YouTube, SNL, Bruce Springsteen, and Jason Calacanis

Jason Calacanis wrote earlier today that Youtube is not a real business.

He says, and I quote:

Let me break it down: YouTube
and other video hosting sites have made it easy to pirate stuff on the web (which is where piracy started), but they
shouldn't be positioned as some revolutionary business. It's a silly, little business that anyone could setup in a
week. The fact that folks are talking about them being bought for some large amount of money by Newscorp is commical.
They are a glorified FTP site with TAGS people! I could set this up in a weekend with two kids in high-school and a
couple of cases of Red Bull. In fact, the first two programmers to email me with a decent resume I'll back you guys to
build a YouTube compeititor--provided you can build it in under five days.

Let me break it down for you Jason. Youtube is as much a business as MySpace or Digg which you cite as real businesses in your post.  We are talking user generated content here and YouTube has captured the hearts and minds of the people as the place they go to post videos and find videos.

 I am spending the president's day weekend skiing in Utah with my family and three other families. We spent a ton of time in the airport with delayed flights on Friday night.  What did we do?  We spent a couple hours on YouTube in the airport lounge watching great footage of Springsteen shows from the 1970s, old Stevie Wonder videos, Arctic Monkeys videos, and of course the requisite SNL videos.

My kids and their friends go to YouTube to see the videos of their favorite bands and upload videos they have shot of themselves and their friends so they can post them to Myspace.

It is true that there are somewhere like thirty or forty YouTube like services and the first of them, Vimeo, came out over a year ago, well before YouTube launched.  So Jason is right that its not hard to build the basic functionality of YouTube.

But YouTube has built an audience.  It's a destination.  And it delivers because like all user generated content services, it's audience contributes the content as well as consumes it.

Now of course there are challenges to this model.  Like all user generated content models it's hard to control what the audience does.  The New York Times had a short piece today on the request by NBC Universal to take down all the SNL videos that have been posted by users on YouTube. This is likely to be an ongoing request because the SNL videos are going to go back up as soon as the people who put them there in the first place realize they've been taken down.

As Jason says in his post:

SNL obviously got more from the viral nature of this promotion than anything they could ever buy. They should put
every single one of the skits on the Internet *for free* and put an advertisement in front of them. They would be
making at least 1M a month from this within six months. SNL should also put skits that didn't make it on the show on
the Internet, as well as bloggers and other colaterial material. In fact, in short period of time SNL will have more
value online than offline.

That is the point I have made repeatedly on this blog in the past several months.  Content owners should pay attention to what consumers want to do with their content and find ways to satisfy these desires that can fit into a business model.  Putting SNL videos on iTunes is OK, but if they put them there, they should allow people to put them anywhere they want.  I put the Steve Jobs SNL video on my blog because I thought it was funny and it made a point that I wanted to make.  I would have been happy to run a pre-roll and a post-roll ad that NBC served if that was available to me.

My point with this post is that YouTube is a real business, and can and should be a very good business. It's certainly as good a business as MySpace or Digg is and possibly better if they can work with the content owners to allow them to claim their content and monetize it with advertising.

I am rooting for them because I love the service as a consumer.

Comments

[Jason L. Baptiste]

It's not really the technology nowadays that is so valuable, but what the technology produces - ie user created content, better search results, etc. Of course anyone could build youtube. Anyone could also clone myspace, craigs list, and upcoming for that matter. I'm going to guess that I feel the equation is: Technology X Utility x Community= A valuable business. Without youtube's good technology/UI, no one would see its utility to post videos and content. Without this utility, there exists no content, and hence no community. You need to have all three, not one or two, as all three are inter-related. Advertising is not a horrible business model either. It's worked for television and print media for decades now. I've dedicated the past year of my life almost, to building a platform and business to create and distribute content, because I believe it to be the future. Media and the way we view media/content is changing. Either we can continue to lie to ourselves that this DRM, 18 dollars a CD, and 1.99 a video is the way to go, or we can just speed up the inevitable by freeing our content.
-Jason L. Baptiste

[Erik Schwartz]

Is YouTube about user created content? Most of what I see on YouTube was not created by the users, it was merely posted by the users.

Seems more Napster (1.0) than MySpace.

Did Bruce Springsteen upload the videos you watched? I'd guess not. Would it behoove Bruce Springsteen to release his videos in such a forum? Absolutely. But the choice should be Springsteen's, not the choice of some kid from Cleveland.

[Peter Cranstone]

Ok... now I have a question... while you and your family were in the airport exactly how much did you pay to access the YouTube content?

If the answer was $0.00 we can proceed to the next question.

I'm an entrepreneur and I come to you with a You Tube idea... there are two issues I MUST solve for you to really pay attention

1) a known customer with an identifiable problem

2) Measurable, sustainable, profitable revenue from volume

I can answer the first one (sort of) content wants to be free, and I need a free place to upload my content so friends, family etc can view it anywhere.

(This is a little lame)

But now comes the hard to answer VC question - the all important business model.

Measurable, sustainable, profitable revenue from volume. YouTube has volume, but if you read the about page it says quite clearly that the service is and will remain free.

So what did Sequioa really get for $3.5 million?

There is no revenue model here (yet) - the subscription model won't work (see Hummers excellent post today) so YouTube is left with the broadcast/ad model. This is really tough - because the big four Yahoo, Google, AOL and MSN already have this covered.

You say that you love their service - how much are you willing to pay for it - that's the question you need to answer.

And if you are willing to pay for it - how many other people like you are willing to as well.

There's an addressible market for free - the $64 dollar question is there an addressible market for YouTube that has a real revenue model associated with it?

I'm staying tuned :)

All the best,

Peter

[Jason]

I agree 100% that YouTube is AMAZING from a user perspective--the same way USENET, old Napster, and Kazaa were (and BitTorrent is).

however, my point is that the majority of their traffic comes from content they don't own.

This is much different than Flickr, where the majority of the photos are owned by the users.

YouTube has slapped a web-front end on P2P networks and that is a) easy, b) amazign for users, and c) not fair to copyright holders.

Type in "lazy sunday" and YouTube is the first result.

Do the same for "INSERT-SEARCH-TERM video" and YouTube comes up in the top 10 every time.

They didn't earn that traffic--they stole it.

Setting up a business that is based on stolen content takes very little time.

If you would like to test this setup a Bit Torrent site called:

HowardSternTorrents.com
BruceSpringsteenMp3andVideos.com
PornClipsViaFlashVideo.com
or
SNLclips.com

... and see how quickly you get crushed with traffic.

YouTube has done this for all verticals.

Another way to explain my position:

Take out YouTube's copyrighted videos and you have very little.

Take out Flickr's copyrighted photos and you have almost the same exact service.

[Devin]

I'm going to have to side with you on this one. I had read Jason's post and it didn't sit well with me. I just didn't know what to say about... I was glad to see your post, Fred.

[Ken]

Just sounds like someone is bitter to me. I think YouTube is a fantastic service. I know many people in my circle of friends as well as many other students in my school who use the service. Before, they had nowhere to put their home videos.

[Brandon C.]

I generally never believe the things Jason says, because although he comes off as a bloviater who speaks before he thinks, the fact is, most of what he says is usually very calculated and you shouldn't believe what he chooses to tell you. The truth about him is usually more apparent in his actions.

Take this YouTube thing. First he makes a long post saying that YouTube isn't a real business, then he announces that he'll invest money in any group of coders that can come up with a YouTube clone in under a week. So either he's willing to invest in a YouTube business (which contradicts his own post), or he just likes to throw money at coders to prove points he's already convinced about (he's got money, but I don't think he's "that" rich).

OR, don't believe anything he says in his post and realize that he's actually wishing he'd come up with his own YouTube sooner and is now angling to become vocally anti-YouTube so he can then offer his alternative later. This is pretty much what he did to Nick Denton.

1. Make yourself a player in a space by publicly and passionately railing against the dominant player (you now have the Mic).

2. Explain why the other guy sucks (seed doubt about the dominant player).

3. Unveil your alternative product that "makes more sense" than the dominant player.

4. After seizing a decent portion of market share, claim that former sworn enemy "has an interesting product, and I hope they do well. There's room for everybody...etc."

5. Cash out.

I'm sure Jason or someone will try to make this comment about something other than business, but that's all it is. A business strategy analysis of Jason, and how to decipher what he's really saying, based on his past ventures. Jason is sold on video and is trying to figure out how to out-YouTube YouTube. Count on it.

[Dave McClure]

agree totally. jason is definitely way wr-wr-wr-WRONG on this one.

whether or not he's just trying to drive controversy and traffic as usual, sounds a hell of a lot like sour grapes to me.

jason: $25M is a pretty good deal for a couple of years work. no need to get pissy just cause someone else figured out a bigger opportunity in a shorter period of time.

in short: kettle, black.

(only their kettle is MUCH bigger)

- dave mcclure
http://500hats.typepad.com

[Juan Lopez-Valcarcel]

Fred,

I have to side with Jason on this one, as it is hard to see that YouTube can become a real business when their top viewed clips include:

- Pirated TV clips
- Pirated TV ads
- Amateur clips that belong in “America’s funniest videos”
- People lip-synching and dancing to famous songs

The site's popularity is probably the only thing YouTube has that is original, together with the skyrocketing cost to deliver such levels of bandwidth.

Can the eyeballs be monetized? I really doubt it.

Kids will move on to the next big thing if they have to start suffering pre-roll video ads. The emule generation does not like ads on their playlists, as the
failure of the ad-based MTV overdrive broadband channel shows.

Cheers,
Juan

[Don Dodge]

YouTube has the "cool factor" like MySpace does with the young audience. It will be easy for someone like Jason to replicate the technology and infrastructure necessary to compete with YouTube. But, it will NOT be easy to generate the same buzz and excitement with that crowd that YouTube already has.

If YouTube can stay out of court, screen content appropriately, build its user base, and attract advertisers, they will have a very nice business. YouTube is the video equivalent of Napster...except it is legal. As many of you know, I was formerly vice president of product development at Napster...before the courts shut us down :-(
See my take on the story at
http://dondodge.typepad.com/the_next_big_thing/2006/02/youtube_the_vid.html

[Nick Gray]

Vimeo is different, we make videos - not steal them! Come hang out sometime and lets be friends.

[Kyle Umberto]

I get so annoyed when I read clueless, idiotic statements like this:

"Content owners should pay attention to what consumers want to do with their content and find ways to satisfy these desires that can fit into a business model."

Square peg, meet round hole. That line of reasoning is Jeff Jarvis 101 and it implies a complete lack of understanding of consumer behavior. Listen up, kids. What do consumers want to do with content? Anything... AS LONG AS IT'S ***FREE***. Got it? FREE. Do I need to say it again? Okay, FREE.

A lot more people would be robbing banks if it was EASY, involved few risks and consequences. It is *very easy* (thanks to P2P systems and services like YouTube) as well as being virtually risk-free to download songs and videos. Thus, content has been cheapened and if you're musing that "content wants to be free!" then you're absolutely right if you're talking about ZERO VALUE rather than a birdie from a cage.

Content has always been over-valued (the price of music, movies, etc) so I welcome a leveling of the playing field but it's reached the point where consumers expect content with NO compensation to its creators.

I'll be the first to admit I'm guilty; I'll never pay for another song as long as it's easy and free to download. (Obviously that's not always the case so I DO buy music regularly if I want it RIGHT THEN AND NOW and the free services can't provide it for me.)

YouTube will (and should) survive but it will have to do so by playing nice with content owners. I assume they are already trying to work out deals with copyright owners and are offering the big content providers an opportunity to post their videos with ads, as mentioned above. Users prefer the YouTube destination and don't want to visit the SNL website and every other media outlet to get their video fix. The content providers should suck up to the fact that YouTube provides a great audience and they should produce their own clips with ads to make it worth it.

Because, let's face the facts, if YouTube was just a place to post home videos, it'd be a big piece of crap.

[Chris]

I agree with Peter above, I'd like to hear your opinion on YouTube from your perspective as a VC, not as a consumer. Why do you think they'd made a good investment? Will you invest in their next round?

[Alexa]

Jason is always interesting but I have to agree with Fred on this one...YouTube *can* be a good business over time. I've tried most of the services out there and YouTube is the only one so far that comes close to what I want. So what do I want? I don't want to have to think about what format the video is in, I don't want it to open in a new window or special media player, I want the option to download it (either for pay or free or ad-supported) and I would like to be able to subscribe to "people channels". Instead of TV channels, I would like to be able to subscribe to individuals who are corralling content I want to see and don't have time to hunt for. This is what made blogging take off and I want the same for video without it being in a social network or buried within posts. Best, Alexa

[Jay Hirschson]

It seems obvious to me that this issue is not so black or white as "Jason vs. Fred." Clearly, YouTube makes a lot of hay with video whose rights are not properly licensed from the media barons -- i.e., the rightful owners. Just as clearly, they provide an enormously valuable service to the great unwashed masses on MySpace, etc.

Surely there is a legitimate business there, one which could involve their obtaining the rights -- which in turn would cut into their bottom line but certainly would not obliterate it -- or one which could involve supplying a distribution platform coupled with a rev share model based either on subscriptions or, more sensibly, advertising.

Indeed, this approach is the one taken by Brightcove, a start-up founded by ColdFusion inventor Jeremy Allaire, funded by AOL and Diller/IAC, and featured today on page one of the Wall Street Journal. See http://online.wsj.com/article/SB114048979543678723.html (subscription required).

So, why the argument here when the answer is on page one of the WSJ?

[Jason L. Baptiste]

I don't think Fred, or any of us are debating the pirated clips are a problem. It's how NBC is dealing with the problem. Instead of using it to their advantage, and possibly making advertising revenue, they are saying no to these options. It's their content, and ultimately their decision, but that does not mean it is the right one.

-Jason L. Baptiste

[hank williams]

I've got to agree with Jason on this. Its just not that clever to build a business whose primary premise is building on copyrighted content. I could have done this years ago, and maybe I should have, but I have been busting my ass to do this kind of business in a way that doesnt use content illegally. Maybe I am a fool for spending years working on far more complex technology that actually has a value proposition beyond stealing. But I have to admit that Napster, YouTube, Kazaa, get under my skin. Maybe I am just jealous that I dont have the gumption to build a business based on theft.

[Jay Hirschson]

It seems obvious to me that this issue is not so black or white as "Jason vs. Fred." Clearly, YouTube makes a lot of hay with video whose rights are not properly licensed from the media barons -- i.e., the rightful owners. Just as clearly, they provide an enormously valuable service to the great unwashed masses on MySpace, etc.

Surely there is a legitimate business there, one which could involve their obtaining the rights -- which in turn would cut into their bottom line but certainly would not obliterate it -- or one which could involve supplying a distribution platform coupled with a rev share model based either on subscriptions or, more sensibly, advertising.

Indeed, this approach is the one taken by Brightcove, a start-up founded by ColdFusion inventor Jeremy Allaire, funded by AOL and Diller/IAC, and featured today on page 1 of the Wall Street Journal. See http://online.wsj.com/article/SB114048979543678723.html (subscription required).

So, why the argument here? The answer is on page one of the WSJ, for cryin' out loud.

[Ian Bell]

My interpretation of Jason is that based on his business experience, he fails to see how YouTube can be a legitimate revenue turner. He is used to journalism and related properties. Not all business plans require instant revenue. In the case of an online property, whats important is the gathering of traffic. And YouTube has realized that the quickest way to do that is to offer "all" content both copyrighted and legal to be distributed through their site. Its always about the content and they know this.

Once they have the traffic they want, they can cut the illegal stuff and still retain a large enough audience to generate revenue from. Ideas that come to mind include:

1) Video advertisements

2) A subscription service for viewers (not the smarted move)

3) Content deals with NBC, CBS etc, maybe charge per download for premium content

4) Lets make people register before they can view the videos, now we have e-mail addresses and personal information

There are a million ways to generate revenue once the traffic is there.

As for there being copyrighted content on there, keep in mind that YouTube is like a message board. They are not posting the content themselves their readers are. As long as they do a "best effort" to remove copyrighted material, they should be ok. Because the content is user submitted, there is a certaina amount of liability relief so-to-speak.

[Jim Kerr]

Just blogged on this: http://www.pollackmediagroup.net/wordpress/?p=39

I find it incredibly interesting that Paul applauds the "user generated" nature of YouTube, but when using an example of compelling content he lists works that are all copyrighted.

There is a business model here, but it will be very difficult one to build. That business is the Flickr of video. In fact, the guys at Brightcove, with all their big industry agreements, probably have a slicker and easier to use interface for syndicating mom and pop video content than YouTube does.

YouTube has one thing: The Traffic, but Jason justly points out that this traffic is based on piracy.

[hank williams]

The concept that they cant keep the copyrighted stuff off seems funny to me. They do a *great* job of policing porn. Believe me I looked and couldnt find anything. Thats not to say that there isnt *any* there, but I couldnt find it. So if they can make porn hard to find they can make obviously copywritten stuff hard to find too. They dont want to.

[pwb]

YouTube is taking an interesting approach that I believe will pay off where others have failed. They are going the opt-out route instead of opt-in. I think this is going to work out for them since 1) a great deal of the content is not copyright at all, 2) they are offering poor quality, streamed, incomplete versions and 3) fair use does come into play here (see http://www.umuc.edu/library/copy.html) and 4) many or most copyright owners will either see the benefit or not care.

[Steve]

Uh, in what universe can "great footage of Springsteen shows from the 1970s, old Stevie Wonder videos, Arctic Monkeys videos, and of course the requisite SNL videos" be called *user generated content*?

[Bells]

How about if YouTube were to promote music videos etc MTV and its clones all get paid to overplay particular videos. Why couldnt it be done online. Just one other revenue stream that could be pursued. The costs are astronomical but online Traffic is King and Content is God. Youtube has both in abundance. It could raise millions just by releasing a few funky Tshirts. Doubt it? Collegehumor.com tshirt profits are at $2.4 million plus for the first quarter alone. Think outside the box people 0.02