As Online Video Content, Traditional TV Programming Converge on Multiple Platforms, Who Will Win Attention of Viewers, Advertisers?
Let's begin by looking at the Media Universe for some possible answers. U.S. consumers have so many options available to them, the way they communicte, to what they view, and how they view it, so this is not an easy question to answer. New and more advanced digital viewing technology is being introduced every day. Who would've thought that a cellular phone could be used to surf the internet, watch online video, live streamed events and conduct business like a computer.
ONLINE VIDEO
When it comes to monetizing online video content through advertising, Hulu has been a clear leader. Despite YouTube's sizable audience, the Google-owned video site has only slowly begun to carry ads, in part because of the unpredictable nature of its user-generated content. That leaves Hulu, made up exclusively of sanctioned network content, as the No. 1 safe haven for advertisers moving into the online video space.
Partly due to Hulu's aggressive promotions, the price of internet video advertising has also risen. "Hulu's innovating in advertising models more than anyone -- they're doing new kinds of advertising and getting feedback on ads," said Forrester analyst James McQuivey.
Marketers spent $1.5 billion in 2010 (an increase of 48.1% over 2009) in online video ads, as estimated by eMarketer. Nearly one-third of all online ad dollars is expected to go to video in 2011. Analysts expect by 2014 that the online video market will be $5.71 billion at the high end of the estimate spectrum (eMarketer), and at the very least, $3.01 billion (Forrester Research).
And Hulu has gotten its fair share of that ad revenue -- $240 million in 2010, up from $108 million in 2009, all from the 15- and 30-second ads it runs at the beginning of and throughout each show. Hulu anticipates reaching half a billion in total revenues (advertising and subscription combined) in 2011, up from $263 million in 2010, up from $108 million in 2009.
The Convergence Consulting Group of Toronto predicts that about 1.6 million U.S. households will cancel their cable subscriptions by the end of 2011, as more content becomes available online.
Research firm SNL Kagan projects that 8.1 million households, or 7% of all U.S. homes with a TV, will substitute internet video for a traditional video service like cable by 2014.
Still, it's not yet clear that online video can completely take the place of cable TV for many consumers. A study by Needham & Co. found that for cable viewers, at least, the internet would need to carry the four major broadcast networks to convince them to "cut the cord." Cord-cutting is a major concern among cable providers that is being addressed by the "TV Everywhere" initiative, which requires consumers to prove that they are paying cable subscribers if they want to stream any cable shows online.
In November, Hulu launched a new service, Hulu Plus. It is charging a $7.99 monthly subscription for access to particular shows, adding another revenue line.
Despite Hulu's success in generating ad revenue for its parent partners (or, ironically, because of its success gaining those viewers), ABC, NBC and Fox have begun to feel nervous that their own ratings points may suffer, with real results for Hulu. Even NBC, Hulu's initial and closest partner, has started to pull back some of the ad inventory it had previously given Hulu, giving over those spots to its own network sales team. Two of Hulu's top shows, "30 Rock" and "The Office," also are sold exclusively by NBC. With its broadcast partners shifting strategy and, in NBC's case, ownership, Hulu's future is very much in flux.
Nonetheless, Mr. McQuivey said, "Even if Hulu's owners hate it, the value of what they're learning about interactive advertising is probably too important [for them to cast it off] forever."
INTERNET TV
As the landscape continues to settle over distribution through various websites, new devices are introducing turf battles over distribution to the living room, from early entrants Boxee, Roku and Apple TV to 2010 newcomer Google TV, which has rankled traditional content creators who fear loss of revenue from cable operators if viewers opt for Google TV over cable.
The TV set -- developed with Intel, Sony and Logitech -- features Google's Android operating system found on its mobile phones, and its Chrome browser. The aim is to offer TV-set access to websites such as those produced by the Times and USA Today and music sites like Pandora and Napster, not to mention sharing tools and sites like Twitter, Flickr and Skype.
Google TV's entry is a potential threat to cable revenue for broadcast and cable networks, which get paid by the cable operators to carry their channels. If consumers go through Google TV directly to network and cable content, the operators might drop them from their systems, meaning a devastating loss of revenues to the networks, which count on such contribution for significant income.
Although TBS, TNT, CNN, Cartoon Network, CNBC and HBO movies-on-demand have agreed to distribute through Google TV (as well as web-based Netflix and Amazon video-on-demand), ABC, NBC and CBS have blocked access to their shows via Google TV.
Speaking at the UBS Global Media and Communications Conference in December 2010, CBS CEO Leslie Moonves spoke about his network's refusal to distribute through Google TV. "We are a primary provider of premium content," he said. "We are going to get paid for it."
For now, it's all a moot point -- that is, until Google TV sets hit the consumer market, which had been scheduled for the fall of 2010. On Dec. 20, then Google CEO Eric Schmidt said manufacturers had been asked to hold off on the launch while Google fixed additional software bugs.
Meanwhile, Apple has sold a middleman device for internet-to-TV streaming video since 2007, when it introduced Apple TV. The second version of Apple TV was released in September 2010 and hit unit sales of 1 million by year's end. Content available includes iTunes, YouTube, Netflix and others.
Roku may be an also-ran in the set-top device area, streaming Netflix movies from the internet to TV. It sold around 1 million units during the 2009 holiday season and was expected to sell around the same number of units by the end of 2010.
Boxee, like Google TV, rankles the networks' aims. In an odd twist of fate, it is Hulu that refuses to distribute through this device, blocking its programming from showing up there (at the behest of its network partners). However, Hulu Plus will become available through Boxee in 2011, as will Netflix content, which was previously blocked as well. At the Consumer Electronics Show, Boxee unveiled a partnership with CBS to carry full episodes of the network's shows for purchase.
Producers of web-original content have so far been more receptive to the new devices. Said Next New Networks' Podell: "We're also on Google TV, Boxee, Apple TV. We have to be there to experiment." Hulu CEO Jason Kilar asserts in a recent blog post that DVR and online viewing will only continue to grow: "Users have demonstrated that they will go to great lengths to avoid the advertising load that traditional TV places upon them." Consumers want TV to be more convenient for them, with programs that start at a time they choose, not one that is dictated to them. "Consumers also want the freedom to be able to watch TV on whatever screen is most convenient for them, be it a smartphone, a tablet, a PC, or, yes, a TV," he wrote.
DIGITAL CONTENT PROVIDERS
As for what the future of advertising looks like, Mr. Kilar has a very clear vision: "Advertisers are increasingly expecting to present their advertising messages to just their desired audience ... and not to anyone else. For over 60 years, video advertising could only be bought via a TV show's projected audience, which served as a blunt proxy for a certain target audience. The result has been many wasted impressions and an often irrelevant experience for consumers. In the near future, advertisers will demand the ability to target their messages to people rather than targeting their messages to TV shows as proxies for people."
Mr. Kilar recognizes that content owners "need to make a fair return on their significant investment in creating content," and asserts that "content owners will license their best content in the best windows to those distributors that pay the most on a per-user, per-month basis. Content owners will bundle their content to the degree customers will respond, simply because it is in the content owners' economic interest to do so. If enough customers refuse to purchase their bundles, then the bundles will either be reduced in price/scope (possible) or dismantled (far less likely)."
Despite the introduction of Hulu Plus, Hulu will continue to have a free, ad-supported service as part of its offerings for many years to come, and that Hulu will continue to experiment with windowing to arrive at how this model can best serve content producers. And he gives a nod to TV Everywhere efforts when he writes that viewers will also be able to either subscribe to Hulu Plus, or authenticate that they already pay for TV service, in order to watch other types of content.
Adam Gerber, chief marketing officer at Quantcast, sees online video positioned as a complement to TV, needing to speak the language of TV. Others, like AOL's Jeff Levick, president-global advertising and strategy, see the ad buys coming from interactive budgets, not the TV groups yet. All agree, however, that online video is past the point of advertisers asking whether online video is viable. Instead, "Video is all across the web -- it's expected, from a consumer point of view and advertiser point of view," Mr. Levick said. "For consumers, video is TV on the web. That's the point of entry. From the advertiser side, it's becoming part of the buy with every campaign."
COMMENTARY: In my opinion, internet TV and wirless mobile devices is where consumer's will eventually want to view their TV, film, video and internet content.
The three-screen media scenario—TV, computer and mobile—is giving way to a multiscreen media reality for consumers. Television screens and programming still command the lion’s share of Americans’ media day. But the internet is having a profound effect on consumers’ viewing habits and the proliferation of devices is altering their viewing behavior.
eMarketer estimates that in 2011, 68.2% of US internet users, or 158.1 million people, will be watching video content online each month. By 2015, that figure will increase to 76% of internet users, or 195.5 million people. In the same period, online video advertising spending will surge from $1.97 billion to $5.71 billion.
“Consumers are not ready to go over the top, but they are edging closer,” said Lisa E. Phillips, eMarketer senior analyst and author of the new report “The Video Viewing Audience: Trends for Marketers.” “They care most about convenience, cost and choice, and are interested in viewing options to the extent that they fit in with those demands.”
According to Nielsen, globally, 30% of respondents own an HDTV set. and their research analysis indicates ownership indexes highest amongst adults 55–59, which Nielsen calls a critical age at which consumers have the disposable income and more time to enjoy the finer things in life. North Americans are 60% more likely than other countries to wwn a HDTV.
“How People Watch” indicates North America leads in the ownership of high-definition television sets. According to Nielsen analysis, dropping prices, a rapid onset of content and the adoption of Blu-ray players and next-generation video game consoles make North Americans 57% more likely than average to own an HDTV set, while consumers in Latin America and MEAP (Middle East, Africa and Pakistan) are 37% less likely to own one.
Every major HDTV maker has produced HDTV's that are internet enabled, so that viewer's can hookup any internet TV settop box whether it's Google TV, Apple TV, Roku, Boxee or whatever brand comes along.
The Apple iPad changed the ballgame and the way we surf the net and view online digital content, and it seems that every consumer electronics and computer manufacturer has a tablet computer coming out or already being sold in the marketplace. The recent Las Vegas Computer Electronics Show had over 40 brands releasing their own models to compete against iPad. You can bet that consumers will be buying tablet PC's in increasing numbers, and will be using them to view every kind of digital streaming video content imaginable.
According to Forrester Research, 24.1 million tablets will be sold in 2011, and will increase to 35.1million by 2012. By the end of 2015, over 44 million tablets will be sold, and 82.1 million consumers will own a tablet. Those are some pretty impressive numbers.
Content is going to be king, and I agree with Hulu's Kilar that the channel that can provide what the viewer wants is gong to be a winner. I have a feeling that $7.99 is giong to become the standard for premium TV channels. After all, online video streamers have to make money, and the networks have to be paid their license fee.
I am amazed just how "little" Hulu, with a relatively small audience of 26 million viewers, has become the #1 video ad channel and ranks #2 behind YouTube for average minutes per viewer (274.3 vs 217.1). I have probably added to that minutes count myself. I can remember the pessimism of online video experts that were saying that the viewers would not watch content with ads. Well, those 15 and 30 second ads appear to be the formula for success. Keep those ads in short duration, and the viewers will watch.
Courtesy of an article dated February 16, 2011 appearing in Advertising Age
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