Analysis: Online Video – Everyone Is Doing It, But Still Very Few Innovative Business Models

Authored by Jay Baage on September 19, 2006 - 11:25pm.

We have seen extremely bullish statements from the heads of some of the major US media companies regarding new media platforms in the last few weeks. The market is clearly buying into the digital entertainment "revolution", with major media stocks having bounced back this year with over 20 percent gains. But although things are looking up and we are finally starting to see some revenue from online video, we can't lose sight that new and innovative business models to monetize this content are far and few between.

During Tuesday’s Goldman Sachs Communacopia XV investors conference in New York, News Corp. Chairman and CEO Rupert Murdoch said that MySpace is looking to take the market lead in online video from privately held YouTube in the next 60 to 70 days. Moreover, CBS CEO Leslie Moonves repeated that his company would like to find the next MySpace or YouTube and did not rule out acquisitions for CBS. Moonves stated: "Will we take a gamble? Yes. Are we looking at things? Absolutely."

Moreover, Disney's CEO Bob Iger said that that the company has sold 125,000 movies on Apple's iTunes store since the start last week, generating $1 million in revenue. He predicted that movie downloads alone could easily generate $50 million in sales a year for Disney.

This is the kind of stuff investors love to hear. CBS shares are up almost 20 percent this year, while News Corp. and Disney shares are both up over 20 percent.

This is great news for the digital entertainment industry, but, to keep things in perspective, selling digital content on iTunes seem to be the only viable business model out there.

"No matter where the programs go, the programs are ours and we're going to get paid for them," Leslie Moonves said at the conference.

Well, yes, but the question is HOW and also HOW MUCH? Moonves had no new hard numbers to answer this question and my guess is that digital video ads are not yet a significant revenue stream for CBS.

News Corp. President and COO Peter Chernin did have some hard numbers to show off. He said News Corp. generated about $250 million in revenue from its Fox Interactive Media unit, which includes MySpace, in its most recent fiscal year and added that revenue should "easily double" this fiscal year, which ends in June 2007.

He did not, however, say exactly how News Corp. plans to monetize all its video content, especially stuff on MySpace Video. Chernin has said that MySpace is driving over 60% of the traffic to its competitor YouTube. Clearly a problem that needs to be addressed.

In the end, these moves by old media companies into online video are seen by many as a fundamental shift in the advertiser-supported business model that has existed in the television industry for more than 50 years. But in reality, they are baby steps. Investors are listening a lot to buzz words like "Internet TV" and "social networking" right now, but I suspect that a lot of the gains this year has to do with ratings successes in traditional network TV. There is still an element of "mystery economics" in the equation of online video that does not add up.