With an infinite distribution rate and extremely low production costs, online video is a prime market for start-ups.
Mark Suster, the sharp-witted entrepreneur-slash-VC, recently explained what it takes to build a successful online video business. And Suster isn't afraid to put his money where his mouth is: he's an investor in Maker Studios, a multi-channel network on YouTube that draws 4.4 billion views per month and raised $62 million this year.
Video demand is on the rise: In the U.S. alone, it has grown 54 percent since 2011. It's also up to 99 percent cheaper to produce than traditional film and TV, and has the capacity to reach a global audience--all good things for a business. In 2012, over 85 percent of U.S.-based Internet users watched some kind of video. By 2014, online video should account for 50 percent of total web traffic. The Internet's future will be dominated by video, and companies who harness its power could make millions.
Here are Suster's six tips for building a disruptive online video business of your own.
Find the right margin.
YouTube takes almost half its users' revenue, so you'll need a sustainable margin. Suster recommends building up your own site and using affiliate sites such as Yahoo, AOL and Hulu. Your company's owned-and-operated site will host your most loyal fans and allow you to package ads at a rate 10 times greater than on YouTube.
Build up your tech.
Like it or not, you can't be successful without a tech investment. Use data to determine the best time to post, how long videos should be, what headlines work best and so on. You can choose to hire engineers or partner with companies who specialize in these services.
Become a producer.
"If you [don't] produce your own shows that attract audiences you have no leverage in the first place," Suster writes. Most successful networks are known for one or two popular shows--the rest is just "content."
Know your customers.
"The most important currency of online businesses is customer information. It’s what allows you to continue to market your products cost effectively to customers," says Suster. Social media logins will personalize the user experience on your site ... and give you their information. If you usea Facebook Connect integration, your viewers will share your videos with their friends (assuming it's good content). In turn you'll get their email, demographic and social data. This information can enable you to market directly to your audience at a lower cost.
Find alternate revenue streams.
According to Suster, 70 percent of Star Wars' revenue came from follow-on products such as toys and video games. Truly successful companies create franchises, which have alternate revenue streams like licensing merchandise, packaging shows that can be made into TV serials, and supporting music sales by featuring artists in your videos.
The Internet is a global marketplace, so go after the world's customers. Suster says that international YouTube traffic is more than double the size of traffic inside the U.S. If you only go for Americans, you're missing the opportunity.
WILL YAKOWICZ is a reporter at Inc. magazine. He has covered business, crime and politics at Patch.com, and his work has been published in Tablet Magazine and The Brooklyn Paper. He lives in Brooklyn, New York. @WillYakowicz