Friday, January 07, 2011

Successful Internet TV – 3) The Financial Model - Revenues

Previous Articles

Successful Internet TV – 1) Know Where You’re Going
Successful Internet TV – 2) Planning

Resuming our long running guide on how to set up a successful Internet TV service, we’re now going to look at the financial nitty-gritty.

Before listing some of the revenue opportunities, it should be emphasised that none of the streams listed below should be taken in isolation. Indeed, I would strongly argue that mixed revenue models are likely to work much better than a single model channel. However, it should be borne in mind that some of these models work against each other. For example, charging subscription is likely to limit the audience for advertisers.

Substantial volumes could be written about all the items below, covering the sources of revenue, how to tackle achieving sales for each revenue source, and how to report and account for revenues and measure and optimise the business model. There isn’t space here to go into details, but I hope that we can tackle each one in more detail in future blogs.

Sponsorship – perhaps the easiest way to get your Internet TV service up and running is to seeking backing from a sponsor; more and more brands are seeking to align themselves with content that can attract audiences and provide a ‘halo effect’ to their products and services.

Subscription – if your content is valuable enough you can ask your audience to pay for the service; this is a tough model and is likely to work for premium content and specific audiences, although this model has, of course, been made to work very well in traditional television.

Pay-per-view – again, charging for pay-per-view is likely to only work for content that is of value to specific audiences (and which is not freely available elsewhere; another challenge of this type of charging is coping with piracy.

Video advertising –video advertising is an option once the audience is large enough in a specific market. A 100,000 audience spread across the world is of little value since advertising spend tends to be geographically allocated, but 100,000 viewers in the UK can be monetised. Another measure is the number of advertising video impressions received.

Banner, skyscraper and MPU advertising – more traditional forms of advertising can be a good way of covering costs until a significant enough audience is achieved; the options here can range from automated delivery via systems like Google Adsense, to using advertising portals and selling directly to advertisers or media agencies.

Takeovers – this is a more recent development in advertising, whereby the area around the video, or around the video player, along with the banner ads and the video is all served for the same customer.

Ecommerce – this is a surprisingly neglected revenue stream, which my experience shows is very successful; video is a very compelling sales tool, conveying emotion and benefits in ways that text and even pictures cannot achieve.

Sponsored programming – as with traditional television, sponsored programmes is an option if a large enough audience can be delivered to the sponsor; to some degree this may circumvent the geographical aspect of advertising delivery and be less geo-sensitive, especially if sold directly to a brand.

Product placement – this is a bit of a long shot for internet TV, but since the medium remains widely unregulated, the opportunity to produce advertorial and viral type programming is considerable, blurring the edges between advertising and editorial.

Affiliate Revenues – an easy source of ecommerce revenues is to promote third party through their affiliate scheme or via affiliate networks.

Gambling – this isn’t suitable for all kinds of sites, nor for many territories where gambling is highly regulated, but for certain types of content in the UK, for example, this can be a lucrative model.

The potential for revenue from the above varies tremendously, and can sometimes be counter-intuitive. I’m currently seeing £25/$35 CPMs for Google Adsense banner ads on a completely untargeted basis, for example.

In order to develop a business model it’s important to be pragmatic about which of the above are achievable. Anyone can implement Google Adsense, but you need to have a million uniques to join Google’s video advertising program.

It’s also important not to be over-optimistic. Even if you have great video ad sales, you are unlikely to sell out 100% of your inventory.

Likewise, affiliate schemes have always proven to be hot and miss in my experience.

Next time we’ll look at the costs involved in setting up an Internet TV business and then draw together the revenues and costs into a business model.