Video is Impossible pt. 2: Exceptions Make the Rule
This is part 2 in a series of posts about online video. Last time we talked about why video is nearly impossible as a business model on the internet, and this week we’re going to talk about the exceptions to the rule.
In last week’s article, we summarized what seems to be a pretty basic truth of the internet - video is taking up more and more of the social content space, but unless you’re one of a very small number of sites it’s almost impossible to make money in online video. This was due to a combination of factors I’ll summarize again below. I’ll add some additional details, including very good discussion from the comments of last week’s article that I’ll call out.
For everyone who isn’t YouTube or Netflix, the lack of first-mover advantage and lack of network effects makes building a video service hard. This is especially true for user-generated video sites aiming to compete with YouTube - YouTube is a natural ‘aggregator’ who dominates the two-sided market that brings creators and viewers together. Aggregators tend towards natural monopoly, and that certainly seems to be the case here.
Technical costs are high and will remain high. Mark hewis had some great comments elaborating on this, as I wrote a fairly simple account focusing on the cost of hosting and the cost of distribution. In reality it’s not just expensive, it can also be hellishly complex behind the scenes. Even for the most basic service, you have to worry about converting videos into different formats, encoding different resolutions, different codecs, DRM software if you don’t want to get sued out of existence, how to store your data packets so all this can actually accessed instantly, and much more. The technical task is immense.
