Gauging Prospects for ROI In the Web Video Business

Michael Arrieta, CEO, Big Air Studios

Michael Arrieta, CEO, Big Air Studios

This discussion at ScreenPlays’ Media Innovations Summit brought together senior executives representing a broad range of strategic approaches to monetizing Web-originated video content, from three-minute productions to episodic TV series to feature-length films. In this edited transcript these executives share insights on marketing strategies, the relative merits of paid versus ad-supported approaches, the competitive landscape, the potential of the deep long tail and much else. The session was moderated by Gary Arlen.
Gary Arlen, Principal, Arlen Communications – Let’s begin with each of you telling us about your companies. Steve Horn, tell us what you’re up to at Metacafe and what your vision of this is.
Steven Horn, VP, programming, Metacafe – At Metacafe our task is to get video views. The way we’ve decided to do that is to organize our content around premium short-form content. We’ve built a daily content destination specifically for guys called Video Entertainment for Guys across five verticals – movies, music, sports, television and video games. Mid-20s, college-educated guys.

We’re in a different sort of spot. We’re not only a content distributor with over 100 partners whose content we get views for, but we’re also content creators. We have an editorial team here in San Francisco who every day curates the home page for entertainment. And just eight ways ago we launched what we call MEN, the Metacafe Entertainment Network. We match advertisers with that demographic in a number of different ways. We have a network business, but we also have a direct business where we bring brands into original productions we do.

Michael Arrieta, CEO, Big Air Studios – I started Big Air Studios about two years ago. Before that I was executive vice president in charge of digital for Sony Pictures. I was at Sony for 12 years. All the things that are starting to happen today came under my watch.

What we saw was a real shift in consumer preferences for media. Obviously people still like seeing movies in theaters and on DVDs and all those other great places, but there’s a lot of emerging connected distribution.

So at Big Air we are a full-service film production, distribution and acquisition company. We put movies in theaters; we put them on DVD. But we really focus on where consumers are going. So we over index on what we call connected distribution, the iTunes, the Netflixes of the world. Those types of distribution services are what are most important to us.

We’ve been primarily focused on releasing other people’s product right now, which is what happens when you’re new and just starting out, when you don’t have as much capital or track record. So we’ve put a couple of films out so far. Great acclaim. They’re going out on all platforms. We will be getting into all forms of production in terms of series-based episodic content, transmedia content and, of course, full-length features.

We think of ourselves as a studio. A Sony Pictures or a Lionsgate or a Warner Bros. or something of that size is kind of where we ultimately believe we’re going to play, except we’re going to play in a slightly different game of connected distribution. We’re really focused more on the future. We believe consumers should get media experiences across whatever platform or retailer they want. So if you’re a person who wants to pay-per-view on DirecTV, download on iTunes, stream on YouTube, walk into an AMC theater, we’re going to enable all those experiences.

But we’re also going to be giving you new content experiences, multiscreen transmedia type programming, because we think the new connect audience is really going to demand that. We learned that at Sony where I created about 50 plus transmedia series and where we launched the first full-length feature films directly on cell phones, directly on the Internet. We had interactive journeys with a show called Buried Alive, which was nominated for an interactive Emmy. This was an interactive journey which also cumed into a full-length feature.

We believe that storytelling comes in many, many forms. Sometimes it’s sit back for an hour or two and watch a movie. Sometimes it’s sit back for 20 minutes and watch a TV show. Sometimes it’s get blasted in three-minute increments, all of which are relevant and all of which we’re looking to do.

Arlen – Reinventing the studio system based on the old studio system. Greg Ellis has had a long 20-year experience working on enabling technology. Tell us what brought you to this world of Web video production.

Gregory Ellis, VP, Business Development & Sales, DaCast – Long path to Web video production on the personal side. But DaCast is a video streaming-as-a-service platform on the Web. We are a pay-wall focused monetization tool for independent content producers, rights owners, sports and other types of event and content people to get their content to the consumer directly and to monetize that in the mid and long tail of the market.

I’m essentially here to give some experience on a broader base as to what people are doing to monetize content on the Web, how they’re taking both traditional content such as sports events and made-for-Web content and putting it out there, what strategies they’re following to make money and generally to build a new distribution network and paradigm that’s based on the Internet. We’re seeing a lot of people who have been riding along with the [traditional cable TV] bundles who don’t have the high audience looking for new paths and new ways to distribute their content and hit their audience in a broader sense with full monetization capabilities.

We build the gears. We’re highly integrated, highly automated and very white label. We’re not a portal like Metacafe. We sit behind people who are competing or hope to compete with Metacafe, and we sit in front of people like Michael’s company helping them to have a very cost-efficient distribution infrastructure that integrates the monetization elements while providing the APIs that allow them to sell advertising and develop their own monetization and bring that into the infrastructure we’ve already built.

We have over 5,000 broadcasters now. Over 500 or so are paying at a significant monthly rate, and over 250 of those are using pay-wall monetization, either subscriptions or pay-per-view. About 65 percent of our traffic today is live. We have events that range up to hundreds of thousands of simultaneous viewers. We have an average watched viewing time of over 30 minutes on each of the events and files that our customers host. And our average file size on the 35 percent of our customers’ content that is VOD is over one gigabyte. So we’re clearly not cats playing piano. We have a lot of three-minute shorts up, but we have a lot of features up.

Arlen – When you say broadcasters, you don’t mean the conventional kind of broadcast over-the-air TV. That’s one of the problems in this industry. We use the legacy terms for new kinds of business.

Ellis – Actually I mean both. For us, broadcaster is anyone who is transmitting content over our infrastructure. But I have Ghanaian Television, the broadcaster out of Europe on our infrastructure. We have four or five independent TV networks here in the U.S. – independent stations and very small publishing groups who use us to broadcast unique content on the Web site. It’s not truly over the top because it doesn’t come with parallel distribution through cable. It’s pretty much pure Web distribution, but it does come from a mix of traditional broadcasters.

We have a lot of soccer. We have a lot of tennis. We have niche sports like Ultimate Frisbee, which just a month ago had a club championship with over 100,000 viewers on a pay-per-view event.

Arlen – What’s been the greatest success you’ve had so far in developing this content, and what’s been the biggest challenge?

Arrieta – I think our biggest success is yet to come. In the early days of IP distribution and digital media at Sony we decided to start making Web series. iTunes didn’t exist. YouTube didn’t exist. Netflix didn’t exist. We started to make programming, and we had this grand notion that we were going to start making really short content, and that magically would turn into feature films or TV shows and the like. And in some cases we were actually successful in that.

Robot Chicken, which is on Adult Swim, was a show we created. It was called Sweet Jay Presents on a service we launched, a precursor to YouTube, called ScreenBlast, and it’s still a long-running television show. As far as a thing that started on the Web that’s become a very successful traditional media property,

I think that is probably the most successful ever, and nobody knows it actually started as a Web property. It’s made a lot of money. It’s a great show, and it came with a great creative vision and a great story. It actually worked. It was released online in 1999 or 2000 as a Web series, which is pretty amazing. I’m pretty proud of that, and that the industry sort of grew up around it.

I also had this whole aspect of technology sitting inside of Sony. We had this vision for connected vision and connected play. We tried to launch onto widget-based television at Sony in 2002, 2003. I was over in Japan in the R&D labs, and we were looking at this technology about putting IP connectivity straight into TVs. We couldn’t make it work. The technology wasn’t there yet.

Obviously we’ve come a long way. Every television has some kind of widget and some kind of connected platform. The thing to me that’s most interesting about that is what it actually does for a content creator and supplier to bring content in new ways to consumers. I think one of the greatest successes is seeing things like Netflix being proliferated across devices, and now that’s given way to what you’ve seen with other services, such as Sony has Crackle, HBO Go is launching across all platforms, etc. You’re getting a kind of pervasive set of connections.

Arlen – Is this the biggest challenge, just distribution?

Arietta – The biggest challenge with distribution at first was technological adoption. A success is that Parks & Associates put out a survey that basically said 81 percent of Americans have connection to a video service over the top, be it to their smartphone, to their Xbox, to their Roku or whatever. Almost everybody has an IP video service in the house. We’ve kind of hit almost full penetration.

That’s a great statistic that’s really exciting for us. The challenge is that services need to get better; bandwidth still needs to improve; things like searchability, usability still need to improve. iTunes is easy but not easy enough in my opinion. It’s so easy to turn on your TV and sit back and do nothing. I think there are a lot of challenges to that.

It’s still not that easy to sell out an ad network online. You can sell ads but there are a lot of avails still. There are some challenges about personalization and the like. So I’m excited to see it happening, but, really, we’re looking at a pretty small digital market in comparison to what it’s going to be. But it also has its challenges to create programming that’s truly interactive and truly interesting and that puts all the services really at the level they should be.

Arlen – Steven what’s your greatest success so far, getting Matt Damon on the air every time?

Horn – Yeah, we’ve done a few things with Matt Damon. But I think the biggest success is a little more philosophical. Content availability, the type of content we’re specifically interested in, is everywhere – movie trailers, video game clips. I think we’ve had a lot of success in giving people a reason to come to Metacafe to watch this stuff versus going to YouTube or IGN where I used to work or any number of places they could find this content.

We’ve done that through having a presentation layer, through having editors, an editorial voice that goes pervasively through this, as well as our original productions. Original productions that we’ve tried we’ve actually been selling them. Brands want to be around that content.

Earlier this year we sold eight episodes of a show called Trending Topics to T-Mobile, and we also just recently sold to Paramount Home Entertainment our show called Pause Play with Super Eight. They were interested in Metacafe because, of course, we have scale but also because of the way we bring our editorial voice into the product. That for me is the biggest recent success, figuring out what can we do as a company to get people to come to think about us.

Arlen – What’s the biggest challenge you’ve encountered?

Horn – At first it was, why are we doing this? There are a million pieces of content out there. Anyone with a camera and a green screen can make this content. The barrier for us wasn’t can we do it but what are we going to do with the content.

Arlen – Greg?

Ellis – The biggest success we’ve had has been developing a model with a bunch of performing artists and their management companies that integrates social media use with independent delivery of their video content in a way that makes the mid- and long-tail type of delivery more profitable. We have worked with people like the bands Chicago and Noize Suppressor and a half dozen artist management companies who are primarily using Facebook, with some use of MySpace, other social media, as the drivers to the pay content and the pay wall.

They’ve developed not the traditional content that they need to have sync rights for to distribute but actually unique content where they have performed non-recorded and non-released material, where they have the backstage and the rehearsals. That’s all tied to the social. We pretty much have a formula now we can take to an artist and say here is what other people are doing; this can generate for you between $50,000 and $200,000 a month in additional income, and here’s how you market it, here’s how you go out and do this. That’s been our biggest success.

Arlen – You have a template that you can apply almost anywhere.

Ellis – We have a template that’s so far in the music and performing arts area. We’re working on similar templates. Now, mind you, a template for us also includes customization and additional features added to our platform.

Arlen – That’s where you make your money.

Ellis – Right. We have built this template through our first launch artists. We now have a couple of smaller film festivals that are moving their archives and libraries onto our platform to distribute. We’re working on a template for them.

What we’ve found and the biggest success here is identifying that there is a social media integrated approach that can make long-tail video profitable. You don’t need the big celebrities all the time. You don’t need to be on a million-views-per-month Website to make money. And advertising doesn’t need to be the way you make your money. You can do it through a pay wall.

Arietta – I really love that. One of the points for us at Big Air was we saw that there are a lot of films made in the world that never see the light of day. Everyone who ever makes a film tries to go the route of getting a Sony Pictures or a Warner Bros. or a Paramount or somebody to take it, and largely they fail.

Thousands of movies get made every year. Some of them never see anybody. They never get to shift it anywhere. They didn’t get accepted at some festival; they never get distribution. There’s some passion, some creativity behind it. But the world of distribution has deemed it to be too small. It just doesn’t monetize.

But what we saw with connected platforms is the cost of delivery, the cost of prep-delivery marketing has radically changed. So on one end of the spectrum we take out big films that are very commercial with stars in them and high concepts, and those are in all screens and generally what makes you a larger distributor. But we’ve also opened up a secondary part of our business about getting the masses to be able to get access to the content that doesn’t otherwise flow to distribution.

If you’re not deemed to be of certain size you’re not going to get on iTunes, you’re not going to get on the shelves of Wal-Mart. You’re certainly not going to get in an AMC theater. But there are potential fans of that. So we’re enabling that. And the largest way to market it is through the social Web.

So search engine optimizations, finding like-minded people using social media outreach, you can actually connect audiences large and small. And then if you can keep the cost down with a delivery platform to make it profitable, you’ll find people who will pay for it, and secondarily you can find people who will advertise, passion groups around passion projects.

We’re trying to monetize the deep long tail. Most people think of the long tail, and what they really think of is something like mid neck. Really long tail is very niche content. There are tens of thousands of films and even more so if you get into series and other things that have never seen the light of day.

Arlen – With the global environment we’re in right now and ex-patriots everywhere in the world in another place, the Web enables them to see movies and shows from home.

Arietta – Consumers want more programming choices and content than they get access to today. You think there’s so much content, but in effect if you think of a small filmmaker – last year over 3,500 films got submitted to the Sundance Film Festival and about 150 got in. so there are a lot of people who didn’t even get into Sundance. If you don’t get in there, big studios don’t pick you up. But there are billions of people on the planet, and there’s some subset of those people who want to see each of those films.

Arlen – All of you have alluded to advertising as a revenue component of all this. Steven you said you have sponsorship underwriting. What’s the best approach to funding this niche or special interest programming?

Horn – We actually built a studio in our San Francisco office, very simple, couple of cameras, green screen. So our production costs are about $150-$250 per minute. The same people that build the page every day are the people writing the scripts, appearing in the videos. We’ve nailed that part of it. We can then build an audience for that and take that out to an advertiser.

Arlen – You do that first. You don’t find an advertiser who wants to support…

Horn – We do it both ways. Some shows we launch from scratch with advertisers.

Arlen – What are some examples of that?

Horn – Trending Topics, one I mentioned, that was a pure example. We did a pilot and took it to T-Mobile and they funded the remaining eight episodes of that show. For me the first thing we want to nail is we want to get the editorial feel of the show correct before we try to bring a sponsor in.

Arietta – That’s actually really important. We’re creating shows, and any project I’m involved with we have made and I continue to make the conscious effort that I’ll never green light anything predicated on an advertiser’s supporting it.

Now, there will be integrations and other things that make sense. Everyone has their own philosophy. Some people on a risk basis would rather have an advertiser who’s in, underwrite it and then make the best possible show. We look at the other side as make the best possible show. If the broadest audience will watch it, the advertisers will come.

The advertiser doesn’t really care about the show. They care about their brand message getting seen. So the higher the quality of the content the more monetization options you have. It’ll sell on TV, it’ll sell on DVD. The smarter you can be about monetization across multiple streams of revenue the better off you’re going to be.

Arlen – What works best?

Arietta – Today if I think of a feature film or just any scripted series or whatever, there are businesses that will pay license fees like a Netflix or somebody else. That’s one way to monetize. My favorite is I want consumers to pay for stuff, because if it’s good enough people will pay. Buying tickets to the theater, buy DVD, pay-per-view it on DirecTV, iTunes or whatever. If your content is good enough that people pay for it, that’s what gets me excited.

Arlen –The trick to that is a lot of promotion money to drive people to that. You’re suggesting social media is going to be the way to drive people to be aware of this.

Arietta – That’s one of the big changes happening now. We created Big Air to improve distribution. The major studios do it a certain way, and they’re very, very good at Spider Man, Harry Potter. Certainly that’s a fabulous business unto itself.

When you look at the shifting of the world you have all sorts of problems with piracy, flattening DVD sales, etc., more challenges to the monetization system, which then cause you to have to spend less on production and also spend less on marketing. The shifting from buying to renting content is a very material issue with major studios right now.

So you look at marketing being the big driver. Being more efficient is really what we’re about at Big Air. We leverage costless marketing to the greatest extent possible. Before we spend a single dollar on media we’ve exhausted every single possibility on the social Web and every other form of non-cash marketing.

That’s not the way we approached things in a major studio. We’d of course have a billboard on Sunset; we would be buying Thursday TV spots. We’d be putting print ads everyplace. And then we’d think about what we were also going to do digitally. We’re reversing that, trying to spend as much as possible digitally and the least amount possible in general. And we’re seeing that has a very nice tradeoff to the economics.

Arlen – Greg, you also mentioned advertising as part of this equation. How are you or your customers approaching this as a revenue model?

Ellis – Sometimes successfully, sometimes not. What Michael described is kind of a mark of what our more successful broadcasters have come to in terms of their marketing strategy.

What has worked particularly well with advertising has been companion ads that are especially unique merchandise oriented. For example, one of our broadcasters is in the Frisbee dog competition area. They bring up about 40,000 unique views a month on their archive and live content. They go all around the world filming competitions, filming exhibitions. They have dog superstars. They take those clips and put them on YouTube and Daily Motion and other free portals in order to drive more traffic. They don’t use in-line video ads at all. They don’t do overlays because it annoys their customers. What they do is provide free and pay-wall content with companion ads and merchandising for Frisbees, for dog clothing, accessories.

Arlen – Is this going to work its way to NBC like the Westminster Kennel Club shows?

Ellis – Almost everyone we’ve talked to either failed to get distribution in the traditional media or is looking to get there. There’s one company I’ll mention that isn’t our customer, but Hanuman Media based down in L.A. has produced a unique three-minute-per-episode Web series called Bollywood to Hollywood. My understanding through the industry is that they now have a deal for a feature and for a series.

But once they launch the series, once they launch the feature, they start building a property that’s going to drive them back in, and so I’m sure they’re talking to us and every one of our competitors about how do I now have a way to monetize my own content that maybe isn’t going to be out on Hulu or maybe isn’t going to be monetizeable someplace else, because it’s more niche. What can I bring along to the Desi community in North America that isn’t related to this more broad-based Bollywood to Hollywood story but is targeted to people who might watch their event?

Advertising is the companion ad. It’s very niche targeted. It’s very much aimed at the CPMs mobile advertisers get when you have that very well defined and narrow audience. It’s not pre-roll, mid-roll. It’s not TV-like advertising in the video.

Audience question – I’m really interested in the experience you guys have had with what I would call ideal consumer length. My understanding was that the PC and mobile devices lend themselves to three- to five-minute story lines and a lot less to 30- or 60-minute story lines unless they were a kind of proven brand on the network TV.

Arietta – It’s funny. When we first started doing original programming for digital platforms we were constrained by Verizon’s Vcast system because it could only handle under five minutes of video. That’s largely the reason everything came in three- to five-minute chunks.

What we found is the content can be as long as it is good. We really had some amazing success putting out feature full-length films on mobile phones. And that continues to be a trend that’s just unbelievable to me. Now there’s the smartphone with a bigger screen. But we were putting out video on low-end one-inch square screens and it was consumed long form.

Short form content is great. Obviously it has its little blast, and YouTube does it very well. YouTube doesn’t do as well on a television set as it does on a PC. As the screen gets bigger the duration of view usually gets longer. But it doesn’t necessarily mean you can’t have a very nice long-form experience of 15 minutes or more.

The economies dictate length. A feature film is a three-act structure generally 90 minutes to two hours. If you see a feature film that lasts 48 minutes you don’t feel complete. I think it’s not so much length that’s the issue. I think long form can go on any platform. And increasingly, with people’s propensity to watch video on a tablet, a phone or a PC, it’s only getting longer.

Horn – The ideal length is, of course, related to quality and what we’re talking about. But we’re finding a really nice sweet spot between two and a half and three minutes, because most of the productions we’re doing are timely and relevant. People are coming every day to get these consumption snacks, as we’re calling them. They’re not going to come to a Metacafe to watch something they can watch on Hulu. They’re going to come to watch what’s trending, what’s cool to this particular space.

We actually have a show called Pixelated, which is four and a half minutes long. The other day I was saying, we’ve got to cut this. It’s way too long. This four and a half minute video was getting great views for us, hundreds of thousands of views, but we also wanted to chop it up so that for somebody who only had time for 30 seconds we could use that as a promo for the larger show.

When you’re dropped in a playlist, which is an experience we give to our users, they’re not going to sit there and watch an eight-minute and then a 30-second. So we’re in that two-and-a-half to three-minute space.

Arlen – Greg, from your experience what’s the magic number?

Ellis – It’s quite a bit different for us. Live events 20 to 30 minutes, especially sports, is what the average attachment time tends to be. People will watch 20 minutes; they’ll drop off and log back on. When it comes to entertainment, with a few exceptions it seems to be right in that 20- to 25-minute range where you hold people’s attention.

This is what I was saying about building a model for feature films in the film festivals. What they have found is when they’re selling content, they have to do a mix of shorts and features. This is a kind of bundling. De-bundling brings them to the Web, then they bundle to keep people’s attention. They’ll do shorts and about 20- to 35-minute chunks on the features.

Arlen – The blurb describing this session talks about young audiences. Is that the only target for the kind of Web video we’re talking about?

Arietta – I’d say not. It used to be a young audience. But now with connections coming into everyone going all the way up to older generations, I think it’s going to be far broader than just young consumers. Young consumers are just currently over indexed.

Arlen – Greg?

Ellis – No.

Horn – Yes. That’s our focus.

Arlen – You’re going to stay there. Google, YouTube, Facebook all looking at distributing the kinds of videos you’re talking about. Is this good or bad for you?

Arietta – Phenomenal. Everybody should be in the distribution business, because that gives us more places to put content. I love having multiple retailers. I think it’s really all about consumer choice and connecting to devices, and I want as many people in the business of trying to distribute content on a high-quality basis to the consumer and focusing on the consumer experience, because that’s going to drive more video consumption, more purchases.

Horn – Love it. Love YouTube, love Google. But they’re the type of places where you can get any video for any type of audience. We’re going deeper into creating our value around a particular audience. Yes, you can find that same video on YouTube unless it’s an original or exclusive, but you come to Metacafe because it’s just such a really well-tuned collection of content.

Ellis – It’s the best marketing tool the mid- and long-tail producers have. So it’s good for us.

Arlen – Is there room for you and a lot of other people in this category, or is there going to be a shakeout like there always is?

Ellis – There’s definitely going to be a shakeout in our part. Gosh, I can’t even count the number of people who think they’re in the same business we are. There are probably five to eight who are actually in the business serving the entertainment-produced production community. We’ll probably narrow down to three before too long. But I think some of them will be sucked up to the big media companies.

Horn – I think consolidation is a decent thing to have happen. It just makes everyone up their game altogether. For us, though, and sites of our size, it’s about audience.

Arietta – For my business, there’s only six major studios, three mid majors and maybe a handful of people who can distribute all the way from theaters to DVD shelves. Consolidation is already starting to happen. You know Summit and Lionsgate are talking, and other things like that. But in the business we’re in it’s only a finite group of companies, and we feed into the Metacafes and everything else where I think there’ll be a lot of consolidation.

Arlen – What’s the one lesson the audience should take away about how to succeed in Web video production and distribution?

Arietta – We’re all learning. Think of the consumer, because the consumer is right.

Ellis – Pay wall, not advertising.

Horn – Know your audience; listen to their feedback.

Arlen – Thank you very much.