The path to riches for Internet video creators is fast becoming a meritocracy.
Later this summer, startup Demand Media plans to introduce an advertising program that enables average users to get paid a share of ad revenue on individual Web pages powered by Demand's social media tools.
Demand Media is the latest Web 2.0 startup to offer this pay-for-play strategy. Revver pioneered the ad model that shares revenue with creators a year ago, most notably with the wildly popular Diet Coke/Mentos clip. Other sites, such as Blip.TV, adopted the model. In May YouTube began paying a handful of creators a cut of the ad revenue.
Though not the first, Demand Media's adoption of the revenue-sharing model, along with its existing ad strategies in search and text ads across its sites, suggests that paying creators based on how well their content performs now has the critical mass to become the primary money-making model for online video creators. This model also represents a departure from the traditional television world, where creators are paid up front.
Second, Demand Media's success or failure with this strategy likely will serve as a litmus test because of the company's pedigree in the venture world. Demand Media has attracted $220 million in venture funding from 3i, Generation Partners, Spectrum and Oak Investment Partners.
The company is helmed by Richard Rosenblatt, the serial entrepreneur who joined MySpace in 2003 and built it to the $580 million Web jewel that Rupert Murdoch's News Corp. plucked in 2005.
For his new go-round, Mr. Rosenblatt still is betting on social media. But rather than going after the breadth that built MySpace, Demand Media is pursuing the narrow and the vertical.
Demand Media resides at the intersection of two hot trends: online video advertising and social networking. Online video advertising sales will grow 89 percent this year to $775 million, according to eMarketer.
Meanwhile, ad spending on social networks in the U.S. will rise to $865 million this year, up from $350 million last year.
Demand Media consists of nearly 60 Web sites in niche verticals such as golf, outdoors and gardening, reaching 28 million unique visitors per month; a domain registry service that's second in size to godaddy.com and reaches 60 million unique visitors per month across its sites; and the "Channelme.tv" initiative launched in May. Under Channelme.TV, Demand Media provides Web users with the ability to buy a personalized URL, such as their name, and add a .tv to it. Individuals then can populate their sites with videos from about 15 Web partners, such as YouTube, Brightcove and MySpace, creating a "personalized TV channel."
"It's like your own YouTube with MySpace social networking tools," Mr. Rosenblatt said. "We let you take video from different sites around the Web and you can embed it. You are your own programmer."
Though MySpace lets users embed videos in their pages and YouTube lets users create their own channels, Mr. Rosenblatt believes Internet users want a personalized URL.
The company's ad strategy fits this trend toward personalization because Channelme.TV users will be able to earn a share of the ad revenue Demand Media sells on its sites based on page views.
"If you look at YouTube, MySpace or Facebook, it's their space," Mr. Rosenblatt said. "They control the advertising. They control the features and you are building their brand. [Here] it's your channel and your space, and we let users share in ad revenue generated from their own channels. Social media is going personal and vertical."
In addition, Demand Media planned to introduce late last week a program to pay users for "how to" articles for its site ehow.com. Compensation will be based on ad revenue generated through page views.
Mr. Rosenblatt declined to disclose the percentage users will receive. "They will share in every single ad click. We are providing the ability to create, distribute and get paid on the platform and we drive that audience through those social media tools," he said.
Providing the tools to let people build their own video brands is hot right now, said Debra Aho Williamson, senior analyst with eMarketer. "That's why YouTube is hot. That's why Brightcove is hot."
The challenge for Demand Media will be convincing Web users to build their own brands rather than simply create a channel on YouTube or a MySpace page, she said.
While online video advertising is driven by CPM as the dominant buying model, the revenue-split model where sites and creators share the money is emerging as a secondary option, Ms. Williamson said.
"Richard Rosenblatt has had some pretty good successes, so he's got the credentials," she added. "Everyone is into video and the challenge is, will enough people create their own channels to make the revenue model work?"
Last month, YouTube began to pay some of the most popular independent producers a cut of the ad dollars their videos generate. Creators in the partnership program include "LisaNova," "renetto" and "HappySlip."
Big media partners such as CBS and the National Basketball Association already enjoy a share of ad dollars. YouTube will allow other producers to participate if they can build and sustain an audience, another sign that Web creators will get paid only if they can perform.
Demand Media operates profitably through ad revenue generated by search and text-based ads across its footprint of sites, Mr. Rosenblatt said.
Since Demand Media launched its Channelme.tv program in May, more than 2,100 users have signed up with URLs such as chocolatechipcookies.tv, badweather.tv and arlen.tv.