The latest headlines:

• Wallstrip cancelled by CBS
• Revision 3 shuttering down many shows

What's happening in our online video economy?

At CES we saw many large screen TVs that were trying to come ready for the Internet revolution.  However, these were huge sites like Netflix, Amazon, Blockbuster and YouTube, which are only profitable because of content aggregation.  The individual producer, even for a hit, makes little to nothing. Hulu, the highest quality professional content, gets $30 CPMs, while some highly specialized and niche sites get $500 CPMs.  CPMs stand for cost per thousand which is how much an advertiser will pay for 1000 impressions of their advertisement.  On the written word front, Fred Wilson a very popular New York based VC, makes about $30K a year from his well trafficked blog (300,000 page views) yielding about $10 CPM.  Not bad, but for quality content, living in an expensive city like NY it's not enough.

Online video will never reach the levels of TV.  TV is able to make money through a scattershot method of serving ads to everyone at an average of $25 a CPM.  However, we may be able to learn something from cable television.  One of the most profitable networks on cable is CNBC.  CNBC has on average 310,000 viewers according to Nielson (via CNN).  This level of viewers would get a typical show cancelled however, CNBC reached record profit levels last year of $333 milion.  The typical CNBC viewer has a net worth of $2.7 million, with an average income of $156,000, according to Monroe Mendelsohn Research and therefore is able to charge extremely high CPMs because of its ability to reach a well educated, affluent, high disposable income demographic.

A few factors go into this very basic equation:

Viewership/1000*CPM Rate+Other fees (i.e. Subscriptions, Merch) = Revenues - Expenses (Production/Talent Cost) = Profits

So to make more profit you need to increase your viewership, increase your CPM rate or decrease your expenses.  With web video, expenses are probably as low as they can be.  Any lower and you'll probably be cannibalizing your viewership numbers.  Viewership seems to be fairly consistent in the mid-tail of web video productions.  What can you change?  Your CPM Rate and other fees.  I'll discuss other fees in another posting.  For now, let's talk about raising your CPM.  How do you change this?

A publication like the Wall Street Journal (which has the same demographics as CNBC) has had rumors of $90 CPM in their video ads.  At the same time, a site like MySpace has $1.50 CPM.  Why the monstrous difference?

To start, CNBC and WSJ knows who there demographic is (Wall Street professionals, which also pre-stock market crash was the most desirable demographic out there based on their high levels of disposable income).  With sites that do not have much viewership, they must charge a high CPM.  However these sites make up for it, by knowing their audience's likes and dislikes.  With mass sites like MySpace, they make it up with volume.  A $1.50 CPM goes a long way if you have hundreds of millions of users (which they have).

What happened with Wall Strip?

I enjoy the show and at its peak it reached 14k viewers per month but at $20 CPM it wasn't able to make ends meet.  I don't think that its audience ever fully developed.  The show was funny and interesting but Wall Streeters it may have been too simple.  To the casual investor, it may have been too complex.  In other words, its audience wasn't as well defined so it couldn't charge a high CPM.

What does this mean for us?

Being online, only the lucky view will have viewership numbers that reach that of TV.  With near infinite choice, the audience becomes more and more fragmented.  However, we can use this to our advantage if we are able to define our audience precisely and accurately.  Part of the issue of high CPMs is finding audience and determining who the advertisers are and which audience they want to reach.  What if you could do that dynamically?  What if people could indicate things of interest to them and then you could serve them the appropriate ad?  More importantly, what if you could do it in video?

I think we've created something that can help you do that.  Our goal is to help support the online video industry and help content creators make higher CPMs.  I'd like to invite folks to try out our product and tell us your success (or failure, but hopefully not) story on how targeted advertising increased your CPMs.