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More Questions Than Answers: Rethinking the Web Video Business Model

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Will Richmond of VideoNuze provides excellent daily coverage of the web video market. This morning was no exception as he recapped Digital Hollywood by asking three questions:

  1. What role will current video distributors play in an increasingly broadband-centric world?
  2. Is the ad-supported business model for broadband video going to deliver for all the content providers relying on it?
  3. What does all this mean for Hollywood?

Once upon a time, people couldn't imagine more than a few dozen video channels. Now, not only do we have niche channels for just about every topic imaginable, we have web video channels that cater to every variation imaginable.

While the video providers initially thought this was a great development, the problem is that Wall Street valued cable operators based on the revenue per subscriber. As the number of channels available increases, the number of channels watched actually remains fairly constant. As a result, IPTV and other new video providers have an uphill battle to get anywhere close to the lofty valuations of their satellite and cable competitors.

It is no secret that Will and myself are both huge believers in the syndication model, given our respective histories in cable television.  It starts with the premise that more distribution leads to less risk. For example, early cable TV was partially funded by selling so-called bulk accounts to hotels and apartments. While the revenue per room was less than a home install, the agreements were for three to seven years and were easy to maintain. In exchange, every hotel in the 1980s proudly proclaimed "free cable" or "free HBO" as a way to distinguish themselves from the hotels down the street.

It's my sense that similar types of arrangements are just around the corner. When people understand how video can be used as an amenity, to enhance an experience, then I think the boom times in web video will return again.

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