Courtesy of gapingvoid

In their new September issue, Fast Company magazine features a fascinating story about the comedy web video business and how it’s almost impossible to make these websites profitable.

They lay out many of the current business models, but I think an addendum is useful. In this post, I will outline a mindset that hurts that industry, what the current business model is and why it doesn’t work, a suggestion to ensure profitability, and the business model that can make an online video site profitable.

First, The Mindset

We tend to think about web videos as a “thing.” It is a product. It is content.

Forget this mindset. If you’re a video producer, web video might be a tangible thing that comes from tangible people sitting around your tangible office. But it’s not.

For your audience, web video is an experience. There’s no actual product for the viewer – the video elevates the spirits or gives us hope or connects us to others. It has more in common with a trip to Disneyland than it does with buying razor blades.

So stop thinking of a video as a commodity and start thinking of it as an experience you provide for your viewer.

Second, The Model

As the Fast Company article points out, the prevailing business model is advertiser-based. This has been the case for most things in the U.S. for more than half a century.

However, the advertiser business model cannot support web video. Consider it: the marketplace is fragmented, niche sites have the most loyal visitors, online is still new to many advertisers, audience has a decreased appetite for ads, and the content (at least on the comedy sites) is oftentimes…edgy, to put it diplomatically.

Even off-shoots of the advertiser model don’t work, such as product placement and sponsored shows. The huge conglomerates that have the money to invest in these small comedy sites only know these sorts of models – give the product away in exchange for some advertiser time.

No matter how many times you throw money at the problem, this business model still doesn’t work.

But that doesn’t mean web videos will never be profitable. (Misters Murdoch and Branson, please have your assistants print out the following explanation.)

One Suggestion

First, just a suggestion: keep the suits as far away from the video production as possible. Nothing kills comedy like business people.

You want to appeal to college kids? Hire college kids or recent grads to do the show. Fast Company points out the CollegeHumor.com, a site still operated by the creators, plays well with YouTube and still cleans up at the bank.

“The site has attracted advertisers such as Motorola, Fox, and Subaru and reaped $4.2 million in ad revenue during the first quarter of the year. CollegeHumor is profitable – the only profitable major comedy-video site.”

You do what you’re good at and hire people to do what they’re good at. (This applies to most businesses, not just online video, by the way.)

One Solution

OK, you’ve been waiting for that business model that will work better than advertising, right? This is how major media companies can succeed with online video.

Here it is, step by step, just for you titans of business:

• Take all the money you would spend on focus groups and market research.
• Invest this money into your online video business.
• (Once the site is up, collect the bits of ad revenue and re-invest it.)
• Use the website to do all the market research you would have done for your other shows.

Web video sites can be profitable when the “product” is not the web video. Websites are the perfect venue for market research. You can find out anything you want – people are dying to share their opinion for free!

Can’t decide between jokes for a sitcom? Film them both and let the website audience vote. Feature pilot shows on your website and only air the most popular ones. The money you save from traditional research and focus groups (much less money lost in terrible shows you would have aired), will more than pay for your video website.

Eventually the website might make money and that’s fabulous. Until then, use it as a seed bed. Test out new acts, try out new jokes, ask your audience’s opinion, and gauge their interests. Web video sites can have immense value if they are viewed as research laboratories instead of content production facilities.

But what do you think? Maybe advertising just isn’t being done correctly for these online comedy sites to become profitable? Maybe a subscription model like The Bitterest Pill podcast would work? Let me know what you think in the comments section below.

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