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Online video advertising model ... broken already

June 10, 2009 |  6:43 pm

You don't have to be an industry insider to understand that the market for professionally produced Web videos isn't exactly thriving. The list of digital video divisions and start-ups founded with Hollywood money in the last few years now resembles a row of gravestones: Disney's Stage 9, Turner's SuperDeluxe, NBC's DotComedy, HBO and AOL's ThisJustIn and the UTA-backed 60 Frames have all gone out of business.

It's not that people aren't watching video on the Web. YouTube's and Hulu's traffic just keep going up and up and up. The problem is that there's no real business model, which means anyone spending even a few thousand dollars to produce webisodes had better not count on advertising revenue to help them turn a profit.

Despite all that, there are still plenty of true believers in the medium. Many of them gathered yesterday in New York City for the Onfronts, a rip-off of play on the television Upfronts. The event is meant to bring producers and advertisers together as an opportunity for, according to the Onfronts website, "digital content-owners to showcase a vibrant new entertainment medium and present upcoming projects to press and major advertisers dedicated to high engagement entertainment opportunities."

JordanLevin The keynote speech was given by Jordan Levin, former CEO of the defunct WB network who now heads the management/production company Generate, which specializes in digital content. If the Onfronts were anything like the Upfronts, you might expect Levin to be hyping his latest projects. Instead, he delivered a dire message:

 I have no doubt that premium content produced for the Internet will grow along with the adoption of online video consumption. What I do doubt is whether or not many of the independent producers and production companies either here today, or who want to be here, will be here next year, or the year after that, or the year after that. . . .

Current production and distribution margins simply cannot support the overhead required to produce premium online content at a scale suitable to advertising, without brands subsidizing that effort to a greater extent than currently exists.

On television today, networks get to develop the properties they think will work best and then throw them out to the world, confident that the popular ones will make money from advertisers. But the "scale suitable to advertising" that Levin mentioned is, quite frankly, a tiny scale. Standard Web ads, be they banners, pre-rolls or those nifty overlays on YouTube, simply don't make much money.

The only solution Levin sees -- and he's not the only one -- is to go back to the original television model:

In the early days of television, brands sponsored live television to create the desired program environments in which to comfortably advertise their products; shows like the Texaco Star Theater and the Colgate Comedy Hour come to mind. . . .

You can choose to only transact business, as you have done in the past, with the traditional media companies. They will push their agendas and offer Web video as primarily either an extension of their existing, on-air product or low-cost pilot development disguised as original content. Or you could also choose to seed a new generation of independent producers who are open to being true partners in the creation of a mutually beneficial ecosystem.

Levin has a profound self-interest in bringing new ad revenue to the Web, of course. But the dismal economics of online video are undeniable.

Those who complain about blatant product placement on television these days had better stay away from the Internet, it seems. The only way to save professionally produced Web video might be to go back to the old days of TV, when the show was the marketing.

-- Ben Fritz

Photo: Jordan Levin, chief executive of Generate. Credit: Michael Buckner / Getty Images.