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Oh No, Veoh! Is the Online Video Model Broken?

Yesterday saw a report that online video service Veoh has fired all of its workforce to pursue a Chapter 7 liquidation bankruptcy. That was after burning through $70 million in funding from some big name investors, including Goldman Sachs (GS), Time Warner (TWX), Intel (INTC), and VC firm Spark Capital. Veoh never really gained much traction, but its demise raises an important question: Has anyone figured out how to actually make enough money from online video to keep everyone -- studios, video producers, actors, writers, production crews, and web sites -- in business?

I'm not talking about audience-supplied material, ala YouTube. Google (GOOG) expects that to become a strong medium for advertising revenue, but the materials people want to see are donated and mostly user-generated.

That's how Veoh started, but it moved into showing television programs, video, and anime for free. And although it had some major weaknesses -- such as a mostly older material and limited selections -- the lethan problems that founder Dmitry Shapiro pointed to are the Universal Music Group copyright suit and "the broader macro-economic climate."

There's a simpler way to say all that: money.

Short-form and amateur (not in a pejorative sense) video is all well and good. But a regular and plentiful supply of longer videos with high production values requires revenue. Without money coming in, there is no incentive for those who finance and create the material to make programming available. What were they going to do? Provide free content to Veoh to get people to come see their other content (for free) at other sites? That's not a very compelling business case.

Veoh was particularly troubled, but the picture doesn't look a lot better elsewhere. Hulu has been grumbling about starting to charge because the networks that own the site want to make money. Apple is reportedly looking at testing a $1 price for television shows. The networks aren't happy, and when you think about the economics, you can understand why. That's around the cost for downloading a single song, even though television programming is much longer with higher production costs. A buck for an old episode of The Twilight Zone? Found money. For the last episode of Lost? Not so clear, especially if people abandon original broadcasts, thus lowering advertising rates, to watch shows on a computer.

The nature of media and distribution is changing. Many people aren't willing to spend much money for what they consume, possibly because with cell phone, landline, broadband Internet, and cable or satellite TV charges, they're fairly tapped out. We're living in exciting but dangerous times, but they may actually spell the end of television and movies as we've known them.

Image: Kevin Steele