It is a tough proposition. I helped build the website GameVee that was dubbed a YouTube for gamers. The site was geared for gamers. The best feature was the ability to take XBox Halo 3 film from your file share and convert it to video and put it on the web. This was a great feature because the user didn’t need a capture card nor did they need to understand the multitude of video formats and bitrates.
GameVee tried to build a business based on advertising. Like many other “Web 2.0″ sites this is a difficult way to survive as a company. With advertising you need volume in traffic. Volume in traffic increases the bandwidth costs. It is a catch-22. The advertising revenue generated from the increase traffic never would cover the bandwidth costs. There were other opportunities to make money for that business but never pursued such as charging a subscription for converting Halo 3 films. GameVee was eventually sold to GotGame and the best feature of GameVee was shutdown. Indeed it looks like they plan to shutdown GameVee altogether according to one of their administrators. No doubt the bandwidth costs are the main reason.
Other companies are subsidising the bandwidth costs. YouTube has been regarded as a money loser for Google since purchased. If it wasn’t subsidised by Googles ad revenues from the search engine, it too would likely go the way of the doo-doo.
Solutions to this problem are being tackled like the company I now work for Digitalsmiths. They provide video indexing and search services that will help generate targeted advertisements. Many of the clients are showing videos of older TV shows. These shows have a better chance with advertising. Long running videos can reasonably place advertisements in the middle of the show just like you are watching TV. More targeted advertising and ad presentations increases the revenue of a video asset. A better proprosition then short clips like those found on YouTube and GameVee. These sites would see a rebellion if the ad was shown in the middle of the video. Instead they rely on ad placements on the page. That is a very limiting option as there are only a few highly visible locations on the page for an advertisement.
With internet advertisements predicted to retreat in 2009, making money on video will be even tougher. Time Warner Cable raised their fees recently and Viacom decided to raise their fees as well. Time Warner Cable rejected the new contract and threatened to take their channels off the line up. What a giant failure on Time Warner Cable. They have zero leverage in that negotiation. They even suggested that fans of Comedy Central could just watch their favorite shows online! What a great suggestion. Indeed why bother to deal with a greedy company with terrible customer service. For years people have been asking for a-la-cart subscriptions. With the internet that is almost a reality.
Premium movie channels on cable cater to movie buffs. The failing of these channels is they hammer the same movie over and over. Time Warner responded with their digital service On-Demand. Nice service. You can select a movie when it is convienent and watch it instantly. Well that service is limited to the 30-50 movies they offer. Netflix has responded with 10,000 movies that can be watched on demand for their $8.99 a month service for renting DVDs. Brilliant! Can you imagine if NetFlix teamed up with Viacom to provide the same service for Viacom shows? How about working a deal with the NFL and MLB? These franchises have realized that they can create a premium service because folks will pay for it. Imagine Netflix creating the dream of consumers, a-la-cart programming service that allows you to watch shows on demand with content you want to see.
Indeed, I did sign up for Netflix after a 8 year lapse because of the “Watch Instantly” feature. Add in a few a-la-cart options and I will flush TWC completely. Does that mean it is the end of cable and satellite? Doubtful, now that most of Americans have gone out to buy their digital TVs. High Def will ensure cable and satellite will survive. I’m just one consumer that doesn’t care if I can count the wiskers on actor’s face.
