Online Video

Summary

Examines recent developments within the Online Video arena, including latest industry forecasts and current marketplace dynamics.

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Contents

Online Video

• YouTube ranks as the top online video brand with 7.1 billion total streams in August 2009, as Hulu continues its explosive growth trajectory, increasing to 392.5 million streams, making it the fastest growing online brand among the top 10.
• Long form video viewing is on the rise, with a US study by Ipsos News Center claiming 26% of online Americans have streamed at least one full-length TV show (April 2009) and 14% have streamed a full-length film.
• 15% of UK internet users now regularly use BBC iPlayer, which now has 5.2 million users – ITV’s Player has 3.3% of UK internet users.
• MAGNA Global forecasts the US online video market will grow by 32% in 2009, to $699 million.
Highlights
Online Video
Online Video
Current Market
Online video is defined as any service that delivers video content over a broadband internet connection to a user’s home. The success of social networking online video behemoth, YouTube, has propelled online video into the mainstream – as a result traditional media experts have been surging forward with their own online video offerings.
Alex Burmaster, internet analyst at Nielsen Online said: “Whilst the majority of the most popular social media sites are the networks, most of the fastest growing are video sites”. This points to video being the biggest star of the social media scene going forward.
“Whether it’s people snacking on video clips or feasting on full length TV programmes and movies, the video sites look set to be the name on everybody’s lips as they improve their technology, the ease of use and awareness amongst our TV loving nation. We’ll have to see if sites like vidShadow or Veoh join YouTube in being as famous as Facebook.”
According to the Deloitte Digital Index, online video penetration has increased by half a percentage point in the last quarter (June 2009), to 25%.
With the appetite for online viewing growing – one in every 35 UK internet views now goes to a video site – all broadcasters are keen to sign deals. Whether it will be the Americans who take home the rewards, the next few months will be crucial.
The continuing growth of online video is driven by the huge success of video sharing websites such as YouTube and social networks such as MySpace. In addition, there are catch-up services such as the BBC iPlayer – which the BBC expects will reach 68% of broadband households in the UK by 2011. The BBC iPlayer is predicted to account for nearly 12% of all BBC viewing by this time.
Online video services fall into three different ‘flows’ of content: from content owner (such as a broadcaster or sports rights owner) to consumer, from aggregator (such as online retailer, or megastore, offering content for sale; or a marketplace, where content for sale can be uploaded by rights owners as well as purchased by consumers; and an online platform, which hosts and distributes content for partners) to consumer and from consumer to consumer via social networks and video-sharing websites (see Table 1).
Content Flow
Service Model
Examples
Business Model
Content owner to consumer
Catch-up TV
BBC iPlayer, ITV.com, 4oD, Demand Five
Licence fee, advertising, subscription
Rights owner
Setanta by Broadband
Advertising, subscription, PPV
Aggregator to consumer
Megastore
Apple iTunes, JumpTV
Advertising, subscription, PPV
Marketplace
Jalipo
Subscription, PPV
Online Platform
Joost, Babelgum, Brightcove, Blinkx, Zattoo, Hulu, Veoh
Advertising, subscription, PPV
Consumer to consumer
Social network
MySpace, Bebo
Advertising
Video-sharing site
YouTube
Advertising
Source: Lovelace Consulting
Online Video
Online video is generally thought of as two different types: short form video – made up of video clips, and long form video which tends to take the form of entire TV episodes or even feature length films.
Short Form Video
YouTube continues to rank as the top online video brand with 7.1 billion total streams in August. Meanwhile, Hulu continues its explosive growth trajectory, increasing to 392.5 million, making it the fastest growing online brand among the top 10.
“Historically short form, clip-length video has dominated streaming on the web – as demonstrated by YouTube’s continual top spot month after month,” said Jon Gibs, vice president, media & analytics, Nielsen Online.
“Hulu, along with pure-play providers like Veoh and the TV networks, has spent the past two years trying to convince consumers that the internet can be a good place to watch full length programming as well. August’s strong showing of Hulu suggests that consumers are beginning to listen.”; see Table 2.
In October 2006, YouTube was aquired by Google for $165 million. Forrester Research believes that to make this huge purchase financially viable, Google must move rapidly in three directions. Firstly, to address the problem of users uploading copyrighted content, secondly to encourage marketers to think beyond traditional video advertisements and finally to maintain YouTube’s excellent video selection and viewing experience.
Long Form Video – BBC iPlayer & Project Canvas
Short form video content, typified by the likes of YouTube, currently accounts for the majority of online video behaviour, with just 9% of Europeans watching long form video last year, according to Jupiter Research. However the forecaster predicts this rate will increase significantly as the success of TV broadcaster online services such as the BBC’s iPlayer in the UK and M6 Replay in France demonstrates the growing appetite for watching longer-form video.
In the US, a study (April 2009) by Ipsos News Center claimed that 26% of online Americans 12+ streamed at least one full-length TV show and 14% streamed a full-length film – two times greater than the figures from September 2008, the study says.
In the UK, the BBC launched its iPlayer service on Christmas Day 2007, with over 42 million programmes being accessed in the first three months of 2008, with 1.1 million iPlayer users each week over the three-month period on average.
According to the Communications Market 2009 report by telecommunications regulator Ofcom, more and more households across the UK are watching television online, using catch-up services like the BBC iPlayer and ITV Player. Some 15% of internet users now regularly use the BBC iPlayer, which now has 5.2 million users. ITV Player was the second most used online TV service, with 3.3% of users.
The Competition Commission’s shock decision earlier this year not to approve Project Kangaroo – the advertiser-funded online video service from ITV, Channel 4 and BBC Worldwide – has led to many companies jumping on the online video bandwagon.
Hulu, Blinkbox, Microsoft’s MSN Video and Arqiva are battling to sign deals with the broadcasters, which view this new revenue stream as lucrative. Even YouTube aims to move away from short clips in favour of deals with the big broadcasters for long-term content.
As traditional television advertising revenues come under increasing pressure, it is no surprise that hopes are high for the potential profit on offer. ITV is among those hoping online video will boost its ad revenues.
However, UK broadcasters will have to devise a wider range of revenue streams at their digital divisions, as free-to-view web services may not be as lucrative as they hope. The success of BBC iPlayer has proved there is a consumer market for free, long form, online content. Nonetheless, online video advertising revenues are unlikely to be big enough in the near future to rescue struggling broadcasters.
Gerhard Zeiler, chief executive of Five’s owner, RTL, claims advertising alone will not be enough to sustain the free-to-view sector – paid-for services will be necessary. Recent statistics from Screen Digest suggest online TV revenues in the UK from free-to-view programmes will be £42m.
While this is expected to reach £180m by 2013, the shares will be small once divided between broadcasters and content aggregators. There is also a risk of broadcasters cannibalising traditional TV revenues as free-to-view online video revenues grow. Despite these concerns, terrestrial broadcasters know they need to be part of this potentially lucrative market.
Online video aggregators will enable consumers to visit a single website to get current and archived content from rival channels. For advertisers, it will provide a one-stop shop. The arrival of Project Canvas – the next stage of Freeview, which plans to offer free-to-air TV and the internet – is online video’s best chance of surpassing Screen Digest’s forecasts.
There is a chance that Project Canvas, which could provide Hulu and YouTube on the small screen, will attract mass audiences, including older generations, to the online video market. If everything from episodes of Inspector Morse to the latest series of The X-Factor can be accessed via a few clicks of the remote control, all ages will use the service.
Project Canvas is a one-stop shop for TV, recordings, digital radio, on-demand services and web applications. It is, essentially, a cross between iPlayer, Freeview, a digital recorder and a smartphone – on a TV set.
The ‘project’ is a joint venture between the BBC and commercially funded stakeholders. ITV and BT have been on board since the project was launched late last year, with Five signing up at the end of July. C4 has also expressed interest in becoming involved.
The budget for the first four years of Project Canvas is estimated to be £24m. The partners are working with ISPs to create a ‘standard’ for TVs, so that fragmentation of next-generation TV can be avoided. Consumers will still need to sign up to an ISP. The first Canvas set-top boxes are scheduled to go on sale before Christmas 2010.
However, as was shown when Google won the search-engine war, the online video aggregators know not all will survive. Hulu, the US-based web TV service, has postponed its launch in the UK until 2010, having not managed to sign any content deals yet. It had been understood that Hulu had offered ITV an equity stake in its UK business as part of a pending deal. However, Hulu has yet to get any other content partners on board, despite nearly six months of discussions with BBC Worldwide, ITV and Channel 4,
Meanwhile, Arqiva, which bought the well-regarded Kangaroo technology, will also be seeking deals. Elsewhere,
Online Video
Microsoft’s Ashley Highfield, who helped launched iPlayer and led the Kangaroo project, is pushing to make MSN Video a success.
Most of the leading players have the benefit of international media or technology giants behind them. However, it will be the most creative dealmakers that prove victorious. Hulu’s performance in the US makes it the one I would probably back to succeed if the ITV deal is agreed.
Free-to-air online video may not prove as lucrative as many once hoped, but broadcasters and aggregators will still reap rewards from the sector.
US
The online web-based TV services of the four major US TV networks – ABC Full Episode Player, CBS Audience Network, NBC.com and Fox.com – together with Hulu, the joint venture between NBC Universal, News Corporation and Disney, accounted for a combined 53% of an ad-supported US online video market that generated $448m in revenues in 2008. The remaining share of revenues was made up of the online video services of major sports leagues, video services from traditional online portals, and direct services from other major channel groups and content owners.
These findings from a report by Screen Digest, go on to suggest that the combined dominance of the leading broadcaster-supported platforms will drive the total ad-supported model for the distribution of online entertainment programming, news, sports and events in the US to more than $1.45bn in revenues by 2013.
In contrast, third party platforms such as YouTube, Joost and other portals, which have no direct vertical affiliation with major rights holders, nor direct access to premium content rights, will struggle to aggregate ad-supported movies and TV shows. The Hollywood Studios and major rights holders will continue to limit such deals, instead preferring to build their own syndicated ad-supported online video services – such as Crackle, developed by Sony Pictures, and the CBS Audience Network.
According to Arash Amel, author of the report, “With better targeting and increased ad inventory, online video services could be generating per-viewer revenues comparable to an average TV broadcast viewing in as little as three years. However, based on the current online ad strategies implemented, it will account for 2.2% of all US TV advertising revenue by 2013, but definitely won’t be generating enough to offset the $2bn we expect total US TV advertising to have declined by during that period.
The challenge right now is to maximise the ad-supported online video business model, see how new forms of short form and traditional long form content can drive growth, and explore more advanced methods of video advertising while there are still revenues from the traditional business to support the transition to multiplatform. In this regard, the next few years will be critical.”
In a trend being replicated across the world, the major US broadcasters are evolving into multi-platform TV distribution networks in a land-grab attempt to replicate their traditional channels business online – both linear and on-demand. There is now a proven ability to drive audiences to online TV replay services from primetime schedules, accounting for the market dominance of the networks’ online TV services. This multiplatform approach has been, and will remain, very important to the future relevance of broadcasters to younger demographics and retaining prime position in the online TV space. The key here will be to create an online platform model that retains control of the content while distributing it widely, and meets the audience’s changing demands for TV anytime, anywhere.
Amel concludes “A successful online entertainment distribution business model is about establishing and maintaining interest in trusted brands and syndicated services that go hand-in-hand with the content, often free at the point of audience consumption. The music business has been struggling to find that model, but the television business has been well positioned to meet the challenge. It is coming to understand that audiences are evolving, that the economics of supply and demand operate very differently on the open internet, and that
Online Video
the traditional TV networks must evolve with them.”
The report goes on to state that free online video will challenge the paid model of TV download services such as Apple’s iTunes, and pay-per-view and subscription online sports video offerings, and will require innovation from these service providers to remain competitive. But that the paid market, driven by the respective hardware ecosystems of the leading service providers, and high value sports events, will remain robust – growing by 67% to $1.3333bn by 2013.
Online Video Forecasts
Despite the economic downturn and its inevitable strains on overall advertising expenditures, one category is clearly holding up as a beacon of change and growth: online video.
MAGNA Global forecasts the US market for online video will grow by 32% this year, rising from $530 million in 2008 to $699 million in 2009 (see Figure 1). While these figures represent downward revisions from MAGNA’s forecast for the sector in the middle of last year (prior to the subsequent escalation of the recession), these gains will likely outpace growth rates for most other emerging media platforms.
The reasons for growth are simple: as marketing budgets are reduced across industries, advertisers look to reach their consumers in a more targeted and cost-effective manner. User-generated content accounted for a significant volume of potential advertising inventory in the past, although little was considered desirable for larger brands, given their collective preference for association with professionally produced content. But in recent periods, the expanding availability of premium network and cable TV programming combined with increasing broadband penetration – now covering 60% of US homes – collectively led to a 24% increase in time with professionally produced online video during 2008, following a 50% rise during 2007, according to Accustream.
Still, this represents a limited volume of top-tier inventory. Few large advertisers can achieve broad reaching objectives solely by using an online video-only campaign if there are any content preferences involved.
Over the next few years, it is anticipated that traditional TV content – and traditional TV suppliers – will continue to account for the bulk of online video budgets, but as user-generated content sites increasingly supply professional content to their mass audiences, these sites will produce faster rates of growth.
In total, by 2011, MAGNA expects online video to generate slightly more than $1 billion in net advertising revenues for video content. This represents a compounded annual growth rate of 36% for each year between 2006 and 2011.
Online Video Advertising Revenue ForecastSource: MAGNA Global, April 2009Advertising Revenue ($m)
Online Video
Online Video – Impact on Advertising
High engagement levels, combined with internet tracking and targeting capabilities make online video a highly accountable method for brand advertisers to sway target audiences.
comScore analysis of TV and online video viewing habits revealed that the internet’s primetime is between 5pm and 8pm on weekdays and segues neatly into the standard TV primetime schedule of 8pm to 11pm, offering marketers an opportunity to tailor their messages accordingly. Marketers have the opportunity to leverage online video in conjunction with traditional TV buying and essentially double their primetime commercial airtime, according to comScore.
Nielsen Research suggests that traditional television ratings are minimally affected by online video viewing over the internet – online viewing was found largely to be new viewing rather than a substitute for traditional television viewing, and therefore unlikely to have a negative impact upon the viewing of traditional television commercials.
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Online Video
Online Video

• Online Video
  • Current Market
  • Short Form Video
  • Long Form Video
  • US
  • Online Video Forecasts
  • Online Video: Impact on Advertising

Featured Tables

• Content Flow
• Top Online Brands ranked by Video Streams
• Online Video Advertising Revenue Forecast

10 pages, featuring 3 tables and charts