Viacom YouTube Breakup Brings Business Models to Question

According to a story in the Financial Times (no link, unfortunately - you have to be a subscriber), Viacom has seen a big uptick in traffic at some of its sites, like Comedy Central's Daily Show. Management says that the increase corresponds to having YouTube pull Viacom video material off its site.

If that correlation is accurate, we're facing two questions both fascinating and, for those in the media industries, important. The first, brought up in the article, is the more obvious, I think: how much will people go for user-generated content? If other media companies follow Viacom's lead, we'll see one test at YouTube. Traffic will drop, but how much? I"m not convinced that the site only exists on the strength of pirated video. MySpace certainly took off, and Viacom thought enough of "amateur" (read that as non-mainstream) content to purchase Internet shorts stop AtomFilms last year for $200 million.

That price seems more than a hedge against the possibility; when a realtively smart company like Viacom invests hundreds of millions, you've got to figure that Sumner Redstone expects the new property to pay. So perhaps there will be two media worlds - big commercial properties and alternative niche plays that, because of the distribution capabilities of the Internet, can reach enough audience to grow respectably. We've certainly seen that before ... in the print world. Alternative weeklies gathered readers and economic force by doing things that large dailies couldn't, or wouldn't.

And now for the more complicated question: where will consumers decide to go for information and entertainment, directly to producers or indirectly through aggregators? We've seen this to some degree in the past. Newspapers had people hawking on the street as well as kiosks - but they also had news stands. Magazines could sell subscriptions directly or sell through distributors to resellers. Both subscriptions and news stand sales became important to advertisers. Broadcast started out strongly as producer-owned because affliliates beamed content into homes, but then cable came about and many niche producers had to find ways to get distribution.

A similar situation is likely to be playing out on the Internet. Sure, people are going to Viacom now, but what happens with such aggregators as Google, Yahoo, and MSN? Or what about individual influential sites like the Drudge Report? Yes, Viacom can help drive traffic to its site via television. But what if people start going immediately to the Internet for video in a few years? Will they keep hopping from site to site? I would argue not. Sure, the public channel surfs, but that's jumping around from a single unifying interface. Sure, there could be subscription-based service, like with magazines, when material gets sent to you, but the size of teh pipes to most homes won't allow long format high-definition video, particularly if many people want simialr access. And while people like the idea of enormous choice, I would bet that they focus down on a few choices. So media companies will have to make themselves available on aggregator sites. And who's to say that an outside site like YouTube might not be the one to come out on top?