Online video is still hot, but launching a successful video site is no cake walk. YouTube is by far the largest video site, yet even it has difficulties with profitibility. Does it make sense to start a YouTube clone based on the same profit-lacking business model?

In this article I’ll outline two of my favourite video site business models, either of which can be deployed with a sub-Google budget. My experince comes from being the founder of Fight Tube, a niche video sharing site on martial arts.

Like me, anyone starting a video site typically has several major barriers to profitability:

Monetization Problems:

• Viewers stare at videos until they’re over, limiting their ad exposure (unless it’s an intrusive overlay or pre-roll ad).
• Viewers have little reason to explore the page after the video finishes. On to the next clip! This again results in ads on video sites getting very little attention from users.
• Charging for content is a hard sell. The price of online video clips has been established at zero.
• The online video advertising industry is very young and has still not found its footing. Advertisers are nervous and not too sure what they want yet, and publishers and ad networks are lacking systems that make online video advertising easy and effective. Fortunately developments in this area have been making solid progress, but still have a long way to go.
• Video sites are costly on bandwidth, storage, and development.

SEO problems

• Videos have no searchable content. Until Google figures out how, they have little idea what your videos are about (although they’re now demonstrating their progress with YouTube’s automatic captioning).
• Sites that rely on user-submitted videos also rely on the user for important SEO work. The user needs to use textual content that accurately describes the content of the video that the Search Engines can see, such as writing titles, tags, and descriptions. Users don’t often do this well.

Content problems:

• Generating video content is far more expensive (time, equipment, and talent) than written articles.
• Sites that require user-submitted videos face a tremendous chicken-or-egg problem when building traffic and video submissions.
• The copyright status of user-submitted videos is often ambiguous or worse, creating serious liability issues. Let’s not forget Google’s looming 1 billion dollar lawsuit.
• Many large companies don’t want to advertise against user-submitted video because of questionable quality and content.

So What Could Possibly Work?

Starting a video site looks pretty foolish in light of all these problems, and indeed, competing with YouTube on general, ad-supported videos would be foolish.

However, here are 2 simple models for video sites that can work even on relatively small scales. They allow you to work with the major video sites instead of against them.

Biz Model 1: Value-Added Video

Make heavy use of video to supplement your written content. For example, embed a good video and write your own humorous description or commentary. It’s easy to write about something you’ve just seen, and mixed-media approach (text/video) is refreshing and encourages the viewer to explore more of each page.

The idea is to use video to supplement the content, not to be the content. YouTube’s Terms of Service spells out exactly why you can’t just slap ads around a YouTube video and call it a day:

[prohibited commercial uses include:]

- use of the Website or its related services (such as the Embeddable Player), for the primary purpose of gaining advertising or subscription revenue;

– the sale of advertising, on the YouTube website or any third-party website, targeted to the content of specific User Submissions or YouTube content;

I’m not a lawyer, but based on those terms I would recommend playing it safe and following conservative guidelines:

• you should keep your ads away from the embed videos.
• the bulk of the value on each page should be your writing, not the video.
• don’t target you ads to the video; target them to your text.

The "value-added video" approach is far from a fully-automated system. But it does address all of the monetization, SEO, and content problems listed above, making it an ideal choice for a part-time business.

Biz Model 2: Niche Video Site

The better you know your audience, the more relevant you can be to them. This translates into better visitor loyalty, interaction/contribution, and trust. So if you’re into martial arts and combat sports, you’ll like Fight Videos? Or if soccer is your thing, then it’s Footy Vids. There are plenty of niche video sites already, and the general video market continues to fragment.

Advantages of running a niche video site include better understanding of your audience (causing greater relevancy through better site design, navigation, etc.), better keyword focus (leading to higher search engine ranking for your major keywords), and better-targted advertising or affiliate offers.

Although you’ll need solid web skills to set up and maintain a video sharing site, commercial scripts are now readily available that have all the key features of the major video sites.

Finding the right market for a niche video site is a crucial first step. The ideal market will have:

Passionate fans. It takes passion to record a video and upload it to a public video site. It also takes passion (often mixed with boredom) to search out these videos and watch them.

A large market size. Do some research, crunch some numbers, and estimate if the niche market you’re considering can support the type of site you want to build.

Exciting content. Some hobbies are far more exciting to do than to watch. I’m sure knitting is a great hobby, but I doubt the potential of KnittingTube.

Not just spectators. To attract original videos, the site should focus on a participation-based rather than a purely spectator activity. The activity should be capable of producing exciting clips at all levels of play.

For example, many people seem to enjoy watching professional golf. But nobody would watch a video of someone else’s recreational game by their own free will. They watch pro golf for the sport’s celebrities and the quality commentary. The only content worth uploading would be copyright, and you don’t want to go there.

The "niche video site" approach is appealing to those who value scalability. Although the approach doesn’t solve many of the monetization, SEO, or content problems. However, they are easier to monetize than general-content video sites as advertisers can reach a passionate and targeted audience.

In addition it is likely a niche video site will quickly attract those most passionate about the niche and these people will begin uploading their videos, helping you get over the initial hurdle of getting users to submit videos in the first place.

Remember, you can always jump-start your video inventory with the help of the major videos sites. Just obey the terms of service for embedded content and APIs, or your site could be dead before it starts.

So there you have it, two online video business models. Let me know thoughts…

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