Commenting on the recent Time Warner warnings about YouTube, Don Dodge of the Microsoft Emerging Business Team points out:

The problem is vast differences of opinion on the "value" of a music or video clip. The value to YouTube is limited to some percentage of the advertising revenue they can collect. We are talking less than a penny per stream. The copyright holders believe their content is the basis of the whole business. They believe a song clip is worth a large fraction of $.99, or a movie clip is worth some fraction of $17.00.

Crazy as it sounds to us, some copyright holders would choose to block their content from YouTube rather than accept pennies from YouTube. They don't view this as a new revenue stream. Instead they view YouTube as pirates who cut traditional sales of their content.

His assumption makes no sense. If ad-sponsored downloads cut the value of the product, then content owners should resist them. If the downloads are added revenue, then the owners should embrace them. Time Warner and the others know this -- they know that clips are probably advertising; full downloads are substitutes. So they want to reconcile thes values.

Most importantly, consumers' interests DO NOT lie with the advertising model. In that model, the amount of money available to pay for the development of content for me is the amount that my eyeballs are worth to an advertiser -- maybe $0.10 for a view. Suppose, in fact, I would be willing to pay the content owner $10.00 for the view. If the production of content is dependent on revenue from advertising, then this deal will not get done because there is no mechanism by which I can pay the $10. In fact, NO DEAL will get done, no matter how great the value TO ME, unless the value of my eyeballs TO AN ADVERTISER is enough to finance it, an amount which is unrelated to its value to me.

So the world will be awash in lowest common denominator content which is worth, to advertisers, $0.10 per pair for the eyeballs of millions of people, but it will totally lack content that is worth $10 each directly to a mere 100K actual viewers because there will be no mechanism for these viewers to express their preferences.

I submit to you, ladies and gentlemen of the jury, it is the ad-dependent model that is "crazy," not the one in which the content owners maintain control and maintain the capacity to provide value directly to consumers. Relying on advertisers as patrons of content is a mug's game.

So come on Parsons and TW -- get out there and defend your interests (and mine). No waffling!

posted by James DeLong @ 8:49 AM | Markets: Business, Investment & Innovation

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