“Paying” For Video Content – Let Me Count The Ways

Ben Grossman summed it up well last month writing, “Last year, the TV industry discovered [sic] a variety of new ways to deliver their shows – on iPods, on video phones, even online. This year, they vow to figure out how to make money off of them.”

In this context, it’s interesting to note, like this Media Daily News article did, that “In the flurry of VOD deals that have been announced by major media companies, only one deal has been structured in which consumers could download with no fee.” The high-profile initiatives, like those with NBC and iTunes, have all been pay-per-unit pricing. But these endeavors haven’t really been significant money-makers to date, with “NBC U [saying] that it will only generate about $10 million from iTunes sales in 2006—or the rough equivalent of ad revenues for one typical Thursday night on NBC.”

These results, along with surveys reporting that “consumers prefer ads to VOD fees” have some saying that the right way to offer downloadable digital video content is through an ad-supported model.

Kenneth Musante writes, “One of the exciting things about the rise in broadband use and the decline of television is the potential for free video entertainment online. Wait… let me rephrase… free ad-supported video entertainment online. Premium commercial-free video content is fine too, but a majority of people aren’t going to want to pay to watch video.”

I agree that the ad-supported video model is currently underrepresented and carries huge potential. However, in the medium- and long-term, I believe that we’ll see an array of sustainable digital video pricing models emerge. In the same vein as analog television today, we have ad-supported pricing (broadcast), ad-supported plus subscription (basic cable), subscription (premium cable), pay-per-use (pay-per-view and DVD). The same models break out for other media as well, like print (which has free pubs, periodicals, exclusive newsletters, books, respectively) and music (radio, music magazines, CDs, etc.). What’s interesting to note is that the digital video, unlike modern media radio of and analog television, started with pay-per-use, as opposed to an ad-supported model. (Counter-argument: if you look back, the “original medium” was pay-per pricing – Guttenberg bible with ads, anyone?).

As the field matures, we’ll see a mix of pricing which will discriminate among customers’ tastes for immediacy, location, viewing screen size, and whole number of factors. Ad-supported will likely emerge as the predominant driver of revenue, but the mix among the pricing models will change over time as technology and tastes change evolve.

Overall, I agree with the fundamental premise of the importance of ad-supported video content and with Martino Mingione, who writes, “One of my core business beliefs is that there are opportunities in connecting advertisers to non-linear, video on demand streams. I say it because people accept advertising as a necessary factor in keeping television free and there is a lot of money spent today on linear television programs.” However, I believe that we’ll see an emergence of a wide variety of pricing schemes emerge (paid and non-paid) that match consumers desires to the content.

David Beisel

David Beisel is a co-founder and Partner at NextView Ventures. He has been focused on early stage Internet startups his entire career, both as an entrepreneur and venture capitalist. As an investor in the digital media space, David was most recently a Vice President at Venrock and previously a Principal at Masthead Venture Partners. Prior to becoming a venture capitalist, David co-founded Sombasa Media, an e-mail marketing company best known for its flagship product BargainDog. Sombasa was successfully acquired by where David served as Vice President of Marketing. David holds an MBA from the Stanford Graduate School of Business and an AB in Economics, magna cum laude and Phi Beta Kappa, from Duke University. He also founded and leads the Boston Innovators Group, an organization which holds quarterly entrepreneur events drawing a thousand attendees.