As eyeballs continue to shift from TV to streaming online video, it remains doubtful that digital ad dollars will ever rival their analog predecessors. Meanwhile, companies like Netflix, Hulu, and YouTube continue to experiment with subscription and advertising models. Brooke sits down with Peter Kafka of All Things Digital, to ask him what the future holds for shows like Mad Men, and for YouTube stars like Ryan Higa.
BROOKE GLADSTONE: So let's stick with that metaphor. What happens to a supernova? Its remnants spread throughout the universe, ultimately giving rise to new planets and stars. So if it’s a supernova, we got that goin’ for us. And streaming services might be among those new or newish formations. Right now they're starved for nourishment. That’s because advertisers won’t spend nearly as much for digital properties as they do for analog TV. Some subscription services do earn a profit, Netflix, for instance. But we still don't know if YouTube is paying its way for Google.
Peter Kafka is a senior editor at All Things Digital. He says Google sympathizes, a little, with the producers who say they can't survive on the pittance they earn.
PETER KAFKA: If you’re Google, by the way, who owns YouTube, you probably shrug your shoulders and go, sorry it’s not working out for you, hope you stick around. We’ll try to make it work. But you really don’t worry that much because they’re gonna make money regardless.
BROOKE GLADSTONE: Do we know for a fact that YouTube is making money for Google, because Google certainly isn’t saying?
PETER KAFKA: They’re probably not making nearly as much as they could. But regardless, Google makes a gazillion dollars. They have 12,000 people selling their ads alone. YouTube is one component of that. So they’d like it to work, but it’s not an existential problem for them if it doesn’t work as well as it could.
BROOKE GLADSTONE: Some of the producers end up making about $2.50 for every thousand views their clips generate?
PETER KAFKA: When you’re all said and done, if you’ve generated a million views, on YouTube and you’re effectively getting a $2.50 CPM – that means for every thousand views – you’d get $2500 in ad revenue. And a million views on YouTube’s pretty good. And these guys are sort of scratching their heads trying to figure out how do I create content at a price where I can make money. We need to figure out some other way to do this.
BROOKE GLADSTONE: What do you think about the subscription model? This week, YouTube said it would start a subscription service. Do you see possibilities in that?
PETER KAFKA: Right. One of the things I’m, I’m sure they’re gonna say is, look this is another way for content creators to make additional money. We never expected anyone to survive solely on advertising. And they’ll say, look, if you look at your TV dial, almost everything on there is supported by at least two forms of income. Right, they get money for selling advertising. They also get money through cable subscription fees. I still think, overall, there are so many options, so many things you can watch that it's very hard for any one individual to sort of create an audience big enough to create an equivalent budget that they’d have offline. Does that make sense?
BROOKE GLADSTONE: But why does it seem that everyone is assuming that ultimately streaming video will make money? Condé Nast in March just announced it was starting its own video network, with original series inspired by Glamour and GQ.
PETER KAFKA: Video, comparatively, gets much higher ad rates than standard web publishing. The hope is boy, the rest of our digital business is not doing that well, maybe this will solve the problem. Plus, if you take a long view, they say look, web video is just beginning. The analogy everyone likes to use is this is cable TV in the early eighties. No one thought a lot of A&E or USA or AMC, and now these are all big super valuable properties.
BROOKE GLADSTONE: Wait a minute, we seem to be operating on the assumption that they are dying.
PETER KAFKA: Yeah, but they’re worth billions of dollars right now. Next week, the TV networks will come to the advertisers to show off their new shows, and they’re gonna ask for an increase in rates. They’ll get some degree of that, too, by the way. And everyone knows what’s happening, but they’re still gonna keep putting money into TV because everyone likes that system; they think it works better than the alternative, for now.
BROOKE GLADSTONE: Since doom has been predicted for a number of years and the revenues earned by television continue to rise, are we wrong?
PETER KAFKA: The question is, is TV different than music and newspapers? Those businesses were ravaged by the digital world and they basically fell off a cliff. That hasn’t happened to TV. TV has gotten stronger. So, has it gotten stronger because the moat around it is much deeper?
BROOKE GLADSTONE: Meaning that advertisers are so entrenched?
PETER KAFKA: Advertisers are entrenched. It’s basically monopolies or duopolies, in terms of the way you get this stuff. So is it just a matter of look, it’s just a harder castle to storm and they’ll bring it down eventually, or do people value video differently than they value music and newspapers and journalism? I think there’s a little bit of both. I do think it's harder to substitute crappy video for good video whereas it turns out that for a lot of news, for instance, most people didn’t really care what screen they got it from and what publisher it came from. It‘s good enough. I think it’s hard to swap out Game of Thrones and show you something someone did in their basement and for you to be happy. An interesting question though is, is that if you look at what’s popular on YouTube right now, it is stuff being done in kids’ basements. And one question I’m always asking people who have 12-year-olds or 14-year-olds is, do your kids distinguish between Game of Thrones and something that Ryan Higa, who’s a big YouTube celebrity, made, which is crude and – popular. And they said, nope, it’s all just stuff, it’s all screen time. They value it equally. And if you an entrenched old media company, that has got to be a terrifying prospect.
BROOKE GLADSTONE: But Peter, isn’t that the wrong question you're asking because 12-year-olds don't stay 12 years old forever. And I would argue that they do make a distinction. They just like that basement stuff now.
PETER KAFKA: Look, the difference, right, is that there is going to be nearly infinite options for these kids. They have them now, they will continue to have them. So if it turns out you like Ryan Higa, maybe that’s what you like, and you don't need to sort of upscale your ambitions and tastes or such.
BROOKE GLADSTONE: No, no, that’s – that’s nonsense. I loved Top Cat growing up. That doesn't mean – well, maybe I would check out Top Cat occasionally, if it was around, but my tastes have changed since I was 12.
PETER KAFKA: I think that you are forgetting – and I tend to forget, and I think people who listen to this show tend to forget – that what we consider valuable and good is probably a pretty small slice of what’s popular. I can’t imagine a large part of your audience is watching Honey Boo-Boo. There’s a show called Duck Dynasty - it’s the most popular thing on TV right now, more popular than network programming.
BROOKE GLADSTONE: But are you suggesting that popular taste now is more debased than it was 20 years ago, that with all of these possibilities the stuff at the high end is gonna suffer?
PETER KAFKA: The question is will the 12-year-old of today pay some amount of money per month to get something like Game of Thrones 10 or 20 years from now? Or will they be content to watch just whatever slop sort of washes over them from YouTube?
BROOKE GLADSTONE: So let me throw the big question at you: There’s so much great stuff out there. Is this something that we can continue to see? Or is it, as Bob suggests, a supernova, a big beautiful explosion before fewer dollars inevitably lead to a descent into the shoddy? What do you think?
PETER KAFKA: Eh, can I – can I hedge?
BROOKE GLADSTONE: No.
PETER KAFKA: Look, the economic model that allows Madmen to exist today is going to go away. It allows a channel like AMC, which has an audience of whatever, gets a subscription fee from all of them, whether or not they’re watching it, sells ads and allows them to spend a bunch of money on a show they’ve never seen before called Madmen and put it out there, that's gonna go away. Either John McCain is gonna legislate it away.
BROOKE GLADSTONE: On Thursday, John McCain offered a bill that would force cable to unbundle their offerings. It's not likely to fly.
PETER KAFKA: Probably not gonna happen. What‘s probably going to happen, more realistically, is eventually consumers are just gonna stop paying for this stuff, again, over a long period of time. Look, I think people are still going to value individual bits of content. There's an enormous amount of options there. The audience atomizes, right, so what’s valuable to you is not valuable to me. So it’s a smaller amount of money to make each individual thing. But if we care enough about it, we’ll pay for it.
BROOKE GLADSTONE: So you’re feeling good?
PETER KAFKA: I’m feeling good. But look at what's on the cable dial, hour after hour, day after day. There's a lot of reruns, there’s a lot of reality shows, there’s a lot of sub-reality shows, there are a lot of infomercials. If you end up replicating that world, where there's a handful of really good things online and a bunch of crap, you’re replicating TV and it’s not a terrible thing.
BROOKE GLADSTONE: Thank you.
PETER KAFKA: Thank you.
BROOKE GLADSTONE: Peter Kafka is a senior editor at All Things Digital, AllThingsD.com.
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