Our Post-Profit Future

I was reading Wired's package of articles about the rise of Web video, and, well, they're a bit odd. Bob Garfield's article seeks to puzzle out why Google would pay so much money to acquire YouTube. The reason, he says, is basically that YouTube is awesome and lots of people like it. Over time, it seems, more and more people will be visiting this site. So, therefore, the site would be a good thing to own. Then closer to the end of the article, he notes that there may be some problems with this. To actually turn all those viewers into money, you need to sell ads. But it's hard to sell ads on YouTube. For one thing, lots of YouTube streams don't even come through the YouTube site. For another thing, there are lots of other sites that also do video hosting, so if YouTube gets all ad-heavy, people may switch away to other services.

Then we read about LonelyGirl15 and how these dudes had this idea and nobody believed in them. But they did it anyway. And it turned out to be pretty awesome. And lots of people watched the show. So -- ha! -- where are the haters now? Except, again, at the end it turns out that even if LonelyGirl15 is awesome and popular, its creators have had a hard time actually making money off of it.

To me, at least, this is the real moral of the story. Peer-production of digital media probably will produce a fair quantity of awesome popular stuff lurking amidst the vast pool of dreck. And well-designed services will let the awesome stuff rise to the top and the dreck fade to the background, rendering those services awesome and popular. But -- and here's the rub -- having something awesome and popular just may not prove to be especially lucrative. In the past, a popular television show or a popular album or a popular film or a popular distribution channel guaranteed you vast sums of money. In the future, that just may not be the case. The very most popular things will generate some income, enough to live off of and continue financing new projects, but not the sort of gigantic windfalls associated with 20th century media hits. And lots of other things -- including reasonably popular ones -- will only generate trivial levels of income. And they'll continue to be made. Made by people who think its fun, or who derive some benefit from their work other than direct monetary income.

Comments

Micropayments? Would you pay $0.01 to watch a YouTube video?

Posted by: SP on December 6, 2006 10:33 AM

But -- and here's the rub -- having something awesome and popular just may not prove to be especially lucrative.

So sayeth America's favorite foreign policy/NBA/Wire blogger. I think you're underestimating the extent to which this is a time of transition.

Posted by: SomeCallMeTim on December 6, 2006 10:49 AM

And well-designed services will let the awesome stuff rise to the top

This is the key point -- the value in internet media will come not from the content itself, but identifying for each individual the awesome stuff. Google clearly thinks YouTube is well positioned to be the service that does this, and I don't know enough about the underlying technology to say they're wrong, but I'm at least skeptical. YouTube could very well be the AltaVista to some as-yet-unknown Google.

Posted by: right on December 6, 2006 10:54 AM

I dream of the world where successful artists go back to being solid members of the middle class, rather than uber-hojillionaires. If many more people were able to make a reasonable, though not lucrative living from music, film and other media projects, I think we'd see some incredibly interested artistic developments.

And the corporate tastemasters could be thrown down the well.

Posted by: TW Andrews on December 6, 2006 10:58 AM

The more people watch YouTube (and similar services), the less they watch regular TV. The less they watch regular TV, the less advertisers spend on regular TV. The less advertisers spend on regular TV, the more they spend on the Internet. The more they spend on the Internet, the richer Google gets.

Google bought YouTube to accelerate the decline in spending on regular TV advertising, and at the same time have a new source on information about what people do on the Internet, which they can convert into more effective targeting of advertising.

Posted by: henry evans on December 6, 2006 11:03 AM

TV was free for the viewer (not counting commercials) and evolved into expensive cable (many with commercials). Same will be true for the internet--premium and basic sites. Just as HBO runs exclusive shows, so will some internet sites--what the NY Times is attempting to do. In the long run, "the man" makes money and the peons pay. We call this capitalism.

Posted by: mal on December 6, 2006 11:03 AM

"The very most popular things will generate some income, enough to live off of and continue financing new projects, but not the sort of gigantic windfalls associated with 20th century media hits."

Because for right now, thanks to new technology, the media companies no longer have the iron grip of control over who can see/hear/experience their stuff. Movies in the mid-late 20th C. were an experience you couldn't duplicate - you wanted to see a movie, you went to a theater. Same with music - buy the album.

Both of these eroded slightly with taping and VCRs, but it really took digital formats (that were pretty much as good on the 20th copy as the first) and the Internet as a distribution channel to be able to really circumvent the control of content.

Despite current nastiness over DRM and the like, there's really no going back in this regard. The key for media companies, if they want to make huge gobs of money, is to create experiences or contexts that aren't easily replicable. I think the Nintendo Wii is a good example of this: it's a huge hit because it allows people to have a truly novel experience, and because it's easier (and cheaper) to fork over $250 to Nintendo than to try to somehow copy the experience. The iPod is also a good example - it is the medium through which people have a novel experience (listening to music anywhere), and as the Zune shows, not easily duplicable even at substantial cost.

And, really, live music is still a great example: a bootleg or even a studio album in no way recreates the experience of going to a show. Most bands make most of their money through touring and merch sales, anyhow, and I think that many are already coming around to the idea of albums and recordings of songs generally being mostly promotional material for seeing them in concert, not as the primary source of their income.

Posted by: jkd on December 6, 2006 11:08 AM

I dream of the world where successful artists go back to being solid members of the middle class, rather than uber-hojillionaires. If many more people were able to make a reasonable, though not lucrative living from music, film and other media projects, I think we'd see some incredibly interested artistic developments.

TW is right. Less profit in arts and entertainment doesn't mean leass arts and entertainment. Post-scarcity is a good thing, remember?

The key is to ensure that the maximum number of people have the leisure time to create stuff. Which means, prefeably, ensuring that everyone has adequate leisure (a more equitable income distribution would do most of the work here). Next best, provide a huge number of modest sinecures for creators of any demonstrated ability. Interestingly the latter system already exists, in the form of universities, and historically has been responsible for a huge portion of intellectual work of all kinds.

As for the question at hand, Google itself has made money as a content aggregator, so I don't see why they shouldn't be able to do the same thing with YouTube. I just don't particularly care.

Posted by: lemuel pitkin on December 6, 2006 11:24 AM

Most bands make most of their money through touring and merch sales, anyhow, and I think that many are already coming around to the idea of albums and recordings of songs generally being mostly promotional material for seeing them in concert, not as the primary source of their income.

I really hope this is true. One of the most frustrating things about this whole debate is how many musicians (and other artists) have been co-opted by the IT monopolists.

Posted by: lemuel pitkin on December 6, 2006 11:28 AM

Maybe I'm missing something (probably, that is).

The Google site itself has no ads on it, right? And it "awesome and lots of people like it. Over time, it seems, more and more people will be visiting this site." And Google figured out how to make money off of it, right? Why wouldn't the Google guys think they could do something similar with Youtube?

Posted by: Al on December 6, 2006 11:30 AM

"But -- and here's the rub -- having something awesome and popular just may not prove to be especially lucrative."

If you look back 5 years ago that was precisely what some people were saying about Google's search capabilities.

Posted by: ben h on December 6, 2006 11:35 AM

" But -- and here's the rub -- having something awesome and popular just may not prove to be especially lucrative."

I'm old enough to have been a grade school computer geek in the 1980s. Back then bulletin boards were king. They were rarely policed, and you didn't need to pay for software or telephone calls if you didn't feel like it. Yet, somehow software companies have figured out ways to remain profitable, and cellular companies are among the cash cows of our time.

Posted by: Linus on December 6, 2006 11:36 AM

Sorry, while I was figuring out if I needed to expand on my thought, seems Al beat me to it.

Posted by: ben h on December 6, 2006 11:38 AM

Here's the thing. You could have said the exact same thing about Google 6 years ago. They had this very awesome very cool service. A search engine that was almost always on the money! And fast! And clean! But no business model! Just because a lot of people use Google doesn't mean it's actually worth anything. They tried all sorts of business models. They thought the real money was in selling boxes to big companies that would let them search their own "intranets". People thought Google would be an interesting company worth some $500M.

Then folks discovered there was gold in them keyword based ads. Hello $150B market cap. Back then if Yahoo had paid $1B for Google folks like you would have had the exact same reaction. And yet, if Yahoo had actually done that, imagine what today's headlines would have been. In all likelihood it would have been about Microsoft rearranging the chairs on its deck.

Posted by: bhagavathy on December 6, 2006 11:42 AM

not sure what al is talking about. google has lots of ads; when you do a search, their called the sponsored links at the top and to the side of your search results. these only pop up when you search something that some advertiser has determined is a valuable search term (searching "matt yglesias" yields no ads, for what that's worth. i certainly find his insight valuable).

bhagavathy also raises a good point. google's real value is based on the giant search network that they've developed that allows them to place advertising in all kinds of venues. as for the rest of his argument, youtube is not google (youtube is a content provider, google is a content conduit), and their models are quite different. so the parallels are not quite as obvious.

on another note, i've decided to let my wired subscription lapse, in part due to their strict adherence to technodeterminism and their breathless proclamations about social changes in relation to technology, or the lack thereof. witness their cover three years back about "the death of music," and their "rebirth of music" cover (with beck on the front) that was out recently. where was music in those intervening years? hiding with osama in pakistan? only the wired editors can say for sure, since they apparently were the ones who found it. similarly, this issue proclaims "the end of tv advertising" (i don't have it in front of me, so it might be a bit off). what?!!

Posted by: looj on December 6, 2006 12:00 PM

Al: Google runs ads. They don't run ads on the main page, (ie, before you submit your search), but they do run ads on the results page. And that's where the money is -- the great thing about search engines running ads is that they are in the enviable position of their users telling them what they'd like to see ads about. This is why search engines have been largely able to sustain themselves on advertising revenue even at times when other internet ad-based businesses were hard up.

So, I just typed "Candy" into Google, and my response page gives me "Sponsored Links" (these are ads) to "Candy at Amazon.com," "Buy Candy Direct," "Retro Candy Warehouse," and several more.

Posted by: Michael Sullivan on December 6, 2006 12:03 PM

A big difference between the internet and the "old ways" is that it is free to distribute things on internet. Therefore, you don't need to generate a profit to provide something entertaining.

The old ways of doing things required you to actually make a profit in order to distribute your entertainment goods. The fact that some people might figure out how to make a profit on the internet from their stuff doesn't change the fact that there will always be lots of other people willing to provide entertaining stuff for free.

Posted by: Jim W on December 6, 2006 12:10 PM

I and a lot of others were driven to social democratic beliefs by the dot-com bubble--not just because the marketplace "failed", but because a growing share of what gives our lives meaning is stuff that doesn't involve exchanging little green pieces of paper. The marketplace starts to look more like a necessary annoyance rather than a good in and of itself--or at least somewhere in between. Thus, it becomes a social good to make the economy less important to the individual, in that additional hours of leisure not only please the individual but also make the individual more likely to produce uncompensated value for society.

Posted by: Consumatopia on December 6, 2006 12:20 PM

Matt -- your prediction of The Media Future has just described 99.8% of rock musicians' lives since, oh, 1951...

(and, of course, those of blues musicians, jazz musicians, folk musicians, troubadours, etc. since the dawn of time...)

Posted by: DukeJ on December 6, 2006 01:10 PM

Not to say they won't figure out a way to make money, but what is the cost of all that not-awesome stuff that sits on their servers, that 6 minute video of you and your friends doing shots of Jager that nobody but you will ever, ever watch? Does that stay on the server forever? For ever-ever?

Posted by: T-Mac on December 6, 2006 01:22 PM

it becomes a social good to make the economy less important to the individual, in that additional hours of leisure not only please the individual but also make the individual more likely to produce uncompensated value for society.

Any party or candidate who puts this in their platform, they've got my vote. What ever happened to the 8-hour day?

Posted by: lemuel pitkin on December 6, 2006 01:31 PM

i think you're ignoring how the revenue from content was divided up under the old model. most of the money went to the bankers (media co.), not the artists. e.g., under the old model, even extraordinarily well-selling bands made very little money compared to what they generated for the media companies (example from band i know: band sells 7 million or so albums, generates more than $70 million for label, only $7 million for band, of which $2 million goes back to label for recording/touring/video expenses, of the remaining 5 or so, about 1.5 goes to management/legal/agents, about a third of remainder to taxes, leaving about $2 million for four band members to split up, about $500K each, on which they pay taxes, and that's money for many years of work.) and most bands weren't nearly that successful even if pro. the same roughly holds for other types of entertainment. so lots of artists are better off under the new model, either in absolute material terms or because they now control own destiny (no label to decide not to release your album, etc.).

but i agree that it's hard to see how the media companies can make much money off the new model, because technology has now made production cheaper (so you don't need loan/advance from company) and distribution largely free (there's some sweat involved). so artists don't really need the companies near so much as they used to.

Posted by: dj superflat on December 6, 2006 01:41 PM

looj: Google is indeed a mighty search engine. The search engine however represents less than half their revenue. Google is a giant media company. Their search pages happen to be extremely valuable property that they own. As it happens, Google's ads run on many many content pages some of which they own (gmail, .blogspot.com etc), many of which they don't (this page).

Google realizes that its long term business model relies on figuring out what people are looking for and want, and getting them the ads that will help them do that. That is the core learning from the success of search engine advertising. to that end, Google needs its ads on as many Internet pages out there and it needs to be ahead of the curve in owning media properties where folks on the Internet are spending their time. Google will make the acquisition a success if they manage to sell enough ads on those pages to make up their investment. But the true gold is if they are able to successfully use all the user and surfing information of folks on youtube and their various other properties and pages where their ads show to create the world's best ad-serving platform. 1% of their market cap is a small price to pay for the huge repository of surfer behavior that is trapped inside youtube. Needless to say, it might turn out that Google is unable to tap that in any meaningful way, and then it will turn out to be just another interesting acquisition. But this is Google, so I'd bet against it.

Posted by: bhagavathy on December 6, 2006 01:47 PM

you all live in a fantasy world. good content is not getting cheaper to create. it remains relatively expensive. i make low budget movies for a relatively obscure cable network as far as these things go and we are always spending 7 figures to deliver what people want from 90 minutes of entertainment. and the reason we can do that is because we have money, and lots of it, to produce such content. lonelygirl15 is great and all, but it is self-limiting in total audience size and appeal because it is so low budget. people want to see x-men 3. it costs 200 million to make. sure, some of that goes to actors, but where would you rather it go--to fox? and the people who really make this stuff (the producers, i'd argue, but then that's what i do) don't generally become gajillionaires. so there will always be a space for fancy content, and lots of it. it will just exist in a different sphere than cheap/viral stuff. and that's ok. video didn't kill the fucking radio star, has anyone ever noticed that?

Posted by: Robert Green on December 6, 2006 02:00 PM

Just a note: 'Bob Cringley' links to someone who figured out that YouTube actually made plenty of money all along (before Google bought them). Story is here.

Posted by: jonnybutter on December 6, 2006 02:06 PM

If there are companies that make profit by aiding the consumer in searching through the chaff to find the art they want, then those companies will have an incentive to create more chaff. The more bad art there is, art that is of absolutely no value to anyone, the more valuable the search services become.

Posted by: Njorl on December 6, 2006 02:12 PM

This is what has been haunting media corporations for some time now with imminent "media convergence." YouTube had a big price tag not because of LonelyGirl, but because it's only a matter of time before all TV comes through a web site. And the big problem is, as you say, the mystery income model. (Re previous commenter, this was not invented by Wired -- see Broadcasting & Cable magazine.)

Cf. TiVo, iTunes -- where are the ads? Those little Google ads are not going to cut it for studio programming. ("Buy Wire on eBay!") And as entertaining as YouTube is in a sophisticated funniest-home-videos kind of way, studio programming is not going anywhere. Quality TV takes more than talent and a cameraphone.

Note the recent period of telecom-cable-media mergers. Perhaps they were hedging their bets all the way along the pipe. We'll pay for bandwidth, and they'll fill it up good things. OK, that's pretty dubious.

Posted by: Ezra 1 on December 6, 2006 02:13 PM

The difference between Google and YouTube in this regard is that Google is a popular search engine because it's genuinely superior to alternative search engines. As far as I can tell, if you want to search the Web, you ought to use Google.

YouTube's basic service is already widely replicated around the internet. Google can no doubt figure out a way to put well-matched ads on the page, but will they be able to do it in a way that doesn't just drive people to some competing site for their video-hosting needs? Maybe, maybe not. It makes some sense for Google to take a risk on the idea that they can make this work, but there's no guarantee they'll succeed. The Google guys are obviously smart businesspeople and technologists, but they're not magicians.

Posted by: Matthew Yglesias on December 6, 2006 02:27 PM

It just seems wrong to let a post and discussion such as this pass without at least one reference to the business acumen of the Underpants Gnomes.

Posted by: Robert Earle on December 6, 2006 02:39 PM

Matt - don't you understand that this is the very tragedy of the commons that we're all so deeply concerned about? Just assign property rights to people who already own lots of property. They will then restrict access to the awesome. But the total amount of awesome will increase (through the magical hand of the free market) as a result of this property allocation. And there will be profits which go to property owners. I swear this works.

Posted by: MDtoMN on December 6, 2006 04:30 PM

Youtube's basic service may be replicated around the web. It might not be a technological marvel. But it has something else going for it: the network effect. People post their videos there because the viewers go there. Viewers go there because everybody posts their videos there. This is an incredibly good thing for youtube.

We see this phenomenon on ebay. Sure yahoo, and amazon and many other rich companies have auctions, but do you ever use them? Similarly myspace in the US, orkut in India.

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Posted by: Memurlar on December 1, 2008 05:51 PM

Harika buyuk muthis

Posted by: cenkoyun on May 4, 2009 04:50 PM

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