http://www.streamingmedia.com/article.asp?id=6234

Internet Video Content Providers: Myths and Misunderstandings
Pseudo's downfall highlights the need to follow an oft-ignored strategy: Build your audience before shelling out.

By Thomas Edwards
September 26, 2000

This year has seen expensive failures in the content webcast industry, including Digital Entertainment Network (DEN.net), Pop.com, and most recently, Pseudo Programs, representing a combined total investment of over $136 million. What did they do wrong? From my perspective, these high-profile content plays made several fundamental errors with regard to audience focus, capital outlay, and staffing. Let's examine some of their mistakes:

Subscribing to the Gen-Y Myth

DEN was designed to be the ultimate video destination site for the "Gen-Y" audience. The problem, however, is that Gen-Y isn't watching Internet video. Teens go out on dates, play sports, and submit to their parents' requests that they do their homework and go to sleep early. And few teens have broadband connections. As recently reported by Jupiter Communications, teens spend less than half as much time online as adults. When teens are online, they are e-mailing, instant messaging, playing games, exchanging game cheats, and downloading MP3s. Webcasts do not figure prominently in the teen Internet plan.

Still, there are some groups of teens that could be encouraged to watch online video content. Geeky teens might watch a fun tech show, since they're not going out on dates anyway. And gay teens would have loved to watch DEN's pilot, "Chad's World" – but that show was dropped for more mainstream shows like "Frat Ratz." Pseudo, the site that did offer shows about electronic gaming and hip-hop culture, decided to spite its younger audience by getting skyboxes at the Democratic and Republican national conventions -- content you couldn't even get adults to watch.

10 Percent Cheaper...Than Hollywood

The production budgets of DEN, Pop.com, and Pseudo seemed far less gargantuan than the millions regularly spent on television shows, or the tens of millions needed to create a motion picture. But those budgets were still vastly overblown given the size of the streaming video audience, which comes nowhere near that of television, and can't compare to the throngs that crowd movie theaters each weekend. Reports indicate that neither DEN nor Pseudo drew more than 200,000 unique viewers per month this year. Even with an ad sales team working small miracles, that's enough of an audience to support a small staff with a shoestring budget, not a $10 million investment. Eventually, the audience will grow, but spending really big money before it reaches critical mass is a mistake.

The Marketing Pitfall

Marketing can be a particularly heavy and risky expense. Here's the scenario: You've just spent $100,000 on marketing, and your Web site subsequently gets 100,000 unique viewers in a month. You're on top of the world. But the next month, none of those viewers come back. They hated your content. So you need to spend $100,000 more just to get back to where you were before. (At this point, you'd better be careful with your creatives, as none of the original viewers will ever click on a banner with your site's name on it again.)

I would suggest to potential investors, and to content producers themselves, that they sanity-check their concepts by testing the Web waters with no marketing budget. Plenty of Web sites with reasonable viewership spend nothing on marketing at all. If you can't draw at least 100,000 unique users per month with earned media and word-of-mouth, you probably aren't going anywhere, and the million-user mark will never be reached – even with marketing. DEN.net was a standout in the purchase of temporary viewers, which it accomplished through advertising barter with companies like Ford Motor, PepsiCo, and Microsoft. The result was that a DEN ad would appear before a movie where a Pepsi ad normally would have appeared. But alas, DEN's content could not hold the viewers, or compel them to return.

We Need More Hollywood People?

Streamingmedia.com recently reported that iCast is trying to hire more people with entertainment, rather than Internet, backgrounds. Stu Zakim, vice president of public relations at iCast, maintains that "Entertainment people know how to the enter the maze." But put to the test, the theory has failed. Case in point: DEN's top-level roster included David Neuman from Disney, Frank Mancuso from MGM, Gary Gersh from Capitol Records, and Jim Ritts from Channel One. Pop.com had Spielberg, Howard, Katzenberg, and Geffen. Pseudo had David Bohrman from CNN, Larry Kramer from CBNC, Mark Berniker from CNNfn, and Elizabeth Cole from NBC's "Dateline". Clearly, the big Hollywood guns were not enough to keep these boats afloat.

My suggestion to investors in Internet video content providers: Stay away from Hollywood and New York City. Stay as far away as possible. The "old media" people should be brought in to sell advertising, and to explore cross-marketing opportunities and push the syndication of new media properties to television and the movies. That is where they have expertise that is useful to streaming content companies. The people making the creative decisions need to understand the Internet audience, which has its individual niches, demographics, and expectations. People who run content sites, check the Web logs daily, and read the user feedback are the people most qualified to set effective Internet video programming.