As music companies try to derive value from cloud-based music services, they also have another Herculean problem to solve: online video. While business models and strategies are still in the formative years, consumers are quickly becoming more comfortable integrating Internet video into their overall viewing habits.

Music companies are not alone in their rush to monetize Internet video. Television networks and cable providers are also trying to figure it out. One idea is called "TV Everywhere," which would give cable subscribers free access to online video. Non-subscribers, a growing segment of video viewers, would be blocked. "TV Everywhere" is an effort to bring up the number of online video advertisements to levels typically seen in cable television. Research shows people would rather watch a regular (by television standards) amount of advertisements than pay extra for online videos. In other words, they think online should be free.

Online video will be a tough nut to crack because it is so different from music and television. Ashkan Karbasfrooshan, founder and CEO of WatchMojo.com, outlines three main obstacles facing video producers:

1. Most people don't watch online video for more than sixty seconds.
2. Online video tends to have a very short shelf life.
3. Online series have difficulties holding an audience.

The presence of these obstacles means business models will take time to develop. Vevo is all of two months old and will take many more months to hit its stride - assuming that will happen. YouTube took about four years after launch to put together truly constructive arrangements with record labels.

Hyperdistribution

One strategy music companies are adopting is hyperdistribution, or syndicating one's content as broadly as possible. But hyperdistribution has not worked, says Karbasfrooshan. It has been "great for promotional purposes," he claims, "but not necessarily for commercial purposes." That's because marketers place a larger premium on scarcity and exclusivity than on just an audience. Thus, one of Vevo's challenges will be to retain the value of its viewership as it seeks syndication partners. The company has mentioned it plans to partner with the likes of Yahoo!, MTV and AOL to syndicate its ad-supported videos.

While online video is proving vexing for businesses, consumers have fewer problems adapting. According to comScore, the average U.S. viewer watched 187 videos in December. And they are watching longer videos. The average length of videos viewed in December increased to 4.1 minutes from 3.2 minutes the prior year.





As the dominance of YouTube shows, consumers will react to a good product. Hulu is growing, too. According to comScore, in December Hulu viewers watched more than one billion streams for a combined 97 million hours of video - a 140% increase over the prior year period. The average Hulu viewer watched over two hours of online video that month.

Strides are being made for advertisers as well. Nielsen found that television ads that have been repurposed as online video ads generate better general recall, brand recall, message recall and brand likeability than online-only ads and original flash animation.

In the end, how content is aggregated may mean more than how widely that content is syndicated. In a 2006 report on content aggregation, Bear Stearns analyst Spencer Wang predicted the way digital media is packaged - the context in which it is presented - would be the source of growth opportunities. That flies in the face of the old adage, "Content is King." The difference, many argue, is in an age of infinite choice, value lays in filtering and aggregation. In other words, people must be lead to the content before it can be crowned king.