The economic crisis ripped through the Internet video business late last month, as well-funded Web video shops ManiaTV, Break and Revision3 eliminated about 40 employees among them.
The nascent online video business is bracing for more cutbacks in payroll, production, travel expenses and other areas as Web video startups struggle to survive. Big media firms won’t be immune to layoffs, either, and analysts expect the effects to trickle up and down.
The biggest change that’s likely to come in the Web video business is an increased ruthlessness with regards to programming. Venture capitalists and Web executives will put new shows on a shorter leash and quickly cancel the ones that don’t pull their weight.
“The time given to find an audience will be compressed,” said Jim Louderback, CEO of Revision3, which reportedly let go about 10 employees when it cut five shows last week.
Companies that have slashed budget and payroll say they can’t devote precious resources to unproven shows in the current climate.
“We are seeing the inevitable belt-tightening that happens in a down economy,” said Will Richmond, industry analyst with VideoNuze.com. “It’s especially pronounced for the indie broadband studios and broadband programmers, because they are fully dependent on the revenue they can generate as opposed to being part of a larger media company that can support these fledgling efforts.”
ManiaTV laid off 20 workers in late October, reducing its headcount to 50. The company’s CEO, Peter Hoskins, said the startup should be profitable by the second quarter of 2009, in part because of the layoffs.
“The layoffs were about stopping things that needed more nurturing, time, audiences and resources,” he said. ManiaTV also will lean more on contractors and third parties for production to reduce costs.
Music and video-game shows have performed well for ManiaTV, attracting advertisers including Wrigley, Sony and Motorola. “That is where the bulk of our audience, success and profit are in,” Mr. Hoskins said. “We aren’t developing as aggressively across all our networks now.”
Revision3 also trimmed the fat by canceling shows includinglike “Internet Superstar” and “PopSiren.”
“We have been doing those two shows for nine months, they don’t have a tremendous amount of views and we didn’t see them on a path to becoming profitable,” Mr. Louderback said.
The shows that remain on the Revision3 lineup are on that path, he said. Revision3’s top performers are “Diggnation” and “Tekzilla,” which each draw about 1 million views a month.
There are lessons to be learned from the cutbacks, Mr. Louderback said. “You have to set clear goals for your shows and adhere to those goals,” he said.
Still, he expects the industry will undergo more layoffs.
Web video destination MyDamnChannel doesn’t expect to reduce its staff of 10. “We have controlled costs from the beginning and have never been a company that raised too much or spent too much,” said CEO Rob Barnett.
The Web video destination site has raised $3.2 million in funding and most of its shows cost between $5, 000 and $7,000 an episode to produce, he said.
“We didn’t build a studio, and we hire proven content creators and set the budget up front, and there isn’t a single production that has gone over budget,” he said.
Recent advertisers include Puma, which drew 200,000 views and 600,000 banner impressions on surrounding ads in the first three weeks of a sponsorship deal on MyDamnChannel.com, not counting views on other sites.
Web producers who want to launch shows in this environment should ask themselves some tough questions, said Mugs Buckley, analyst with the Diffusion Group. “Put yourself in the shoes of the advertiser: Would you buy this content?”
Producers also should consider if their content must be video or if it can be done cheaper and better with text and pictures, she said. If the answer is yes, don’t start a Web show, start a blog.
The economic downturn is hitting Web video firms hard right now, but digital consumption is still the future because audience and consumer interest in it are growing, said Anthony DiClemente, entertainment and broadcasting analyst with Barclays Capital.
“If they can survive the down cycle, they will come out on the other side better positioned because they will have taken market share from TV,” he said.
The silver lining is also that advertisers could flock to the Web now because it is more measurable and targeted, he said.