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Turning Online Video Into Cash – Or Not

LAS VEGAS – Generating real money from online video is a tough business, as even the undisputed leader in the Internet video category — Google’s YouTube — conceded.

At a breakfast panel Tuesday morning at the Consumer Electronics Show here, “The Content Challenge: Who’s Making Money With Video Online,” YouTube head of premium content partnerships Jordan Hoffner said “the economics on the advertising side are just starting to come along.”

Hoffner noted that YouTube launched InVideo ads, which pop up a banner or logo within a clip as it plays, in September. “It’s going to take time for that business to come in,” he said.

Himesh Bhise, Charter Communications’ general manager of high-speed Internet, said the established cable TV model of programming bundling and distribution is still a very distinct world from that of online video.

“The good thing for us is, today, it’s very clear what consumers value. You probably pay for your broadband connection… but you probably don’t subscribe to an online video service,” Bhise said. “I’m happy to be called the pipe, if that’s what customers want.”

Cable companies and other video providers, Bhise continued, “have a model that allows us to offer the most programming possible and make a return. It’s not in media companies’ interests to take this big library of content and put it online.”

So who’s making money in the business of online video? Hoffner said there are some individual YouTube contributors who have developed followings on the site and are likely more than breaking even. “I don’t know what their costs are but on the top line they’re definitely making enough to support themselves,” he said.

Gilles BianRosa, CEO of Vuze, said the dominant model for monetizing online video is advertising, since most people aren’t willing to “pay for mainstream content because there are so many ways to get it.”

But niche content, he argued, is more likely to generate paying customers. “If you have long-tail content produced in a way to touch people’s passions — programming you don’t find on TV — then, we think for that type of content people will be willing to pay for that.” BianRosa said he recently found the Web site of a triathlete who sells videos about training for triathlons online at $40 each.

YouTube’s Hoffner, however, countered that “there’s no barrier to entry in this world. You might have the best fly-fishing site in the world but then two guys in Montana go out and start an even better one.”

BianRosa said Vuze is focusing less on user-generated content and more on professionally produced material.

“It costs more to produce and more to distribute but we believe if it starts to look like what you’d have on TV if you could have 10,000 channels instead of 300, you start to engage viewers,” he said. “Most of the video being consumed on the Web today, advertisers won’t touch.”

Bhise said he’s like to see more professionally produced content available online. “Outside of user-generated content, there isn’t a lot of Web-exclusive video,” he said.

Hoffner said that in addition to revenue from ads or sell-through, there’s additional asset value when original content is created. With online video, “you own that franchise so you can monetize that. That’s another part of it people are missing out on.” He cited the NBC Universal-produced viral video “The Easter Bunny Hates You”: “They own that. They could make a movie out of it.”

For Charter, online video advertising generates some small revenue, Bhise said. More important, he said, is that Internet video reinforces the value of the bundle of services Charter offers.

“It helps grow broadband. You have more video and broadband content on the Web, which requires people to upgrade from DSL connections,” he said. “The Internet actually helps to confirm and drive stickiness of the Charter bundle and drive a deeper relationship with our customers.”

The panel, hosted by Multichannel News and B&C, was moderated by Tom Steinert-Threlkeld, editorial director for both publications, and Mark Robichaux, editor in chief of B&C.