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Perspectives on building technology businesses and AcceleratorIndia from Cartezia

Online video consumption grows, but pricing and business model challenges still remain

Wednesday, March 10, 2010

The boom in online video consumption has led analysts to declare 2009 as an inflection point. Going by the ComScore figures for online video captured below, they may be quite right. However, despite the increasing consumption, the challenge of monetising all this online content is yet to be fully addressed.

Nothing highlights the plight of YouTube and Hulu and the other online video sites more than the recent decision by Viacom to drop Comedy Central shows - Jon Stewart’s The Daily Show and The Colbert Report - two of Hulu's most popular shows. This move follows a breakdown in negotiations on pricing between Viacom, owner of Comedy Central and Hulu.

One of the first cable networks to offer its programmes online, Viacom’s current move highlights the struggle faced by media companies to create a successful commercial model for online delivery of their content. The shows, despite their popularity, have reportedly failed to generate revenues commensurate with their online viewership resulting in Viacom’s decision.

Hulu is a prime example of an online service that has solved some of the key technology challenges of online delivery of digital content through an elegant interface and best-in-class video streaming technology. The fact that it has failed to generate sufficient income from its two most-popular shows does not bode well for the ad-supported business model for online delivery of content.

Catalyzt has already covered YouTube's struggle to generate revenues from its massive online traffic. If Viacom’s move is any indicator, high-quality, mainstream video content is also facing a similar monetisation challenge. For third-party sites such as Hulu and YouTube that rely on advertising revenues earned by bringing content and viewers together, the problem of monetising video content needs to be solved in order to survive.

Can other forms of charging become acceptable? Reports indicate that Hulu may indeed be considering a paid model for its online video streaming service. If it decides to do so, it will not be the first to charge for online content. Media companies such as Financial Times and Wall Street Journal have announced plans to charge viewers of their online content for a day’s access or for individual articles.

A similar approach may also work for online video, but the key difference is that Financial Times and Wall Street Journal own their content whereas Hulu and YouTube hardly own any of the content streamed through their websites. This lack of online video content ownership limits the flexibility that Hulu, YouTube and other third-party publishers have in delivering online video at a price that satisfies the content owners and the consumers.

Until YouTube, Hulu and others crack this challenge, they need to rely on the ad-supported business model and hope that their user-base keeps growing to support their ad-revenue growth.