Tired of making so much money for others, J$tyle$ went into business for himself, entering the arena of online content licensing with the launch of ContentBlowout.com. He might not have chosen this field if it weren't for a chance encounter with a desperate content producer.
"This guy owned a big library of content that he'd shot specifically for licensing on the web," J$tyle$ said. "He came to me one day and said he had a great idea of taking his entire library and blowing it out for 90 percent off its retail value. Although he had great content he didn't have the ability to do sales and marketing, and he was barely scraping by every month."
When J$tyle$ decided to help he thought he was getting into only a two-week sale for a content package of $2,100. But this turned into a four-week sale with the price raised to $2,600, and according to J$tyle$, they wound up with about $500,000 in content sales in just six weeks.
That was the genesis of ContentBlowout.com and about 18 months later, TheContentStore.com. In many ways this episode mirrors the spectacular growth of online content licensing in just the past couple of years.
Raffi Vartanian, CEO and co-founder of World Wide Content — one of the many content licensors who distribute and broker content online — explains how it works.
"We have a couple of hundred studios that are contracted with us and a couple of dozen of them are exclusive with us," he said. "We just own the Internet rights to their content. We're the distributor to the Internet platform businesses. We're also developers and licensors, and we pretty much own the Internet rights. We license the product to companies that want to use the content online."
The majority of these Internet platform businesses are membership sites that charge customers a monthly fee. Companies like World Wide Content make their money either through revenue sharing or an up-front payment, depending upon the amount of traffic the site receives.
Naturally, the stupendous growth of Internet use over the past couple of years has had a similar effect on content licensing companies like Vartanian's, which recently doubled the size of its staff.
"It's not easy, but we have to provide," Vartanian said. "Growth has its problems but they're good problems to have."
Even maverick J$tyle$ has had to relent and hire help after years of being a self-described "one-man wrecking crew."
"Now my goal is to hire two more people over the next three months, which will allow me to focus on my larger clients, and to bring in new studios,"J$tyle$ said.
Company expansion is just one of the changes that online licensors have undergone in the last couple of years. Improved Internet technology and fierce competition from the many licensors that have jumped into the game recently have called for new business strategies.
"It just keeps growing," said Marc Duvall, CEO of the Copenhagen, Denmark-based AdultLicenses.com. "Everyone seems to have a big paysite, so orders are big. I had to expand a lot. It's taking more people to get everything settled, and it's allowed me to focus on platforms like cable TV licenses, satellite channels and hospitality services."
In terms of the effect technology has had on his business model, Duvall is a strong believer in the future of Internet Protocol Television (IPTV).
"IPTV is going to be big business," he said. "It will merge the Internet with TV, and kind of create a new Internet locally."
AdultLicenses.com has become a powerful player in the European IPTV market, already tying up the rights in most of the larger nations. Vartanian shares Duvall's enthusiasm for this new technology, and has seen to it that his firm will be there when it begins to pay off.
"Eventually, TV and the Internet will combine, and that's why we're involved with IPTV," he said. "We're just waiting for bandwidth to be available. It's a waiting game, because we're already capable of delivering content at the highest extreme code-per-byte rate in video. We already have it online, but we have to wait for the bandwidth to increase."
Of course downloading speeds and picture quality already have taken giant steps in the last couple of years. J$tyle$ points out that just two years ago, a high-bandwidth stream might have been about 700 kilobytes per second, whereas now his customers are encoding video at up to 2,000 kilobytes per second.
"The end user now is seeing a much higher quality stream than they ever could before," J$tyle$ said.
The end user also is seeing a lot more content, as new studios and websites raise the competition logarithmically. This new, crowded landscape has led pioneer content middlemen like J$tyle$ to form new strategies. "At this stage, I am less of a broker and more of an agent for the studios that I work for," he said. "None of the licenses are with The Content Store. They are with each individual studio and producer. Any website company and membership site licenses directly from the studios and I'm the intermediary through whom they conduct their business.
"There's a glut of content in the market but I've differentiated myself by only working with studios that are exclusive to me. I've geared my marketing toward letting the community know that I have these particular studios with high-quality video and DVDs, and you can't get them any place else. It's a huge advantage."
J$tyle$ admits that he's in no position to complain about so many new content middlemen imitating his blowout sale strategy of four years ago, but he laments the effect this is having on DVD sales prices, which he claims are ridiculously low. He feels that by signing exclusive deals with studios, he no longer has to compete in that marketplace based on price.
Thanks to his new strategies, J$tyle$ claims his firm has enjoyed record-breaking sales over the last three months. He plans to continue adding new exclusive studios to keep the ball rolling, while keeping an eye on other changes in the business. He already sees a couple of new trends.
"More people have not only geared their business models to providing DVD content as their membership-site content," J$tyle$ said, "but over the last year or so there are more DVD-download sites. These are not video-on-demand, but more like an all-you-can-eat buffet, where you join a site that has 2,000 DVDs and for $30 a month you get all you can eat. So I have geared my marketing strategy more toward those companies. A large part of my strategy is to add more exclusive studios to keep up with the content demand."
One recent strategy that definitely is not popular with the online licensors is the withholding of new titles from the Internet by producers and studios that fear it will hamper DVD retail sales. In Duvall's opinion, nothing could be further from the truth.
"Unless it's a big feature film, I think they're shooting themselves in the foot," he said. "Today is different than the world was five years ago. You can't reach everyone on one platform anymore."
J$tyle$ is in lockstep with Duvall on this issue.
"I run into the same mindset from producers all the time," he said. "Some producers think if they do content licensing, their VOD sales are going to drop. They fail to realize that content licensing is just another important revenue stream. The guy who buys VOD has already decided that he's not going to pay $30 a month for a membership site. He's going to watch his porn at 8 cents a minute.
"So when a producer licenses his content to a website it's not going to affect his VOD sales. And does that affect retail sales? No more than they've already been affected, because the guy who is not online is still buying DVDs. We're talking about three completely different audiences for retail, VOD and membership websites. Any producer that doesn't take advantage of all these revenue streams is only cutting off his nose to spite his face."
Licensors like J$tyle$, Vartanian and Duvall not only must convince producers to change some of their strategies, they have to provide input on their content, too, based on how well certain types have been selling in the online platforms. The most important trend in the last couple of years has been the increase in sales for niche content.
"Some people are committing to very specific niches," Duvall said. "It's quite surprising. Just a year ago, people just wanted content."
Vartanian also has noticed that consumers have become more picky about what's in their videos.
"They're bored and want newer stuff all the time," he said, "so producers have to keep coming up with new things."
To mix a metaphor, every silver lining has its dark cloud, and in the case of the content licensors it's been the 2257 record keeping. As secondary producers, they are still liable under the law for distributing content with underage performers. Their nightmare is that they deal in thousands of titles from scores of different studios, and are completely dependent on those primary producers for 2257 records.
J$tyle$ nearly ran aground because of this issue right after he launched his company.
"I had about 455 titles in my store from Metro back then," he said. "At the time, Metro had all of its 2257 records in order, but hadn't digitized them yet. So I had to take down the 455 titles just one month after launching my company. It was rough, because I'd spent a lot of time and money getting these titles integrated into my store, and I had to rip them all down and replace them with one studio that had 24 titles. I went from having a very healthy content store to having a small one.
"But this made me more hungry to build up my business, so I got more studios over time, and when Metro got their 2257 records digitized I started putting their content back into my store. Right now we've returned about 200 Metro titles, and we'll be adding more."
While J$tyle$ has learned to live with 2257, Duvall in Europe has other ideas, calling the law "the worst bullshit rule in the world," and pointing out how impossible it makes things for companies like his.
"I hate it, because some of the producers don't have their 2257 paperwork in order," he said. "When you're a broker and you have 2,000 titles, you find it's impossible to gather all the 2257 information. I try to go around it now, and I think I'll succeed in the next couple of months to sell content without 2257, and without getting the people who purchase it in trouble.
"It's very easy, because first of all I'm in Europe. I'm planning to sell companies that hold licenses for the titles and those companies will have nominee shareholders. The owner of the company behind the nominee shareholders will be the ones that are purchasing the content. They will own the companies, but not on paper visibly. I'm planning to get around it by simply setting up offshore companies and selling companies that hold licenses.
"I know nobody has done this before and I think it can work. There is no reason why an American can't incorporate a company in the Cayman Islands that has licenses for titles, and give that company a domain name. The company wouldn't be liable and the American owner of the company wouldn't be either because there are nominee shareholders."
And so with the 2257 threat out of the way — either through the diligent methods of Styles or the roundabout strategy of Duvall — it looks like the business of online content licensing is back to full-speed ahead. And despite all recent eruptions in its playing field, content licensing has seen its basic tenet remain unchanged.
"As long as you offer high quality and have longstanding relationships," Styles said, "it's hard to fail."