Who Starts a Company During Economic Collapse?

Yesterday, I attended Demo Day for AlphaLab, a local tech startup incubator here in Pittsburgh (and a sponsor of PodCamp Pittsburgh 3). The six companies they're currently working with will be nudged out the door at the end of the year, so yesterday was their chance to spread their wings (and make their pitch) in front of a roomful of potential investors, advisers and other interested parties.

But will any of their ideas fly?

Web-Wide Ripples of Discontent

Earlier this week, Steve Woolf of Epic FU (formerly JetSetShow) announced that they'll be ending their relationship with (formerly-considered-to-be) rising web video production company Revision 3. Due to international economic calamity, among other factors, Revision 3 is dropping numerous shows from their lineup, including Epic FU and Gary Vee's Wine Library TV -- which is odd, considering they're some of the web's most successful niche shows.

Perhaps their production costs outweigh their current revenue potential, but the long-term implications of this decision seem to be: Revision 3 can't afford to keep incubating emerging web video hits long enough for them to take flight on their own.

So if a company that's supposedly trafficking in The Next Big Thing (aka the web video revolution) can't keep their flagship shows afloat, what does that mean for companies like AlphaLab, who are incubating similarly-positioned, service-driven companies whose business plans hinge upon Web 2.0 metrics?

Building Houses During a Forest Fire

Every new company is fighting an uphill battle during this economic downturn, not to launch or to grow, but merely to validate their own right to exist. New ideas and properties that might have had a few years to experiment and develop an audience won't have that same luxury from investors who will increasingly be looking exclusively for "sure things" -- and if there's one field that's anything but "sure," it's the entire social media spectrum.

Admittedly, the AlphaLab-supported companies I consider to have the most potential -- Chogger and GameHuddle -- seem sexy to me because they're social media-based, and that's the arena I work in. But just because I can see their potential, that doesn't mean investors -- or customers -- will. In fact, I'd go so far as to say that these companies may be the exact right idea at the exact wrong time: concepts that COULD be sticky and even useful, if only their business plans didn't rely on large numbers of niche users having the time to find them, use them and spread the word.

In this economy, time is even less abundant than capital.

So: how can emerging companies -- social media-based or otherwise -- insulate themselves from an uncertain economy? Or, do new companies need to stretch beyond existing patterns of business thought and seize upon new opportunities before those uncharted waters seem too hazardous for anyone to fund?

Social Media: The Problem With Being Free

One of the endless questions surrounding social media is: "How do I monetize?" Meaning: how does one person convince other people -- whether it's that person's actual audience, or advertisers eager to reach that person's audience -- to pay that person to do what he / she actually wants to do for a living?

Common Cents

In most cases, a person simply seeks out a job that other people already publicly admit is worth being paid for. Garbage collectors, graphic designers and accountants are all worth paying for a job well done, or so we believe. So why not bloggers, podcasters and other social media creators?

The catch: people have long been used to paying garbage collectors, graphic designers and accountants. They're also used to paying for records, movies and live entertainment. And they'll sit through commercials on TV as long as they get their shows for free.

But no one is used to paying for web content, because the web has always been "free."

"Free" Is in the Eye of the Beholder

In truth, we all know the web was never "free," so much as it was "subsidized." People were willing to spend their time and effort creating a network of information and entertainment, often for no financial gain, simply because they enjoyed it or saw value in the existence of such a network.

But no one can do that indefinitely, and people capable of producing professional quality work (or at least work that resonates with audiences of a size similar to those of the professionals) are not going to produce their work for free forever.

Parking Is Like Sex...

... or so goes the Seinfeld joke: Why should we pay for something that, with a little effort, we can get for free?

But that logic applies to everything in life. Why pay for CDs when you can download them for free on filesharing sites? Why pay a landscaper traditional wages when you can employ day laborers for far less?

No one is exploiting web content creators (yet) by *not* paying for their work, since few web content creators are currently charging a reasonable fee -- or any rate, for that matter -- to engage with their work. In that regard, web content creators are exploiting themselves by not attempting to charge for their work in the first place.

Having grown up using the internet, the concept of charging for information that's always been free could be seen as the death of the very ideals that the internet was founded on.

Or it could be seen as a very necessary step in the maturation of thousands of prospective artists and business owners, to realize that what we do is worth getting paid for.

If I Don't Like You, and YOU Don't Like You...

The bigger question -- WHO will pay for it -- can't be asked until each of us admits that what we're doing is worth something to someone, somewhere. Since most of us create content for free, we're used to it. We have the POV that even making a few hundred bucks a month is probably "more than we deserve," all things considered. After all, we know the cost involved in our work, and we've been willing to shoulder it ourselves for so long, it's become part of the process.

Wouldn't getting paid for what we do be equal to "selling out"?

How can we compare our work to the work of Hollywood, Madison Avenue, etc.?

What's our work actually *worth*?

The Short Stick Economy

Advertisers are leaving print publications in droves, leading to magazines and newspapers cutting costs and closing doors. But that ad revenue isn't being reassigned to the web, because the web doesn't charge the same amount for ads that print publications do.

That's because the web still prices itself as an inferior product, across the board, compared to every other mass medium.

As a result, those of us who create content for the web have horrible benchmarks to judge ourselves against. We can't aspire to earn as much as content creators in other media because our own medium gives itself the short end of the stick at all times.

Asking a web content creator to evaluate the value of his / her work is an impossible task, because we're trained to think that:

A) What we're doing MUST be free to be online,
B) What we're doing is online, and therefore amateur, and
C) What we're doing is being created for a medium that has yet to create a sustainable economy in the creative sector.

Therefore, all aspirations to get paid are pipe dreams until each of those realities changes.

And guess what: the sustainable economy that will provide realistic benchmarks for individual financial success among web content creators CAN'T be created until we get past those first two roadblocks -- and those are roadblocks we set up for ourselves.

Photo by Emdot

Someone's in the Money

Fresh off the Yahoo! Videobloggers message board, here's a list of the AFTRA rates for film and television performers.

Notice that these are their rates for "interactive media." Which means an AFTRA actor who makes a web video is technically due several hundred dollars per day, at the very least. (NOTE: I've yet to see evidence that this pay structure is currently being adhered to, or that anyone in "interactive media" is earning these rates. But, for the sake of argument, there it is.)

Pretty cool, huh?

Not necessarily.

If / when AFTRA (and other unions) are granted jurisdiction over the internet, it could become a lot harder to launch something as simple as a videoblog. Granted, as long as none of your actors are AFTRA members, you don't have anything to worry about -- yet. But, as one member of the message board commented:

I am of the opinion that every time a videoblogger charges less than the rate card, they screw things up for people in AFTRA.

Thus, it's likely that, in the very near future, ALL videoblogs may qualify as AFTRA productions if they operate under a certain budget, accrue a certain amount of revenue, etc. (Unions tend to not appreciate non-unionized workers, even if it is just a kid from Ohio making movies with his webcam.)

And, for productions whose members are in AFTRA -- say, the cast of The Burg -- they'd presumably have to find funding to pay each actor their day rate. If it takes 3 days to shoot a 10 minute episode, that's over $10,000, just to cover the primary cast in one week's episode of The Burg. (This doesn't even cover extras, minor actors, and all other job functions -- director, producer, writer -- all of which, it follows, would need to earn their union's standard rates as well.)

So, forget about "monetizing your vlog." T-shirt sales and Revver clicks aren't going to cover AFTRA fees. The bigger question is: who's going to fund the future of web video?

(Enter: The studios ===> Hello, old media cycle, all over again...)

Thoughts?

The Trouble with "Free"

People can only expect "free" content for so long before nobody wishes to create anything due to lack of incentive.

"Jason," Gosford, Australia -- commenter on an Andrew Keen article

How many blogs do you read? How many podcasts do you listen to / watch?

Would you consume the same amount of web content if it WASN'T free?

Most of the web world is betting "no," which is why so much remains free. But for the people who ARE producing work that, under traditional circumstances (and in traditional media) WOULD be considered "market-worthy," the question remains: how do we monetize?

We created the internet under the guise that all content should be free. Then we bemoan the fact that, since we CAN create market-worthy work there, we SHOULD be paid for it.

But how?

People expect ads on TV and radio because they were ALWAYS there, to ensure the media was delivered for free. Conversely, they expect NO ADS in films because they already paid at the door. (So, when theaters started showing ads, audiences were right to complain.)

People expect everything on the internet to be free, OR TO BE A GATEWAY to something ELSE that costs money.

So how do we, who are creating free content (blogs, audio, video, animation, photos, communities, ideas, experiences) get PAID for what we're doing?

The John C Havens / Eric Rice Method: "Charge SOMETHING"

On a recent interview with About.com's John C Havens, he and I debated the merits of EVERYONE charging SOMETHING, so the world would come to understand that the internet was a viable delivery mechanism.

Meanwhile, Eric Rice also recently blogged about the potential for iTunes to at least enable podcasters who use the service to charge SOMETHING for their work, to retrain the audience into not expecting everything for free.

John and Eric are proponents of the concept; I'm more skeptical (for the reasons listed above), though I do see the need to move away from the "all-you-can-eat-for-free" buffet -- for exactly the reason quoted atop this post.

The Andrew Baron / Chris Brogan / Vergel Evans Method: "Charge for SOMETHING ELSE"

Andrew, Chris and Vergel have recently expressed variations on the same theme: "Give away the content as a gateway to SOMETHING ELSE you monetize." Vergel's podcast is all about electronic music creation -- and then he sells mp3s of his songs.

Chris and Andrew champion the concept of giving away videos for free to get people to buy the DVDs, or subscribe to a site to see extra features / content that's unavailable to the (free) masses.

While I CAN agree with this model, it's flawed in one central way: why would I expend dozens of hours and x amount of $ to create something I'm already passionate about, JUST TO HAVE TO CREATE SOMETHING ELSE I CAN CHARGE FOR?

What IS the Internet?

I think what it all comes down to is: how do WE (the creators) SEE new media?

And, how do WE (the consumers) INTERPRET new media?

And, most importantly: How does EVERYONE SEE the internet?

Is it a delivery mechanism unto itself? A marketing and advertising gateway to someplace else? Or a bastion of all things that shall forever remain free?

(And where does what YOU'RE contributing fall along those lines?)

Advertisers Keep Coming SO CLOSE...

... and yet they still haven't found a way to please me.

Or you.

Robert Scoble's post about Nexidia is right: hypercontextual ads in tandem with video content are a great step in the right direction... if you're already looking for THAT information.

For example, If I'm watching a clip about drywall, odds are, I'd love to see an ad for a Home Depot sale. That's the logic that powers TV ad sales, and that's the logic that can now be applied to the web world.

But what about LOST? How many ads for island getaways, Swiss army knives or travel insurance do you see served up by ABC?

So, by comparison, what about Ask a Ninja? Or Dutch West? Or STBD?

What I Want

Is there ever a time in your life when you don't need information about something?

Right now, off the top of your head, you can probably think of 5 things you need a hand with. Maybe you're planning a summer vacation. Maybe you need to buy an anniversary gift. Maybe your old college roommate just asked if you could somehow smuggle a case of Pennsylvania beer to his Houston wedding.

We, as humans, are forever searching for MORE information.

So, if I must watch an ad in order to see a video for free, can't I tell the ad server what I'm actually interested in learning about?

It's not good enough for Google to track my click habits and tell me what my profile is, because all that tells me is who I've BEEN; it doesn't tell me who I AM, who I'm GOING to be or -- most importantly -- who I WANT to be.

Google, please stop thinking you're smarter than me. Instead, all you have to do is ask me: "What do YOU want to learn about today?"

If I could actually obtain useful information THAT I REQUESTED every time I stopped to watch an episode of Tiki Bar TV -- and, hey, it might be about tax preparation, not alcohol or minidresses -- would I not be even more inclined to sit through commercials?