Thursday, August 18, 2011

How Video Gets Funded In A Fragmented, Digital World

Good article from TechDirt.

A Response To Felicia Day On How Video Gets Funded In A Fragmented, Digital World

Mark asked us to weigh in on an interesting post on Google+ by Felicia Day, wondering about the future of video content. Day, of course, has been quite successful in embracing the online community as well as new and different business models. She lays out the question in response to the news of Fox and others deciding to delay legal options and how that's likely to drive more people to unauthorized file sharing. She notes that, from a business perspective, this seems scary, but she also seems to recognize that it's reality (rather than denying it, as some people do):
There is a basic principle working here (scary, if you're in the TV business) that I've personally been dealing with on The Guild with a mere 2 DAYS! delay of releasing content: People want content immediately, wherever they like to view things. They don't care if you're trying to pay production bills, they don't care if it's the only way to fund things, they want it NOW, they want it CONVENIENT to them personally. Whether this is a reasonable attitude or not, it's what people are used to in this day of streaming on demand, and it's only going to get worse, because cord-cutters are getting more and more common. Long view=not good.
From there, she picks up on the trend of cord cutting we've been discussing, echoing to some extent Wil Wheaton's recent comments about the backwardness of many in the TV business today:
To me, the cable box seems like Tower Records 10 years ago, or Borders just 2 years ago. Look at how music and books have shifted to digital, on-demand purchasing. Cable companies are the "brick and mortar" place for video, and that business is dying. People don't have enough time for 140 channels, they have enough time for maybe 10 shows, that's it. Why pay 140 bux a month to watch that many shows when you can buy them individually? Or stream The Wire on Netflix for 8 bux a month, because you missed it the first time? Or play a video game? Or just surf the net?
But then she asks a final question, which is basically, "but how will we continue to produce videos" in this world? I should be clear: she doesn't seem to be doing this in the same "but you must save us" way some in the industry have done. She's just asking an honest question she has about where the world is going, because she's unsure:
So my question is: What happens to all those shows when they fragment like that? Who is gonna pay to produce them? What is the future? (And "funded by viewers" model is not the answer, only 1% of people ever really contribute, and the up-front costs of producing video are WAY higher than making a record or a book, etc. Believe me, I understand this personally.)
First off, one quick point before delving into the larger question: the whole "only 1% of people ever really contribute" claim is a common one, but I think it's a misleading one. While it lets some people write entire books on evil free riders, it's really meaningless. If you can get more than production costs out of that 1%, the fact that it's just 1% really doesn't matter, right? And, no, I'm not saying it's easy to cover production costs from 1% -- it's not for most productions. But I'm just showing that 1% by itself, without context, is meaningless. What if, for example, that 1% is made up of super wealthy patrons who are happy to fund the full production? Or, more realistically, what if those 1% are people who represent companies willing to buy advertising? Just because it's 1% doesn't mean you can't have a viable business model. The % is meaningless. All that matters is the absolute dollars.

But on to the larger point of what happens to video in a fragmented world? Well, I sense that it's going to be awesome. As with music and books, it will allow all kinds of niche productions to show up, which would simply never make it at all in a "network" world. In fact, this is already happening -- and Day's been a part of some of that with things like The Guild and Dr. Horrible. As for how to fund it, well, again there are a variety of options. One of the things that changes is that there's no longer "one clear path," but that hardly means there's no way to make money. It may take more experimentation, but there are all sorts of options, mostly involving a hybrid of models.

For years, of course, we've talked about how the new business models are built off of the formula of connect with fans, while giving them a valuable scarce reason to buy, and that certainly applies to video as well. In the past, for example, we've listed out 10 forms of scarcities that can help you figure out good "reasons to buy," and most of them apply to video as well. Let's take a look:
  1. Access: This remains a huge one, of course. We mentioned a study in the past where 19% of music fans said they would pay anything to meet their favorite star. That's hyperbole, of course, but people are willing to do crazy things to meet their favorite stars. With a video, you could make it even more interesting by doing things like offering up the opportunity to be "an extra" on a shoot or something. How much would fans of The Guild pay to show up in an episode, even if briefly?
  2. Attention: Here's an obvious one. When you have an audience, their attention is a scarcity that can be sold. Day, for example, has had success selling sponsorship deals for The Guild. That's an example of selling attention, and is basically the way lots of video (hello, network TV) has been funded for ages. Just because that attention is now online, it doesn't mean that the value of that attention goes away. Yes, it's absolutely true that online video attention isn't valued nearly as high as attention on TV, but it doesn't always have to be that way. And, there are even a few examples of shows online being able to command higher rates than shows on TV.
  3. Authenticity: This isn't necessarily something you sell directly, but the more authentic you are, the more people will respond to that. Again, it's something that Day has mastered as well (as you can even see in the post that she wrote and her discussions on the matter both on Google+ and Twitter). Follow Day on either platform and it's just oozing with authenticity, and what that does is really build up her core and loyal audience. While she may say that only a small percentage will actually pay, never underestimate the ability of truly loyal "true fans" to help you figure out how to make money. Authenticity has a way of increasing such fans.
  4. Exclusivity: This can be a tricky one, because some people think it means "locking stuff up" to make it exclusive. But we're talking about other forms of exclusivity, which don't involve pissing off other people. How about the ability to buy an old prop from a show? Or a chance to play WoW with the cast of The Guild. These are things that can very reasonably be exclusive. Day has done some stuff with offering The Guild slightly earlier, and as she notes in her post, that just seems to upset people. Doing anything that involves this kind of artificial exclusivity can be tricky -- especially when it's something that has a social component. While The Guild is a broadcast video, part of any really successful cultural content is the fact that you share it/discuss it with others. That's what makes it culture. Limiting when people can see content can actually take away value in that it harms that form of "sharing" (no we're not talking about "piracy" here). The ability to discuss a favorite show with others is, in many ways, part of the appeal. Taking that away through fake exclusivity can backfire.
  5. (New) Creation: Any work before it's created is still scarce. Another way of looking at this is effectively the ability to do custom or commissioned creations. Imagine an offering where you could write a "fan" script of your favorite shows (within reason, of course). How many people would jump at the chance?
  6. Tangibility: A scarcity that still sells. Never doubt the potential for tangible merch to sell. While it's something of a joke that people (falsely) claim that the business model we suggest for everyone is "sell t-shirts," that doesn't mean you should ignore the potential of t-shirts. They can be quite lucrative (and, yes, for all the people asking, we really will be restocking our own t-shirts soon).
  7. Time (saving or making): If you can help people save time or make more time, people will often pay. This is one that may be a bit tougher to apply to TV, but I'd be interested in hearing suggestions. I know that some podcasting products have things like "double time" that let you listen to the same podcast at a (pitch-corrected) sped up pace. I wonder if there would be a market for "sped up" video too? Perhaps not, but just tossing it out there for brainstorming.
  8. Convenience: Day mentioned this in her post. People want convenience above all else. This part is less about what an individual show can do, probably, and more about the platforms. If Netflix/Hulu/YouTube/BitTorrent/some-other-platform can make a work more convenient, then it becomes important to figure out how to embrace it... or else your fans will go there without you.
  9. Belonging: Never, ever underestimate how important a sense of belonging can be to a group. This can be manifest in a variety of ways (including some listed above). But it certainly opens up opportunities for things like fan clubs, where a small subscription fee gets you cool "extras." This also goes back to the tangible merch as well. One part of belonging is showing off that group you belong to.
  10. Patronage: This one is still looked down upon by some, and it's rarely a good option if you're betting entirely on it, but serious opportunities can come out of just asking people to support an artist -- especially one who really connects with the fans in an authentic way. Sure, perhaps only 1% of the people will be willing to act as patrons, but combined with other things listed above, you can build a really strong business model.
That's just my quick pass on thinking through some ideas for where video goes. Will some video productions fail as the market heads in this direction? Absolutely. But that's the nature of what happens when platforms and markets change. Radio stories more or less went away in an age of television, and TV found certain types of stories worked better on TV than they did on radio (and some worse). So things changed. And that will certainly happen online during this transition as well. But I can't see how it's likely to be worse or more limited. There's a ton of opportunity out there, and I have no fear that all sorts of unique and workable solutions are coming about for video.

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