Beat the High Cost of Streaming

When it comes to streaming media, many people mistakenly think that to be successful with video on the Internet, you must use the same business logic, and sometimes the same model, as traditional broadcast and cable outlets.

The fundamental difference between broadcast and cable vs. streaming media is the cost. While the production costs are basically the same for each, the cost per viewer is quite different. The larger the audience, the cheaper it is to distribute the content in the broadcasting and cable worlds. In the streaming world, the larger the audience, the more expensive it is to distribute the content.

Streaming is more expensive as the audience grows because the Webcaster pays per stream — for the bandwidth used to carry the stream. Since video files are larger than traditional text files, every time an Internet user clicks “play” on a video file, the company serving the stream must pay for the bandwidth on which the video is being transmitted. To make matters worse, video served with broadband uses twice as much bandwidth as narrowband connections do.

Because streaming is so expensive, it begs a few questions: How can the small guys get in the streaming business and stay without losing their shirts? Why aren’t the big guys such as the networks and the movie companies diving in headfirst? Can technology help?

Several well-known streaming companies have gone down the drain during the past several months. There are myriad reasons why, but it makes one wonder how the little guys can get and stay in the streaming business.

Money — more specifically, operating cost — is the issue, but not one that is insurmountable.

To cover production and bandwidth costs, streaming companies must do one of three things: sell subscriptions to their content (similar to basic and premium cable); sell advertising in their content (similar to broadcast); or sell a combination of both.

The challenge in these revenue propositions is perceived value. The content must be perceived as more valuable than broadcast or cable content to demand the higher cost of advertising necessary to make streaming affordable. The kick in the pants is that the content is more valuable than that of broadcast or cable because of the interactivity.

Traditional advertising, even video advertising, is one-dimensional. It delivers a message and may even contain a call to arms, but the purchaser must always go someplace else for more information or to buy the product. With interactivity, a purchaser can go online, watch a commercial, click to the site, ask questions, customize his purchase and buy the product, all in one stop.

This is a marketer’s dream come true — talking to, interacting with and conducting a one-on-one sale with each customer. That individualized service is the advertising value.

If this is such a fantastic value for advertisers, and a potential revenue generator, then why aren’t the mega-media companies and movie studios jumping on the streaming bandwagon?

While the cost of streaming is still an issue even for multimillion-dollar companies, the bigger part of the problem is that these companies will have to change their entire mind-sets, which will cost money. Programming for the Internet is totally different than for television or the movies. The programming must be short-form, informative and entertaining. The viewing boxes are small, and Net congestion makes viewing the video tedious, thus plotlines, character development and long-running programs are not suited to the Internet.

Additionally, the sales forces of big media companies would have to change their sales process from one of mass viewer reach to a targeted, high-value audience that is proactive in their online pursuits.

Besides, right now they are making enough money to stay put. And, if and when they are ready to jump into the 21st century, they can ride on the coattails of the entrepreneurs who already have blazed the trails.

Finally, there is the question of whether technology can help with the costs, thus making streaming more affordable and accessible to everyone. The answer is yes.

All new technologies are expensive in the beginning. Look back to the early days of the Internet, when the price of laying cable and the cost of basic infrastructure were through the roof. While still expensive today, the prices are more reasonable and the quality is far superior.

This equalization of cost and value is true in every industry since the beginning of time. We need only to look at the first television sets, computers and VCRs to see the strides made in making better technology more affordable.

The same is true of streaming. Over time, the cost of bandwidth will come down, the number of suppliers will increase and the cost of high-speed access will become more reasonable.

Additionally, the technology around encoding will change so that streaming files will be able to be encoded at a lower rate, thus making the file smaller, using less bandwidth for transmission and making it cheaper all around.

Although many are still waiting for broadband to arrive, and while streaming costs are still high, there are many opportunities to succeed in streaming video here and now. But you must take an Internet approach, targeted to and tailored for the Internet and its audiences.

• Ray Marione is vice president of brand strategy at online video media company, New York. Reach him at [email protected]

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