internet itself can no longer be a one-way medium.

Re: Trading Analog Dollars For Digital Pennies

Walt Ribeiro — Sun, 30 Nov 2008 17:07:44 -0000

Interesting article. Analog dollars for digital pennies, wow! nice post, enjoyed it

Re: Trading Analog Dollars For Digital Pennies

Garrett Smith — Sun, 30 Nov 2008 15:52:22 -0000

I think everyone needs to realize that simply looking for the "digital" equivalent is not the answer. Quite simply, what works in an analog world, might not work in a digital world and therefore publishers and advertisers need to look towards different types of advertising and sponsorship opportunities.

For instance, maybe advertorials, placed in line with a blog's normal posts, with relevant content to the user base, would be worth $40 CPM, as a opposed to some ad no one will look at. Theory being that folks will read great content, because reading is what most do online and good content is good content. Maybe video becomes monetized through product placement or studios collaborate with big brands to create online video shows that communicate a brands message through its episodes. I think the GEICO caveman show would have a better go around if it was done online, through YouTube.

Publishers should also be looking to enable direct communications between customers and brands. Why not allow brands to have their own blogs and forums on the publishers site. The publisher can then "teach" the brand how to properly author a blog, participate in conversations, moderate the forum, etc. You'd be surprised how many brands are not doing these important conversational marketing and thought leadership practices or if they are, how poorly they do it.

In summation, it's time for publishers and advertisers to get together and get creative about how the advertiser leverages the web for brand awareness, customer acquisition and bolstering customer loyalty.

Re: Trading Analog Dollars For Digital Pennies

fredwilson — Sun, 30 Nov 2008 14:16:46 -0000

Steve, the comscore data for youtube is worldwide. Your 60mm number is its US audience (which comscore confirms)

Re: Trading Analog Dollars For Digital Pennies

Brian — Sun, 30 Nov 2008 12:17:32 -0000

Fred - I don't agree with your assertion that "Analog has physical costs which lead to scarcity driven business models. Digital has zero marginal cost (or near zero) which leads to ubiquity driven business models." If I make a TV show once and distribute it once, my broadcast fees are the same whether I have 10,000 people tune into the broadcast, or 10 million. Distributing that same clip over the internet will have me paying $X per GB transfered. Each incremental viewer, and each uptick in streaming quality, and each additional minute of footage watched has me (as the content provider) paying more. It's not at all clear that YouTube and Hulu's revenues are covering their distribution costs, let alone content creation.

Re: Trading Analog Dollars For Digital Pennies

CoryS — Sun, 30 Nov 2008 10:09:53 -0000

Good points and I'll add to this rant that digital ad delivery methods need to drop this concept that ads can only be delivered to X number of views per session. I can watch one channel on TV for an hour and see 23 minutes of commercials (that each pay per spot), but cannot host an hour long show [on the long tail of published sites] and get more than 2-3 views that count which pays <$10 CPM. Once this inequity ends, the move to the digital arena will accelerate.

Re: Trading Analog Dollars For Digital Pennies

Aruni S. Gunasegaram — Sun, 30 Nov 2008 10:03:25 -0000

Funny clip and interesting insertion of the JC Penny ad. Would JC Penny want their ad next to that skit should be the next thing JC Penny should ask. Are the people who view that clip more inclined to shop at JC Penny? Can a JC Penny ad placed in places like that help overcome the 'commercial image' that many of us have of JC Penny? Now say if someone inserted a PowerAde ad there...would the viewer then more likely buy a PowerAde the next time they were in a drive-thru, checking out at a grocery store/Target based on that say 1 minute side of the eye impression? These are the questions I think online advertisers should be asking or maybe even take a 'wait and see' approach. Those with money can experiement...those with no money will have to hope they survive the 'wait and see' time period.

Even though online ads are more measurable in some sense, the fact that they are mean they come under more scrutiny and are expected to perform better. In my opinion, when something can be measured so well it means there will be a lot of variation as the market figures out how to really (and I mean really) interpret those results...so the swings will most likely be big and volatile.

Re: Trading Analog Dollars For Digital Pennies

shareme — Sun, 30 Nov 2008 09:20:14 -0000

A question, as CPM decreases per the unit price level would that not drive those Mobile Ad Networks to higher revenue that come up with more innovative ways to serve ads than just the native app and mole web app combinations?

For example, could an interactive Android Mobile Web App that happens to be integrated with OS and user events become an advertising vehicle in its own right? No, not something as trivial as a sponsored app but something way more interactive and fun.

Will we see Mobile Ad Network sponsored and rewarded mobile app development on iPhone and Android? Isee some baby steps towards this but would be interesting if bigger steps are seen.

Re: Trading Analog Dollars For Digital Pennies

fredwilson — Sun, 30 Nov 2008 08:05:22 -0000

i am sorry for your headache Krassen

Re: Trading Analog Dollars For Digital Pennies

Eliot — Sat, 29 Nov 2008 21:21:41 -0000

In our own experience we've seen that even though online ad spend hasn't taken too much of dip. Advertisers appear to be more risk averse to non-tradition new media advertising which to an industry still trying to figure out the right way seems counter intuitive.

There is an article in Adage (http://adage.com/webvideore... about how 88% of Hulu users would rather opt into a 2-minute ad rather have the content interrupted. Its a matter of hashing out how consumption of the content will be delivered.

Delivery of CPM isn't the only aspect to consider. Its not just that there is a requirement from the content owners to monetize the video, but there is an aspect to the story that gets lost with commercial breaks. And the creative integrity sometimes gets lost in the need to pause for a station break.

Re: Trading Analog Dollars For Digital Pennies

Ahmed — Sat, 29 Nov 2008 20:12:21 -0000

The inevitability argument may be right.

But I fail to see where the big bucks will come eventually? When youtube starts advertising in an intrusive way, when hulu and similar sites bring on the advertising, I believe the viewing figures will drop down dramatically. Also, I rather like the composition of the audience on mainstream TV; but a disproportionate ratio of the people watching vids on youtube are kids and geeks. Witness the comments you get on youtube.

I am not sure I like my generation's 2-minutes-of-attention-span either. A lot of youtube clips don't balloon in viewership because they don't hit the mark quickly. This probably because there are a zillion other things you can do on the net, so whatever your watching better hit the mark quickly. That's okay. But I also like TV audiences' more leisurely approach.

Re: Trading Analog Dollars For Digital Pennies

eric susch — Sat, 29 Nov 2008 20:07:19 -0000

Ok that's YouTube v. CBS but lets face it, most of television has numbers A LOT lower than CBS (aka CSI.) Advertisers will go where the people go and I agree that it's not going to happen as fast as some think, but there are some web shows like Rocketboom and Ask A Ninja that already beat well known channels like MSNBC.

OK, I just compared individual shows to a channel but that's part of the problem. The entire economics of the Television industry is focused on channels, but people don't watch channels. People watch shows. And the good content is where the people will go. Gone are the days when there is some crappy show between Sienfeld and Friends that a lot of people watch. Very soon the day will come when most everyone will realize that they don't watch 490 of the 500 channel they're paying for on cable. (That day may come soon with the economic crisis.) Where's all that ad business going to go? Online to find where the people went. When that starts to happen the quality of online shows will go up. We'll be seeing a lot more shows like Dr. Horrible in 2009.

That said I also agree that television won't go away. I see something similar to what happened to radio in the 50's and 60's. TV will change and production budgets will decrease. Instead of old time radio drama with stars and a full orchestra, they'll hire one guy to spin records all day. (Or in today's radio they'll hire one guy to shout and be pissed off at people who aren't there!) I think we see a little bit of this already with the proliferation of reality TV.

Re: Trading Analog Dollars For Digital Pennies

Robert Seidman — Sat, 29 Nov 2008 19:01:51 -0000

Fred, I can't really make a good case that TV advertising is superior to other forms of advertising, but "perception is reality" seems to be at play there. Can that change? Absolutely. It's not going to be as speedy of a transormation as the New York Jets experienced year over year though.

We're many years away from the Internet being the mechanism for broadcasting live events seen by 10 million and more (potentially many, many more factoring worldwide viewing).

If you take the 113 or so million television households in the US, there is zero incremental cost to NBC to add a million, five million or 100 million more viewers. That's true whether it's from the installed base of broadcast, satellite or cable viewers. When 100+ million wind up seeing all or part of the Super Bowl there's no incremental cost for NBC. But because of the way bandwidth and distribution works on the Internet, the differences between "broadcasting" a live event to 100,000, a million, ten million and a hundred million are massive.

TV's business model is certainly going to have to change. But in order for the Internet to become the primary distribution outlet for live or long form video content, its business model must change as well.

Re: Trading Analog Dollars For Digital Pennies

Guest — Sat, 29 Nov 2008 18:56:04 -0000

You guys (Fred, and this whole industry sector) are light years ahead of most of the rest of the economy. You just "get it". A few years ago I invented digital barcodes for single-molecules and started a company to commercialize them. I may have developed permanent brain damage from banging my head on the wall after trying to explain to venture capitalists the difference between "digital" and "analog" and what that does for cost.

The most infuriating response was that they were taught in business school "to never compete on price", and that was that. The whole point is, digital pennies will beat analog dollars in any industry, and no thick-headed "executives" or "venture capitalists" can stop this.

You can check my company's website here. Notice the slogan "Join the digital revolution!" Better late than never...
http://www.nanostring.com/

Re: Trading Analog Dollars For Digital Pennies

howardlindzon — Sat, 29 Nov 2008 18:43:16 -0000

Go ted. pretty much with you, but niches are still doable.

Re: Trading Analog Dollars For Digital Pennies

Ted Murphy — Sat, 29 Nov 2008 16:58:23 -0000

I think you guys are delusional. The only way to make money on the internet is through ecommerce. Keyword search and classified page views receive a $40+ cpm, but that's because they are both closely tied to an ecommerce transaction. The rest of internet inventory receives less than $1 cpm. I'm paying $0.055 cpm on my run-of-site advertising over on google adwords.

I see zero hope of this ever changing.

Re: Trading Analog Dollars For Digital Pennies

Steve Kane — Sat, 29 Nov 2008 16:43:14 -0000

i agree with these overall points and concepts and comments but i differ on the methodology/data and time model

basically, conventional television is still overwhelmingly more popular than any online video model, period, and will be for a while.

and the process of change is much more evolution than revolution -- the result will not be the death or end of anything, but a new equilibrium. (can someone please tell me one single medium which has actually died? morse code is still in active use, as is stone carving.)

any case, i'm not sure what comscore is counting, but most other measurements services give youtube roughly 65 million *unique* visitors per month

http://siteanalytics.compet...

by contrast, the CBS network alone amalgamates nearly 200 million viewers -- in just one week, and just in the three evening hours of prime time!

http://tv.zap2it.com/tvedit...|||weekly,00.html

i've never seen nielsen de-duplicate viewers numbers within a network, but let's say 50% of those 200MM are duplicated. heck, lets say 75%

regardless, just one network, CBS, equals or betters youtube's entire monthly audience in just 21 hours (one week of three hour slots)

as for targeting online, having sold the stuff for many years i can attest to the power and efficiency of segmentation

but i can also attest to the frequent uselessness -- nay, silliness -- of targeting

a simple example. for literally decades, gillette targeted shaving cream ads at men. thats who shaved, was their rationale. and everybody agreed. and everybody was happy and sales were fine. then in the 1970's someone said, hey -- its not who shaves that matters, its who buys the shaving cream. and that was/is women, at the supermarket and drugstore. that's why shaving cream ads in the 1970s suddenly started emphasizing the close smooth shave -- that's whats important not to the shaver, but to the person hugging and kissing him.

the point is, taretging is most useful as a second tier technique... after the marketer has cast a wide net and done testing and really studied and understood what segments matter and why. broadcast models may dwindle in frequency -- the clan gathers around the tube less often than it once did -- but there is some base level of interest in broadcasted content, either because of dramatic excitement (live sports) or simple scheduling (survivor is on Thursday at nine and I like that and rely on it and am sufficient engaged by the show to want to see it as soon as it is available, etc.) and for the essential portion of any marketers budget that is allocated to casting the wide net, conventional television will always be a great model and a great business to be in...

Re: Trading Analog Dollars For Digital Pennies

Ted Murphy — Sat, 29 Nov 2008 16:36:59 -0000

stickam.com is really, really cool.

Re: Trading Analog Dollars For Digital Pennies

Darren Herman — Sat, 29 Nov 2008 16:18:11 -0000

This conversation is a great one with lots of extremely quality people contributing. I'd like to add the following:

1. We're still in diapers. The digital video conversation (as Mike Su rightly points out: browser based video, and Internet delivered TV content) is in early stages. We're not going to know how this plays out for quite some time, but the people reading this (and like people) are the ones who will probably figure out where the future takes us.

2. The big dollars in advertising today are locked in Television. Go to any major media agency such as Zenith Optimedia, Mediavest, Universal McCann, and others and try to digitally get a portion of their pure television budgets. It's probably driven many a sales person crazy. The TV buying units (both national and local) have the majority of dollars for both brands, have been doing so since the 1940s, and know/understand and have built tools all around buying television in all of it's dayparts and intricacies. While some agencies are testing an integrated buying unit of both traditional TV and digital, it's in infancy and the majority of dollars are not there yet.

I think there is another way to look at this conversation. Now that you, me, my grandmother, and my child has access to a digital camera and camcorder (the nikon d90 has video capabilities) as does my Apple iMac, we expect that if we produce a piece of video content, and get it hyperdistributed on iTunes, MySpaceTV, Revver, Blip.tv, and any other platform, it should have advertising dollars find it. Every single Mac sold from a few years ago, going into the future, literally means that there is a content creator who can now fight for digital video advertising dollars. Should this be the case?

The early days of the video game (today) are going to have the real big winners focus on Internet Delivered TV Content, a la Hulu. Why? It's purely a business model question. The dollars moving online from TV budgets are going to find the TV shows that media buyers are already buying on traditional TV. Whoever can lock up agreements with the TV-networks and distribute their shows, both current and back catalog, is going to win the early days.

Once media planners and buyers understand digital video (we're still in diapers, remember), the dollars may cross the lines into other areas of digital video, as Mike Su says, browser based video. You are going to have a very hard time however of convincing a big brand who is cognizant of their placement to surround a YouTube video of people jumping off the roof of a house and getting injured or surrounding a UGC clip on Justin.tv of the recent tragedy.

Sorry for the rant.