Frederator Aggregator

Let’s get one thing straight: Paying artists is always a positive thing. But the manner in which the guys at Channel Frederator are doing it continues to reflect their lack of regard and respect for the filmmaking community upon which they’ve built their brand. Seriously, in what universe is $50 considered an acceptable fee for anything nowadays? Have they been misinformed that filmmakers can time travel back to 1964 to make all their purchases?

Here’s a reality check—the last time I went out to lunch with Channel Frederator founder Fred Seibert, our lunch bill ended up being over fifty smackers. In other words, this paltry amount isn’t even enough to fill up Fred’s tummy for one afternoon, yet somehow it’s supposed to represent a filmmaker’s reward for months of blood, sweat and tears. They’ve also announced that every month they’ll pay the filmmaker of the most viewed film a whopping $200. Guess what? That’s still less than what we pay every single filmmaker on Cartoon Brew TV.

-Amid Amidi on Cartoon Brew

As you can see from the above, Channel Frederator has started paying a small amount for animation it will host on its site. Amidi is somewhat outraged at the amount. I think that Amidi is missing a fundamental aspect of Fred Seibert's business model and I think that the animation community doesn't yet understand how to function in the online world.

If you want to understand what Seibert is doing, I'd recommend that you read three books: The Long Tail and Free by Chris Anderson and What Would Google Do by Jeff Jarvis. Seibert's Next New Networks is practically a textbook case arising out of these books.

The long tail occurs when shelf space becomes infinite. In a brick and mortar store, space is limited so the proprietor focuses on those items that sell the best. That way, each square foot of space produces the maximum amount of income. However, in the online world, space is infinite and the cost of servers and hard drives is continuously coming down. Therefore, it's possible to offer a much wider variety of merchandise. Items that might only sell once or twice a year could not be carried in a brick and mortar store because they wouldn't produce sufficient profit, however when shelf space is unlimited and the cost approaches zero, a retailer might as well carry everything. The long tail consists of those items that, individually, do not add up to much in the way of sales, but if you have enough of those low-selling items, they can add up to a profitable business. Online retailers of this type are aggregators. The gather up anything in their category and make money by tiny profits on thousands or millions of items. Examples of long tail businesses are Amazon and Ebay.

The cost of duplicating something digitally is close to zero. With servers and hard drives becoming cheaper, the cost of hosting things also approaches zero. This is the thinking behind the book Free. Free is the most attractive price, so if you can afford to make something free, you're sure to find interested customers. The trick is to find something that you can sell while you're giving away the free item.

Jeff Jarvis says that the way to succeed in the online world is to build a platform that other people can use to form communities or do business. Google is the obvious example, but so are Amazon and Ebay. Amazon is a platform for anyone who wants to sell a book, whether a multinational conglomerate or a hobbyist in a basement. Ebay has created a worldwide market for any item you can think of.

Channel Frederator, now part of Next New Networks, is a classic aggregator. They gather up anything they think has the potential to attract a viewer. They don't have access to libraries of material from Disney, Warner Bros, Nickelodeon, etc. so they'll take material that's in the long tail and try to gather up enough of it to keep pulling viewers to the site. As recommended by Jarvis, they've built a platform that animators can use to reach an audience.

The material is available to viewers for free. What Next New Networks does is sell the viewers to advertisers. This is exactly the model that broadcast TV and radio have used for years.

Amazon or Ebay don't pay you to list with them, because the expectation is that you (and they) will profit from that listing. Channel Frederator is paying, though a pittance, but the amount is besides the point.

What's missing is the animation community's understanding of how to take advantage of Channel Frederator.

What Channel Frederator supplies is a piece of internet real estate. It is worth exactly zero, as anybody can start a blog or upload to YouTube for free. The valuable thing that Channel Frederator supplies is an audience. People interested in animation will go there looking for something to watch. It's likely that putting your film on Channel Frederator will result in more views, at least initially, than putting your film on YouTube, because Frederator is more focused. YouTube has everything, but your video is the proverbial needle in the haystack without some other kind of marketing to direct the audience to it. At Frederator, the audience for animation is already there.

Rather than complain about how little Frederator is paying, animators need to work the system. They should be using exposure on Frederator to drive to the audience to their own sites, where they sell something. Free points out that you can't charge for things that are abundant, you can only charge for things that are scarce. Therefore, while the audience can watch your film for free, you want to sell DVDs of it and include an autograph and quick sketch with every purchase, giving your viewer something they can't download. You can also be selling T-shirts, coffee mugs, etc. And of course, there should be a "donate" button on your site.

If you've got a reasonably good film, you'll probably make more from selling swag than from what Frederator is going to pay you. Furthermore, you should be collecting email addresses from your buyers, so that every time you release a new product, you've got a list of people to notify who have already bought something from you. By definition, these people like you enough to pay something for your work. They are a valuable resource.

If Frederator is willing to gather an audience for your film, carve off as much of it as you can and then monetize it.

Now, before you do this, I suggest that you read Frederator's Terms of Use. In particular, I want to quote the following:

Ownership; Licenses

We do not claim ownership rights in your User Submissions. However, by uploading, submitting, emailing, posting, publishing or otherwise transmitting any User Submission to any of the Sites, you hereby grant us a non-exclusive, worldwide, royalty-free, sublicensable, perpetual and irrevocable right and license to use, reproduce, modify, adapt, prepare derivative works based on, perform, display, publish, distribute, transmit, stream, broadcast and otherwise exploit such User Submission in any form, medium or technology now known or later developed, including without limitation on the Site and third party websites, podcast, video game consoles and services, video-on-demand and television. You represent and warrant that you own or have the necessary licenses, rights, consents, and permissions to grant the foregoing licenses to us. We shall own all right, title and interest in and to all derivative works and compilations of User Submissions that are created by us, including without limitation all worldwide intellectual property rights therein. You agree to execute and deliver such documents and provide all assistance reasonably requested by us, at our expense, to give us the full benefit of this section.

If you can wade through what's above you will note that while they don't claim ownership of your work, they claim perpetual non-exclusive use of it. They also have the right to modify it and prepare derivative works from it. They can place it on game consoles and all of the above are without any additional compensation. So, they can use your film forever, they can cut it or add to it, they can ship it with the next version of the Playstation or XBox. They can do all that and more without asking you for permission.

Note that they can develop derivative works. In historical terms, imagine that you've created a film called Porky's Hare Hunt with the prototype of Bugs Bunny. Frederator decides that the core idea is a good one but you didn't make the most of it, so they turn around and derive A Wild Hare from your film, only now, they own the new version of Bugs Bunny (not you), and they continue to use your film as a Bugs Bunny DVD extra or as part of a package of Bugs Bunny cartoons they sell elsewhere.

Would Frederator do any of the above? I have no idea. However, they have the legal right to. More than the $50 fee they're willing to pay, the Terms of Use are the part of the deal that smells the worst to me.

Some artists will inevitably complain that they don't want to deal with selling stuff, they just want to create their work. While in the past you could sell that work to a studio and receive a reasonable paycheque, those days are rapidly coming to a close. The economic model for film and TV as it existed is crumbling. Fred Seibert (and Cartoon Brew TV for that matter) will not pay you enough to create your work. We may see the studio jobs in animation vanish the same way that journalism jobs are vanishing. If that happens, we may all be reduced to creating work for free and then selling something related to the that work. Certainly, if you want to retain ownership of your work, that's what you'll be doing. However, if you want to maintain control over your work, you won't be contributing to Channel Frederator.

(This article is about strip cartoonists, not animators, but the lessons it talks about are ones that animators should be thinking over seriously.)

The Long Tail Revisited

Two years ago, I wrote about Chris Anderson and his book, The Long Tail. A quick summary is that in a brick and mortar world, retailers want their shelves filled with their most popular items in order to maximize profit from the physical limitations of their stores. However, in a digital world, shelf space is essentially infinite and free, so offering maximum choice is a better strategy. An item may only sell once a year, but if you have enough of those items, they can generate enough profit to rival the income you make from more popular items.

There are several well-known online companies that are built on this business model: Amazon, iTunes and Ebay. They each offer a wider selection than physical stores are capable of and have enlarged the market for their products as a result. These companies are often referred to as aggregators, as they pull together lots of products under their virtual roofs.

The long tail has been criticized as a theory. Anita Elberse is a marketing professor who's written something of a rebuttal. There's also a blog called Whiskey's Place that predicts an end to niche markets in the shrinking economy.

While the aggregators have a successful business model, creators who live in the long tail have yet to find one. As a retailer, if you have 100,000 items that each sell one unit a year, you're making money. A creator may only have 1 item, and selling one unit a year isn't going to provide much income. While creators eventually develop a backlist, even somebody prolific is going to be limited to 20 or 30 items.

So is the long tail just a pipe dream as a viable business model for creators? Seth Godin has written an interesting analysis about the nature of the curve, breaking it into three profit centers. His piece is interesting from a big business standpoint. Kevin Kelly looks at Godin's three profit centers and talks about how they relate to creators.

I've been wrestling with this for a while and I think the only advantage to the creator that I can see in the long tail is that aggregators can invent or produce a long tail domain that was not present before. Like Seth's Squidoo does. Before Squidoo or Amazon or Netflix came along there was no market at all for many of the creations they now distribute. The proposition that long tail aggregators can offer to creators is profound, but simple: you have a choice between a itsy bitsy niche audience (with nano profits) or no audience at all. Before the LT was expanded your masterpiece on breeding salt water aquarium fishes from the Red Sea would have no paying fans. Now you have maybe 100.

One hundred readers/watchers/listeners is not economical. There is no business equation that can sustain profits for continual creation from so few buyers. (It can of course support the business of aggregation above the level of creation.) But the long tail niche creation operates perfectly well in the realm of passion, enthusiasm, obsession, curiosity, peerage, love, and the gift economy. In the exchange of psychic energy, encouragement, meaning of life, and reasons to live, the long now is a boon.

That is not true about profits. Economically, the more the long tail expands, the more stuff there is to compete with our limited attention as an audience, the more difficult it is for a creator to sell profitably. Or, the longer the tail, the worse for sales. But if we view the long tail as a market of a different type, as a market of enthusiasm and connection, then as the long tail expands, this increases the chance of two enthusiasts meeting, and so the longer the tail, the better. The first two pockets of the curve are trying to maximize profits; the last pocket of the long tail is trying to maximize passion and connectivity.

There is one further indirect advantage to the long tail. Since your creation now exists in a market (where it would not have existed at all before) it can, if you are lucky, start to migrate uptail. With creativity you may be able to move your creation out of the economic doldrums of the long tail up into section #2, where 1,000 true fans and other mid-level success lies. As I argue in 1,000 True Fans, this is where you want to be as a creator. Seth calls it the pocket of " the profitable, successful niche product" and I agree with him that this pocket #2 rather than pocket #1 is where you want to aim for.

So the long tail is no magic bullet. However, as this comment on Chris Anderson's site shows, opportunities come out of the tail that wouldn't exist without it. The big question for creators is how big an investment to make relative to the expected (or unexpected) return. With animation being so labour intensive, maybe it's the wrong medium for niche markets. I hope somebody proves me wrong on that. The link in the above quote for 1,000 True Fans is very worth reading, and might be the only strategy that's going to prove viable for long tail creators.

The Long Tail

Chris Anderson has expanded his Wired article into the book The Long Tail. The book's strength is that it pulls together many things about how we're currently producing and consuming and brings them into focus. It's hard to see transitions while they're happening, but Anderson has managed to identify a very basic shift in economics and culture.

Before mechanical reproduction, all culture was local. Culture couldn't travel unless a human carried it and humans could only travel as fast as an animal could carry them.

The 19th century was an explosion of technology and mechanical reproduction. The telegraph annihilated distance. A message could cross the continent instantly, instead of having to be carried by railroad. Improved printing technologies, phonographs and movies enabled the creation of mass culture. By the early 20th century, when they were joined by radio, these technologies allowed people over a wide geographical area to be reading, listening and seeing the same cultural products.

The problem with this model was the cost of production and distribution. If you made a movie, you needed the equipment to photograph and edit it. Beyond that, you need a lab to develop and print copies of your film and an organization that could carry the copies to theaters over a wide geographical area. All those things took money, which meant that once the mass culture industries were established, it was difficult for a newcomer to compete with them. The cost of starting such an enterprise was prohibitive.

Because of the high cost of production and distribution, the culture manufacturers had to appeal to the widest possible audience in order to turn a profit. They needed hits. They couldn't afford to alienate any part of the audience (one reason for the adoption of the Hays censorship code) and they often stuffed something for everyone into a movie whether it fit or not. This is why MGM Marx Brothers comedies have romantic couples, songs and in The Big Store, a fashion show.

TV followed the same model, especially in the years before cable.

At the retail level, where books and records were sold, stores were physically limited by shelf space. Given the choice of an item that would sell 10 copies a year or 20, the proprietor naturally gravitated to the 20 copy item as it generated more cash from the same amount of shelf space. Items that didn't sell sufficient copies weren't stocked. They were invisible to consumers.

With the internet and other technological advances, everything has changed. Production and distribution costs have come down, especially for items that can be created with software and then downloaded. Retailers who sell over the internet are no longer restricted by needing space in a high traffic neighborhood or by the size of the local population. The result is the long tail.

(Image swiped from Slate's review)

In a nutshell, the long tail says sales of niche items add up to a significant portion of revenue. Physical limitations (space, number of outlets, etc.) used to truncate the tail, but now it just keeps on going. Where 20% of the merchandise used to result in 80% of the revenue, the proportion is no longer nearly so lopsided.

You're in the long tail while you're reading this. No question that this blog is a niche item. Rather than read or watch Harry Potter, you're here. And because you're limited by the number of hours in your day, the time you spend here and in other niches can only take time away from the hit properties. There will still be hits, but Anderson thinks that in the future they will be smaller due to competition from niche items.

What are the repercussions? If you're a consumer (and aren't we all?), you've got much greater choice than before. Rather than settle for the books or the DVD's in your local shop, you've got a vastly larger choice available to you online. If you're a creator, there are two possible repercussions. If you're working in a company that depends on hits, you may find that budgets will be squeezed if audiences don't turn out in the same numbers that they used to. If you're an independent creator, you've got an easier time reaching an audience that is increasingly seeking out specialized material that's more satisfying to them than the mainstream.

However, the long tail isn't utopia. Sellers will have a much easier time taking advantage of it than creators. If storage space is cheap, sellers can afford to carry an item that might only sell once a year. But a creator can't live on something that only sells one copy a year.

There are lots of creators who do things for the pleasure of it without financial compensation. This blog is an example. For those people, reaching an audience is its own reward though it may possibly lead to paying gigs of various sorts. For animation creators who are looking for the work to pay their way, the business model is still evolving. I've already pointed to Keith Lango's essay on this and he has some good points. I've got some ideas that I'll be tossing out here eventually.

Regardless of your goals, The Long Tail is a book that will help clarify the world you're living in. Anderson's insights are worth reading and as they describe changes to the consumer culture, they are relevant to everybody.