Fifteen years after it was promised, the golden age of video has begun

By Sarah Lacy , written on July 22, 2015

From The video Desk

The golden age of video has begun. Finally.

Part of that is the astounding success of Netflix’s pivot from subscription DVD service to streaming service to creator of critically acclaimed, award-winning content— all the while playing as big a spoiler to TV as TiVo did. Kevin Kelleher well covered the exuberant reaction to Netflix’s astounding success earlier this week.

In Silicon Valley, there is always some single remarkable company to pull off things no one expected. What’s more shocking to me is how ascendent user-generated video has become, a decade after YouTube started the revolution, and at least five to six years after everyone else concluded that even Google could barely make it into a business.


User-generated video was mostly considered a cultural phenomenon— one that affected elections (hello, Iowa yell!), saved the Family Guy (along with Netflix) and launched a million memes, but little else. Even all those early YouTube stars never made it to the big screen. Justin Bieber— Ok. But even the Beebs had help from professional managers who discovered him on YouTube and made him into a bonafide mass market star. The content was weird, the comments were downright Reddit-like at times. What advertiser wants that? And who wants to sit through an annoying ad when they want to watch a three minute clip?

The enthusiasm for user generated video content as a business waned almost as dramatically as it exploded.

And then ten years passed.

And now it’s a phenomenon unlike any.

Is it wildly profitable? Stil no, for the most part. It can be, among the weird no-one-over-twenty-five-gets-it phenomenon of high-grossing YouTube stars. We think adults were mystified by Elvis. Read this story about Dan Raile attending Tyler Oakley’s Slumber Party. And there’s not just one of these guys— one “Lonely Girl,” one Louis CK who made the direct-to-fan thing work for them. There are a lot of them. There are whole lifestyle brands and maybe— just maybe— scalable businesses built off of them. There are Instagram celebrities, Vine celebrities. Facebook is rivaling YouTube in videos consumed. Snapchat’s videos are so clogging networks the sheer crush of bandwidth is crippling the company’s lean, easy-loading interface. Video may be the one thing that could save Twitter, analysts are predicting. And, for the first time since Foursquare, there has been a bona fide SXSW darling in Meerkat— yet another take on user generated video.

In the parlance of early YouTube web commenters “FIRST!” meant very little.

During the resurgence of the consumer Web, it was popular  to say that every tried-and-failed business model of the late 1990s would come back anew now that the Internet had scale. But user-generated video may be the first category where we could say that about early Web 2.0 disappointments. What’s next? Widgets? Vertical social networks?

We’ve been writing about the golden age of user-generated video for the last few months, but we haven’t yet dug into the remaining Achilles Heel of this corner of online video— Ads. Yeah, yeah, in Silicon Valley we don’t like to dirty our hands with monetization. But for user generated video to really fulfill the many dashed hopes and dreams of the 2005-era, this shit needs to make money for more than a relative handful of personalities.

And here’s the thing: All that hype, activity and bullshit rhetoric that video is going to save Yahoo, AOL, Twitter and everyone else aside, how video ads are bought and sold is still a giant clusterfuck.

Morgan Stanley recently published a report that puts the mess of it all in perspective. While the firm is bullish on online video overall, it notes how there’s zero consistency in formats or even basic ways in which online video ads are bought and sold. “Online video advertising at scale beyond YouTube is just beginning,” the report reads. “The ecosystem remains underdeveloped, with issues like ad formats, attribution, pricing models and viewability standards all still developing and representing pain points for advertisers and agencies.” Check out this crazy quilt of formats:

That’s right. Even the market leaders inherited such a messed up market that they invented all their own rules rather than follow the IAB standard. There’s click to view prices. There are auto view prices. There are rules about how much of it has to be in frame. There is no real sense of what a view even is in the online video world. Which is one reason Morgan Stanley notes that Netflix is in such an extremely enviable position: It has users who pay it for its video. One of the three observations the analysts make about the ascendant space is this: “It is noteworthy that Neflix is expected to generate similar revenue globally in ’15 as YouTube ($6-7bn), evidence that consumer interest in streaming video without ads is substantial.”

But of course, paying for House of Cards is different than paying for a YouTube celeb, and Netflix equally has margin pressure from the cost of creating such premium content. Video just isn’t easy. The report also notes that the rise of programmatic video ads— the single asset AOL seemed to have that Viacom wanted— would ultimately “temper growth as supply outstrips demand.” As we said at the time of that AOL deal, programmatic is valuable but it’s not nearly the same as having a YouTube. 

And really, that’s in Facebook’s best interest. The reason the company is valued so highly is that it has pioneered its own ad formats that can’t easily be replicated unless someone else wants to wire more than 1 billion people, give them an algorithmic newsfeed, and become the destination where most adults get their news everyday. Even Twitter’s proprietary ad formats were considered the company’s bright spot— the real issue was product and user growth.

Facebook has already shifted the video landscape by doing something from a product point of view that was verboten by usability experts for decades: Auto-playing video. And yet, on Facebook, Instagram and other platforms, no one cares. People even like it. Sound doesn’t blare out, and it sucks people into a mini story. If Facebook is going to throw such caution to the wind with the things we all thought we knew about video as a product, why do we think there will be any consistency between how Facebook and YouTube sell ads? This is the problem with the giants leading this revolution— or if you look at it from the point of view of forcing agencies to accept new standards in video, it’s the advantage of giants leading it.

I can’t imagine it’s great for ad-based UGC startups. If they get at all popular they have the extreme bandwidth and technical challenges that Snapchat is experiencing now before they even get to the challenges of monetization.

Already in the online advertising world, dominant platforms that can create custom ad units have been winning the vast majority of dollars. And that’ll only get more pronounced with video. Because if I’m an ad buyers looking at that byzantine Morgan Stanley chart, I’m even more incentivized to write checks to Google, Facebook, and maybe Twitter and ignore the IAB standards completely. And that’s bad for any wheezing legacy Internet brands trying to pin their resurgence to video. (You’ll note, Morgan Stanley’s comments on Yahoo were still mostly related to the value of its Asian assets. Even groups bullish on where online video is going don’t buy that it’ll save aging late-1990s Internet giants.)

There’s more good news than there’s ever been when it comes to User Generated Video. Unless, perhaps, you are a VC or entrepreneur who wants to build a stand-alone business.


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