Does video content represent a cost unit or a profit center?  Does it matter?  In some ways, no.  But as with everything on the Internet, invariably the question to succeed boils down to a matter of “how to scale.”

Content is a means to an end, the canvas around which marketers filter their message.  It doesn’t sound very romantic to say so, I know, but it’s a fact: were it not for marketers’ desire to push their commercial message to sell their products and services, we would have very little content to consume.  Content and ads are the quintessential chicken vs. egg motif.

Is the marginal cost of digital media zero?

Historically, the price consumers paid for content was a reflection of the value-added process involved with the production of the form factor (a book might cost $10 — but that said more about the publishing process than the work in question).  With digital media, the incremental cost of copying and duplicating media is zero, so this disruptive reality has shifted the perceived value of content.  Sure, content is king and all, but the fact that content can be created for a marginal cost of $0 has led many to devalue it in the process.  It’s a bit different when it comes to distribution, no doubt, and that merits a post onto itself.

As a means to an end, video content is fundamentally a cost unit.  That doesn’t mean that content producers should solely seek to maximize output while minimizing costs.  Instead, one should seek an equilibrium that offers the right mix of quality and quantity to generate the most value for the entity that subsidizes its creation.  Online, that’s not the reader/listener/viewer, but rather, the marketer.

After all, it’s helpful to draw the parallel between:

– Technology > Software > Licensing model > Users
– Media > Content > Advertising model > Audience

With the former, companies or users pay a license to use software.  In the latter, marketers underwrite the content directly or indirectly — and by and large, listeners/viewers/readers don’t pay for the content.  As a result, everyone is scrambling to come up with a better advertising mouse trap to better serve marketers.

Same story, different chapter

When search was scrambling to find a business model, some companies began to serve paid text ads (paid listings) into their organic search results.  The first online company I worked at, Mamma, did this in 2000, as did the pioneer in the space: Overture (then who solely served paid ads.  Of course, Google refused, and instead created a slot alongside the organic search results to serve paid ads.  This became the most successful advertising model since, well — you get it.

What came first?  The content or the ad?

Video is encountering a similar fork in the road, a dilemma that is actually manifested in many ways and on multiple levels.  One issue is choosing and fully embracing a leading ad model (increasingly looking to become the pre-roll ad).  But another method is the concept of branded entertainment, something that isn’t necessarily novel to media in general but still small in the nascent but burgeoning online video medium.

All online video spending in the U.S. represented $1.5 billion in 2010.  All online advertising in the US generated $25 billion, with search garnering 40% of that figure.  Meanwhile, television advertising in the US is a $70 billion market, though the vast majority of that figure comes from the 30-second ad spot, and not branded entertainment.

Nonetheless, a lot of companies and marketers, wrestling with the so-called death of the 30-second spot – and the fact that online is not linear — are betting on branded entertainment. To be perfectly fair here: some companies generate more in one branded entertainment campaign that my company might generate in a whole year from all operations, but I still think that only pursuing a branded entertainment editorial strategy leaves a lot of value on the table.

In other words, yes, the short-term revenue potential from branded entertainment is very alluring.  But long term, a branded entertainment-centric catalog isn’t exactly a catalog; it’s a commercial reel, at most.  Viewers don’t really care about branded entertainment, and marketers’ interests simply aren’t aligned to create informational or purely entertaining content that isn’t too commercial, mainly because of the lack of the 30-second spot to inject a commercial message in the content.

Ultimately, it’s easy to determine what the right editorial or marketing strategy is, but the right business strategy requires a mix of the two: striking a balance between pure and branded content.