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A Coming Disaggregation?

YouTube plans to start sharing advertising revenue with video producers in the not-too-distant future. Won't this allow rogue groups made of just a handful of journalists, authors, etc. to compete with the mainstream content ("news") producers?

It seems likely to me that Google is going to allow content creation and distribution to become completely disaggregated in a way they never have been in the past. Google is strictly a distribution company--it generates almost no content. And Google is damn good at distribution--obviously so much so that the traditional media companies (which both produce and distribute content), like Viacom, are completely terrified. Frankly, in a competitive industry, filing a suit of the kind Viacom has recently filed against Google/YouTube is a sign of desperation: Viacom cannot compete in the marketplace, so it's taking its competitor to court. Whether Viacom is actually trying to shut YouTube down or just gain leverage in future business negotiations, its management clearly sees online video as an important emerging content distribution medium.

Each year Google is already paying out approximately 30% of its total revenue, which amounted to $825 million in the third quarter of 2006, back to its AdSense partners. Google's partners are mostly content generators, many of whom have no access to traditional media distribution channels. That's an enormous amount of money and it's paid out based mostly upon content popularity. The more people who view a site, the more people click on its ads, the more money its creators make. Success in this new model is primarily a matter of getting people to read, listen to, or watch one's content. Sure, most people just want to watch stupid crap; however, even if a tiny of a fraction of the people in the world (almost all of whom will be online in a few years) are interested in what one has to offer, one could still have quite a large audience. Of course one would need to buy advertising through Google (or another company) for assistance in initially reaching one's target audience. The profit margin in such a content generation market would simply be one's AdSense (Google's partner payment program) revenue minus one's AdWords (Google's advertising service) expenses. As long as one had content that interested a large enough number of people, then one's profit margin could be significant: if you and/or your media creations were interesting, then you could make money.

All of this will really take off when the Internet, television, and radio all merge into a single seamless media-scape--especially considering the rapidly falling cost of creating audio and video content. Obviously, we're not quite there yet, but aren't we headed there? And what will being there be like?


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