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Content may be king but many companies have found that producing and distributing quality content requires a royal bank account.

The plight of the newspaper industry is a good example: news hasn't gone out of style but, for many newspapers, the cost structures associated with producing the news is incompatible with today's market. Costs simply exceed revenues.

Enter user-generated content. With the internet and a robust set of publishing tools that are often free, we all have our own virtual printing presses, radio stations and television networks. Blogging, microblogging, social networking and video sharing have changed the world of content. Arguably, there's more content being produced than ever before. A lot of it is really good and a lot of it is being produced on the cheap.

For this reason, many expected user-generated content to revolutionize the world of media. And it has in many ways.

But if we all agree that the cost structure of 'professional' content producers is typically a major part of any woes they may be facing, an article on Slate.com provides an interesting counter-perspective on user-generated content. In it, Farhad Manjoo discusses the possibility that Google will lose close to $500m on YouTube this year alone, which is a number floated by analysts at Credit Suisse. To provide some comparison, he points out that the Boston Globe, which owner New York Times has threatened to shut down, is expected to lose 'only' $85m this year.

If YouTube is the future and the Boston Globe is the past, what does this say about where the world of content is headed?

YouTube's problem: it costs a lot of money to run the site and store all of those videos; more money than Google is currently able to pull in from advertisers. Since many of the videos on YouTube, including some of the most popular ones, are not ideal to sell advertising against, Google finds itself in a potentially tragic position. It has the most popular video content destination on the web and it may never be able to generate a cent of profit from it.

YouTube isn't alone. A lot has been made about Facebook's operational costs given its massive growth and some suggest that it may soon find itself in a precarious financial position.

So what do we have? Old media can't produce content profitably. New media can't store and serve content profitably. Pick your poison.

There are no easy answers here but I think solving this riddle will depend on acknowledging the following:

  • Not all content is created equally. While 'professional' content doesn't have a monopoly on quality, quality does count no matter what type of content you're dealing with.
  • A big content catalog doesn't mean big value. YouTube has millions of videos; Facebook has billions of photos. Most of them will never contribute to the bottom line. Even if the marginal cost of storing and serving each video or photo is small, there are real costs, from the servers to the database to the pipes. And multiplied millions or billions of times over, these costs do add up. So having a huge catalog of content doesn't necessarily create lots of value.
  • Distribution shouldn't always be free. If you can profit by distributing content for free, great. But a lot of the content that is out there right now probably shouldn't be distributed free since it provides no economic value to the distributor (eg. a service like YouTube). If a video clip of somebody doing something really stupid, for example, isn't going to create value for the distributor, why shouldn't the content producer be asked to pay for distribution?
  • At some point, the buck stops at the consumer. If we've learned anything from this recession it's that the advertising revenue model has its limits. Finding a way to present content in a package that the consumer of that content sees enough value in to pay for in some direct way is a worthwhile and essential goal for anyone in the content business.

Producing and distributing content can be a rough but rewarding game. But the more you look around, the more you can't help but think that neither old media nor new media 'gets it'. Yet.

Photo credit: ohsoabnormal via Flickr.

Patricio Robles

Published 17 April, 2009 by Patricio Robles

Patricio Robles is a tech reporter at Econsultancy. Follow him on Twitter.

2405 more posts from this author

Comments (3)

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Marina Martin

Professional quality content -- particularly when it comes to video -- is definitely important when it comes to advertising online (or anywhere). There have been many videos that I've wanted to watch but found the Flip-camera-quality, lighting, and/or lack of external microphone to detract from the content.

There are options out there for getting ample professional video at a price that doesn't break the bank. I work at such a company -- Elastic Lab. We have a large filmmaker network that we hire to submit raw footage (eliminating travel costs while being able to cover many cities at once) and edit in-house to lower costs and maintain a consistent professional look. Our model allows us to compensate our filmmakers fairly and provide our clients with lower-than-average costs.

over 7 years ago

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RG Creative Web

I totally agree for newspaper industry, cost of producing content is more than their revenues. Now a days internet is playing vital role in producing quality content at free or affordable cost. Many people or companies are looking online platform for advertising which probably be resulting in less revenues for newspapers.

over 7 years ago

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Teppo Nieminen

One of the two Finnish business dailies went online-only in 2007. A recent study indicates that while the cost of production and distribution was reduced by 60%, the advertising revenue dropped 75%. In other words, the paper produces now a relatively bigger loss than before (it never turned a profit, which is why it had to go online-only).

If the advertising model cannot support the mass of user-created content, then most of it will die, deservedly so because  most of it is bad. Youtube will become a tube for corporate and commercial content and pay-to-play. Blogs and other text-based content will have more resiliency, because of lower bandwidth and storage requirements. Ditto for music, which can be torrented. 

For a guide on how people value various types of content, look at Piratebay. Not much user-created amateur content there.

If this is the way the world goes, it will also gnaw away at the reasoning behind cloud computing for consumers. Who wants to upload their life only into Flickr if there's a possibility not too far down the road that your photos will be held hostage against a monthly ransom?

over 7 years ago

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