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Broadband Video Business Models: YouTube vs. Heavy

September 16, 2006

vcmike

I am enjoying having a front row insider’s view of a fascinating (and significant) debate:

What is the winning business model for broadband video?

Umair from Bubblegeneration has done a nice job framing the debate in a widely read and discussed post this week.

On the one hand, video-sharing site YouTube has demonstrated the most explosive growth and enjoys the most traffic among video sites. But, given the random and unpredictable nature of YouTube content, it seems far from settled how well YouTube will attract advertisers and scale a repeatable revenue model. Umair doubts YouTube will be able to capture the $15 CPM that other video sites can.

Heavy.com, on the other hand [disclosure: I am an investor in and on the board of Heavy], is a site that creates, curates and owns its content, and has been quite successful scaling a revenue model and attracting advertisers to pay much higher CPMs. Umair predicts that Heavy will be able to sustain CPMs as high as $40. While this has lead some, like The Financial Times to “unquestioningly” make Heavy out to be “juggernaut,” Umair points out that the picture is not all roses for Heavy either. Because of video consumers’ fickle tastes and behavior, traffic growth for sites like Heavy tends to be inconsistent.

[Brief digression: Umair’s reliance on Alexa may have led him to mischaracterize Heavy’s traffic growth. Based on data from Comscore and Nielsen, we think Heavy actually is one of the fastest growing and most widely viewed video sites out there, in fact second only to YouTube amongst private companies. I’ve posted on this before, and think this detail, while important for Heavy, is less interesting than the broader debate].

So what is the winning model?

My own conclusion, at least for now, is that both types of players would benefit from taking some of the winning formula from the other.

With its phenomenal traffic, YouTube should put more effort into curating its content and creating more “channels” “programs” or whatever you want to call thematically organized content. And, in particular, they should do so in a way that (a) that minimizes advertiser skittishness over questionable content and (b) integrates advertising more seamlessly into the user experience. I think YouTube is taking the first step, but has a ways to go on the second.

Heavy, on the other hand, should offer some features that MySpace and YouTube have shown web users love — programming your own content, connecting with others who are friends and/or have similar tastes, contributing content for the world to see, and sharing. In fact, the Heavy team is doing this with its new “MyHeavy” offering. Early results are promising, and I think this will be an interesting test case for integrating social features into a popular content site.

Curious in readers’ views and opnions here.

3 Comments

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  1. Nicholas #
    September 17, 2006

    online video’s a big ecosystem, and there’s room for several survival strategies.

    but there’s no doubt that YouTube sets the standard for the features and interactivity that users want with their video.

    there’s another dimension, too: cost. youtube’s cost of content is effectively zero. their marketing cost is zero, too. and for all the hype over their “million a month” bandwidth bill, bandwidth is cheaper in bulk, so their marginal cost is lower than a lot of other folks’.

    so youtube doesn’t _need_ a $40 CPM to prosper. they are the low-cost provider.

    if you’re Heavy, the question isn’t whether you should add YouTube-like features (you should!). It’s whether you can use them to keep a lid on your traffic aquisition and content development costs.

    If you can do both of those things _and_ command premium CPMs — you’re in great shape, and you’ll be around for a long time.

    as for YouTube, they’ve got to decide whether it’s better to sell now, leaving their monetization issues to someone else (Yahoo, Viacom, etc), or whether they think they’ll be able to beat expectations (which are pretty low) and build enough value for an IPO.

    I’d guess that the YouTube founders think MySpace sold too early, and that they’d turn down $600 million in a heartbeat.

    I’m not sure how I’d feel about that if I were an investor.

    (cool blog! – gordon gould -> simeon -> here)

  2. John Kopellas #
    September 19, 2006

    What if? To me the big question is how to get broadband media out to the masses. Is there a duel distribution model? Right now what all of the broadband media companies are relying on, is for someone to grab their computer and visit the site. What if there was a second distribution channel in place. I personally see the cable companies as disappearing. What i would like to see is that when you buy your new plasma there is a gagdet in it the receives “wireless internet” and you turn on you tv suscribe to your broadband media delievery company and bingo! just like the old days reception. scan your channels as you please.

  3. Sergei #
    January 2, 2010

    Классные мультфильмы бесплатно на Кинозоуне.

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