The video world is undergoing a profound shakeup that will take many years to play out.
Online video is booming, at the same time that the traditional film production, television production, and post production industries are contracting. The cable business will also struggle as a growing number of people cut the cord in favour of online video.
In the face of this industry change, here is some background on why the change is happening, and some tips to ensure that your company stays on the right side of history.
Uneven fortunes in the online video boom.
Online video is booming. Recent stats from Comscore show that on an average day in 2011, over 100 million Americans viewed online video content. This represents growth of 43% over the previous year. Over 43.5 billion videos were streamed in December 2011, a 44% increase over the prior year. This growth shows no signs of abating, as people increase the absolute number of videos they watch, in addition to viewing longer form content on sites like Hulu and Netflix.
The production industry must be booming as well right?
Not really. A 2012 report by IBISWord research group, claims that revenue in the $31 billion movie and video production industry decreased at an annual rate of approximately -1.1% between 2007-2012.
Things were slightly better in the $33 billion dollar television production industry, which, according to IBIS, grew at a annual rate of approximately 0.9% between 2007-2012.
How about post production?
According to a 2011 report by the IBISWorld, the U.S. post production industry is on the path to extinction, along with much larger industries like wired telecommunications, mills, and newspaper publishing.
IBIS reports that revenue in the $4.3 billion post production industry decreased by 25% between 2000-2010, and it projects that revenue will decline by 11% between 2010-2016. It also shows that the number of establishments decreased by 43% between 2000-2010 and is forecast to decrease by 38% between 2010-2016.
Why aren't the production and post production industries growing?
While things may not be as bad as these statistics would indicate, it’s worthwhile taking pause to think about what’s going on. Here are some of the major factors that are contributing to this decline.
There is little net-new online programming from traditional production companies.
Growth in online video doesn’t necessarily translate into more revenue for traditional production companies. Much of the content they make available online is simply re-purposed content or the addition of some behind the scenes type footage. For the major players, online is just another distribution window rather than a new medium to produce original content for.
While revenues from selling digital programming rights and digital downloads aren’t anything to sneeze at, they still aren’t enough to offset declines in other areas like DVD sales and rentals. In fact, some of these new distribution channels, like streaming on Netflix, actually cannibalize high-margin businesses like DVD sales. Big budget original online content like Netflix’s Lilyhammer is still in short supply and is not generating meaningful incremental revenue.
Much of the net-new programming we see online consists of user generated content, viral videos, advertisements, short news clips, and branded entertainment. While some of this may be generating significant revenue, it’s probably not caught in the rigid NAICS classification system, unless it comes from a company whose primary categorization is in one of the three groups that IBIS reported on. The growth would appear to be going to new players.
Growth of production businesses that wouldn’t be covered by these NAICS categories would explain the paradox where IBIS says that the post production business is dying, while Businessweek lists Film & Video Editor as one of the top careers for 2011.
Production budgets are shrinking.
As audiences splinter among different channels, broadcasters, cable networks and studios have looked for ways to reign in production costs. Hence the explosion in things like reality and lifestyle programming. Even tent pole television shows like Mad Men face pressures to reign in costs. Same goes for the big popcorn movies.
Production budgets for advertising will see a similar shift, which will decrease the total size of the production pie. Budgets for expensive 30-second spots will increasingly give way to easier and cheaper to produce web-video, more targeted branded entertainment, or impossible to skip direct product placements in television programs and movies.
Agencies are positioning themselves to take advantage of growth in online advertising, and they will favour production companies that are adept at producing viral videos and trans-media stories.
Technology is driving changes in the industry structure.
Digital video, increasingly powerful software, and decreasing hardware costs are changing the structure of the industry.
First off, we have witnessed production companies bring activities that were formerly outsourced to post production companies in-house. A number of specialty roles and functions have disappeared as people have been required to perform a broader range of functions. Further, increased efficiency means that fewer companies have been able to do the work of many, and the number of post production companies has shrunk.
The second major change brought on by technology is that it has significantly reduced the barriers to entry into the production and post production businesses. New competitors, in a stable to shrinking market has put pressure on prices for production and post production services. This applies across the industry, from the highest-end productions, to the wedding video market where there is a Craigslist army advertising low-cost services.
It must be mentioned, that while the capital cost of entering the market has fallen, it doesn’t mean that everyone with a camera and copy of Final Cut Pro can tell a great story. It just means that there are more people that are trying to do it, and that they will use low-prices as a lever to get win business.
So how do you make sure you profit from the boom?
Make sure you can tell your own story.
This is another way of saying to take a good honest look at your business and understand what differentiates you from your competitors. Maybe it’s your technical chops or your story-telling abilities, but maybe its something else.
- Do you rock the boat with customer service?
- Is your strength your ability to really communicate with customers?
- Is it that you have rock solid reliability?
- Do you deliver against all odds?
- Is it price (hint - this one isn’t very sustainable)?
Once you know your story, take a look at your communications material. Does your website communicate this? Is your reel a collection of clips, or a compelling tale that communicates your unique advantage? How does your print material and any advertising line up? Can you nail this story down into a 30-second elevator pitch?
Building consistent messaging is a process, and not something you will do overnight. Once you’ve figured it out, make sure that everyone in your staff understands the story and that they can communicate and live up to it.
Show your customers the love.
It always feels great to nail down a new customer. But are you doing enough to keep your existing ones coming back time and time again?
In most industries, it’s far more cost effective to build repeat business than it is to keep acquiring new customers. Further, when you’ve designed your company to generate repeat business, you are building an army (maybe a small army) of people that will help tell your story in the most effective way possible: through word of mouth.
So how do you show customers the love? Some quick tips:
- Make sure that you know your customers and truly, deeply understand their needs;
- Talk to your customers regularly;
- Communicate expectations, project milestones, and your process in advance of getting started;
- Deliver consistently and on time, and make sure you don’t letup on this when a customer does repeat business with you;
- Build a culture that delivers exceptional customer experiences;
- Educate your customers;
- Reward loyalty.
Whew... And that’s just the beginning.
I’m currently reading a book called the Referral Engine by John Jantsch. A review will come once I finish working through it, but I’ve read enough of it to suggest picking up a copy of his book or reading his excellent Duct Tape Marketing blog.
While the company that advertises that it can do $200 promo videos, may acquire lots of customers with low-prices, it may not be able to deliver on client expectations and build a long-term business. Building a referral business will help differentiate you.
Try on some new hats.
As technology changes, job requirements broaden. The more you can do within reason, the better chance there is that you won’t lose business to that lower cost competitor down the street. If you are an editor, have you spent time cutting video on the different systems? How are your color correction skills? If you are a shooter, have you spent time getting to know a DSLR workflow? You don’t need to be an expert at everything, but it’s good to be competent at adjacent activities.
At the same time, you need to know when to bring in someone else. So how is your network? Are there people you can call on to help get things done? Can you refer your clients to other suppliers in your industry? Think of it like building your own personal ecosystem for success. As an analogy, large part of what makes the iPhone so hugely useful (and difficult for competitors to displace) is the gazillion apps that you can download. Apple’s true genius with the App Store was to create the right conditions for this ecosystem to flourish.
Think about new ways to package your services?
Look for opportunities to package what you do differently. For example, if you produce promotional, ecommerce, or advertising videos for a client, you could sell them as a service that includes video hosting and custom analytics about who is viewing them, when they are being viewed, how long they are being watched etc. The full package of services could increase value to the client and help clarify the ROI of your services. While the revenue generated from hosting videos may be relatively immaterial, helping your customer understand and track the ROI of their investment in online video will keep them coming back.
Cut the fat in your business.
Want to increase your bottom line? While execution is hard, the profit equation is simple: you can increase profits by selling more, charging more, or reducing your costs. The points above speak to levers you can use to sell more or increase your prices. But what can you do to control costs?
Take a look at your business and diagnose where you spend time. For a growing number of companies, a growing bottleneck in the production and post production process is client management. If this is the case, there are plenty of tools to help you get the job done.
Project management tools like Basecamp can be used to make sure task are assigned, milestones are hit, and that everyone can see how a project is progressing.
Collaboration tools like ScreenLight can be used to privately share videos with clients and colleagues and speed up the time consuming review and approval process.
Invoicing software like FreshBooks can be used to make sure that you get paid by clients in a timely fashion.
The importance of these tools is that they can save you time, so that you can reallocate it back to things that have true value for your clients: telling great stories.
While using multiple services like these can add up, it’s important to look the overall ROI of each one (that’s why step 1 in cutting the fat is looking at where time is wasted). If you spend more than an hour per month on each activity, and your billing rate is $50 an hour, then the tools are likely worth a close look.