Can anyone make money by giving stuff away? We speak to Viewster CEO Kai Henniges about the challenges of running a video-on-demand service in a turbulent sea of free, illegal online content.
Viewster is a global Internet streaming service that provides on-demand movies and TV shows interspersed with revenue-generating adverts. This is known in the industry as an advertising finance model. Its chief benefit over subscription- and transaction-based models is free content -- a tempting (and arguably essential) proposition for consumers in the Web 2.0 age.
We've talked about similar products in the past, including the Sony-backed Crackle, but Viewster distinguished itself with the variety of movies and TV it offers. The company currently has over 150 companies licensing content, including major Hollywood players like Warner Bros. New movies are typically free to watch 18 months after their initial cinema release.
Viewster started life as a global movie licensing company for other video-on-demand platforms, such as NetFlix. At the suggestion of device manufacturers, it then decided to offer its own end-to-end application across Android, iOS and Windows platforms.
"We looked at the stock of licensing rights we had built up and discovered that we had at least 1000 movies available for any country in the world," Henniges explains. "So this enabled us to offer global deals to the manufacturers who love the idea of having a video-on-demand app they can put on all their devices worldwide."
In 2012, the company grew by 700 per cent and served over a billion videos in 120 countries. The Australian market is an important one for Viewster, representing around 20 per cent of the company's global turnover.
"Australia is a very healthy market; the people really seem to like us. We're currently developing [content] partnerships in Australia and we've also begun local hiring for business development and sales. So it's really going well for us."
Henniges said the relative infancy of the advertising model in the video-on-demand market had created a challenge for the business. Download picture from Shutterstock
"The real skill is convincing content holders about the benefits of the advertising finance model. Getting content for a subscription or transactional video service is reasonably straightforward, so long as you have the negotiation skill and the money available to do deals. But on the advertising finance side, they often need some coaxing before they are sure they want to support that model."
According to Henniges, 'free' is likely to become the biggest business model in the video streaming space moving forward.
"I think paying on a transactional basis is an attempt to relive the days of the DVD where it was rented or bought. But I don't think those days are coming back. The world has changed, and there is now an expectation of free content."
Naturally, video piracy is the other significant challenge facing Viewster; a shadowy rival that Henniges describes as the "invisible whale" of the industry.
"The download numbers on the torrent platforms are frightful -- there is such a huge free on-demand market out there for people who want the very latest content but do not want to pay for it," Henniges explained.
"To give you an indication, on the same day that US authorities shut down [file-sharing site] Mega Upload, we saw a traffic spike of 20 per cent, because we're one of the few legal alternatives that is free to watch. These people suddenly panicked that they wouldn't be able to get free movies anymore, so they gave us a try."
Naturally, the advantage of illegal alternatives is the lack of advertisements. A typical movie on Viewster will typically contain ten advertisements interspersed at eight minute intervals, with most ads running between 15 and 20 seconds.
A premium ad-free service is also offered by Viewster, but it has found the free model is vastly more popular across all markets.
On the plus side, Viewster has managed to turn the prevalence of piracy to its advantage in some respects -- using torrent platforms as a barometer to work out which TV shows are the most popular, for example.
Henniges is confident that the Viewster model will gain significant traction once the movie industry has its "Napster moment".
"Slowly but surely, the industry is cracking down on video piracy. One thing we're watching with interest is Google's announcement that it will push any service that receives multiple DCMA complaints to the bottom of the search results, which means nobody will find them. I think that's going to do a hell of the lot for the industry, so we can't wait to see that happen.
"So I think step-by-step that [piracy] market will migrate across to the legal world and embrace models like ours."
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