For years in retail, DVDs were an effective loss leader. Stores like Best Buy or Wal-Mart would stock racks near the entrance with below-cost DVDs to entice shoppers further inside. There, they could spend more money on higher-margin goods.
Online, it's not clear how much has changed. So often, video is bundled with other products or wrapped up in other businesses. Very few companies have proved the ability to make a standalone video business. Outside of the satellite TV providers, the list is very small.
Cable operators sell broadband, phone service and increasingly any other product they can come up with to complement their video product. It does not feel like a stretch to say Amazon's (Nasdaq: AMZN) Prime streaming video service is not a profit center for the company but rather a way to get more people shopping with it more often.
YouTube benefits from ownership by Google (Nasdaq: GOOG), a company that has seemingly cracked the online-advertising code better than anyone else. Hulu has stopped short of selling itself several times, preferring to remain an integrated piece of several larger media companies. iTunes helps Apple (Nasdaq: AAPL) sell more iPhones and iPads. Arguably, the coming over-the-top video services from Intel (Nasdaq: INTC) and Sony will do something similar for those companies.
Content aggregation and distribution is a tough business. In it, access to premium content may be the most important point of differentiation among companies, Sudhir Kaushik, Ooyala's director of products, told me last week.
That fact, and a very low barrier to entry, has driven companies, entrepreneurs and nearly anyone with a camera to produce their own content. For Netflix (Nasdaq: NFLX), whose new series were met with critical acclaim and industry-award recognition, the move has so far been a success.
It used to be the case that anyone with a plan for a TV network--or even TV show--had to secure distribution through major pay-TV operators like Comcast (Nasdaq: CMCSA) and DirecTV (Nasdaq: DTV).
Not anymore. But that wide-open opportunity has created a glut of content on the market.
"Deals on content have bottomed out because the market is so full of content," Xav Dubois, CEO of evox Television, told me last week.
Some contributors to YouTube have found it difficult to scrape by on their video output alone. A host of companies has appeared to help these content creators make the most of their online popularity. There's Subblime, a company that aims to turn those content creators into affiliates for online retailers and merchants. There's TubeStart and Subbable, two companies that could be described as "crowdfunding for YouTube."
Content creators selling goods based on the video they make is nothing new: Studios have been doing this for decades and call it merchandising. Maybe it's a sign of the online video industry's increasing maturity that online producers are starting to adopt this strategy. --Josh | +Josh Wein | @JoshWein