Economics of Online Video 4: Revver P&L UPDATED

After we published this post, Revver's Angela Gyetvan weighed in to say that one very key assumption--the percentage of monetizable videos--is 100%, not 50%, which changes the margin picture considerably.  Also, Angela suggested that the $10 CPM we used is a bit out of date (we have heard from other sources that comparable companies get $10-$15), so we've raised the CPM assumption to $12.50  Lastly, after receiving Angela's kind note, we felt so bad about calling Revver a "me-too company" that we revised that wording, too. 

What else can we learn from that Revver nugget about paying $1 million to its video-sharers over the past year?  Well, we can take a stab at Revver's annual P&L.  Revver itself is a me-too company (sorry!) not the industry leader, but its P&L is relevant to the dozens of other companies toiling away in the video sector--as well as the investors continuing to fund them.

Our back-of-the-envelope math suggests that Revver has about a 25%-30% gross margin and is burning about $2.5 million a year.  If this burn estimate is anywhere close to accurate, Revver's actually doing okay.  As an SAI reader points out below, most businesses burn money for the first few years. Venture capitalists and other investors, moreover, toss around $2.5 million over breakfast, and the online video arms race is now forcing companies to raise far vaster sums (Revver itself raised $9 million last year, which is now chicken feed: Veoh Just raised $25 million, Hulu $100 million, DailyMotion $34 million, etc.)  The estimates do imply, however, that video is a tough business (Revver has plenty of scale), especially for those who don't happen to be YouTube.  Calculations/estimates after jump.

Revver pays 20% off the top to its distribution partners, and Revver and its video-sharers then split the leftover revenue 50%/50%.  This suggests that REVVER itself has generated between $2 million and $2.4 million of revenue over the past year (depending on how many of the videos are watched on-site vs. distributed).  In our second Economics of Online Video piece, we constructed a basic video P&L.  Given Revver's admirably forthright disclosures of its basic revenue splits, we can use this to build a specific estimated REVVER P&L.

In our Revver model, we make the following assumptions:

Percent of videos that are monetizable:   100%

Average CPM      $12.50 (Please see Economics of Video 3 for the calcuation of this Revver CPM).

Distributed Videos:   50%

Bandwidth/Storage/Transcoding Costs:   Mid-level

Using our basic video P&L, these assumptions produce a gross margin of 28% (please see this spreadsheet for detailed assumptions and calculations).  For REVVER's operating costs, we then add a guess at R&D spending of $1.5 million a year (approximately 10 developers) and a guess at SG&A of another $1.5 million a year.  These latter estimates, especially, may be way off--please comment or email hblodget@alleyinsider.com with more info, and we'll refine.