The New Networks
Even though the three online networks vary in how they create or acquire content, they're similar in the type of content they offer. Shows are typically targeted to a specific underserved niche. By going after small audiences, the networks are able to pull in groups too small for even the cable channels and build a grateful audience.
"When consumers sit down to watch a show on television, there's generally been more exposure to that show, there's been more advertising around it. There may have been more cross-promotion on other networks. Online, the nature of the programming tends to be more niche-oriented. I'd say, in general, the videos that consumers are watching are shorter, although not always," notes Ross Rubin, consumer technology analyst with the NPD Group.
The Business Side
If content were the sole reason for online networks to exist, however, a portal site would do just as well, directing viewers to similar shows worth watching. But their role goes much deeper than that, into advertising and marketing. Not only does the approval of an online network tell viewers something about a show's quality, but it lets advertisers know that the show is reliable.
"Even though half our viewership comes from search, the other half comes from repeat viewers who tune in: They subscribe, they go to our website, they go to our YouTube channel and look for new videos, because they've identified themselves as someone who likes that network, who likes the programming that it has," says Shey of NNN. "That's one really important role that online television networks can play. The other really important one is that they create a safe place for advertisers. For advertisers, it's confusing to see that there are probably tens of thousands of individual web series out there. How do they know what to buy? How do they know that that web series is going to get viewership? Where is that reliability and consistency that they're used to seeing on television? A network brand can be a stamp of quality on video."
While independent content creators can attempt to go it alone and get advertising for their shows, networks can reach advertisers that individuals wouldn't be able to get, says Revision3's Prager.
"There's a lot of empowerment that an independent content creator can have, whether he's writing a blog, putting out tweets, or creating a video, and uploading it to Vimeo or to YouTube. In order to turn it into something that is a business, there are additional elements that need to be considered: You need to consider ad sales, you need to consider marketing and promotion, and you need to consider distribution. And you need to strategize around all of it," says Prager. "If [you really want] to be nothing but an artist, and you want to put 100% of your efforts toward that, then you might need some assistance on the distribution and the promotion and even the ad sales, if that's something you're looking for to monetize your content."
More than that, advertisers are typically looking for more reach than an individual show can give. While an online show might hit exactly the target market that a major brand is looking for, few of them reach the kind of mass audience that advertisers require. Banding together in a network allows shows to attract those major advertisers.
"Advertisers need a certain amount of scale. It's not the targeted direct response in many cases. Getting scale online, at this point, even the biggest sites that have the sort of professional content that brand marketers want-Hulu, or, increasingly, parts of YouTube-don't really have the kind of scale that they need," says David Hallerman, an analyst with eMarketer.
All three online networks play a similar role in helping viewers find content and helping advertisers reach an online audience. As it turns out, all three share similar beginnings as well. With only broadcast networks to model themselves after, and a strong belief that the same type of content organization was needed online, they all began when young entrepreneurs took a leap and decided to create something new.
"Next New Networks was founded by early pioneers from the cable television business, as well as early pioneers of the internet content business, people from places like MTV Networks, AOL, the Sundance Channel," says Shey. "One of the things we looked at is ‘what role do networks play if they're reinvented for the age of online video?' You first started with the radio networks, and radio networks were huge. There were only a few networks, and they reached mass audiences. Those evolved into the big three television broadcast networks. Again, they had a massive share of the audience all watching one network. When cable television came in, you started seeing more fracturing, more fragmentation. MTV Networks would need around 20 networks to achieve the same audience CBS once reached with one.
"Somewhere we thought, if there are going to be online television networks," Shey continues, "you might need-who knows what the number is? You might need 100 of them, you might need 1,000 of them-to reach the same audience that MTV reached in cable. We thought, for one thing, that that's going to be the new role of networks: individualization."
The company's five founders saw the growth of video podcasts and video blogging in 2006, says Shey, and thought that the online world needed a media company that could provide the needed infrastructure.
"We set out to be the Condé Nast or the Viacom of online video," Shey says. "We wanted to be a company that could have a portfolio of great brands and work with tens of thousands of content creators and build something big." The founders put together a business plan and were able to raise capital from investors including Spark Capital and Goldman Sachs. The network launched in March 2007.
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