IdaRose Sylvester, Streaming Media

If 2007 was the year of video technology, 2008 was the year of the view. In July 2008, online video viewership reached more than 119 million people, more than 8.5 billion streams, and nearly 3 hours of viewing per user in the U.S. alone, according to Nielsen Online. Notably, the number of streams increased dramatically from less than 6 billion streams, and the time spent viewing increased by 33% per viewer since January. Additionally, according to ABI Research, the number of U.S. consumers watching video streamed through a browser nearly doubled between September 2007 and September 2008, growing from 32% to 63%.

More people are getting hooked on online video, consuming more streams, and spending more time doing it. Online video is finally a reality, ready to climb a steep curve of business model innovation, technology evolution, and consumer acceptance. Just as 2008 brought dramatic evolution to the video market, finally making good on a several-year-old promise, 2009 will bring even more success—and challenges—to the video industry.

Multisource, Multiscreen

The key driver for this proliferation is the availability of content from multiple sources, largely because traditional content suppliers are starting to embrace the monetization opportunities of online video and become aware of the possible business losses they will suffer if they continue to ignore the market. Additionally, the mass adoption of devices that enable video on-the-go nearly anywhere and at any time and consumer awareness of and appreciation for ubiquitous content have created a positive feedback loop that has encouraged producers to make more content available.

According to Michael Gartenberg, editor at JupiterOnline Media, while thinking in terms of a multiple-screen experience is a reality, we’re looking at it all wrong by limiting our view to the traditional three screens (TV, PC, and mobile).

“Three screens is a myth,” he says. “It’s not about three screens; it’s about dozens of screens. Think of the number of devices people have in their home, car, pocket, and workplace. If we only had three screens, there wouldn’t be anything to worry about.”

With cheap storage, multicore processors, home networking, and pervasive bandwidth, technology is no longer the primary roadblock. In essence, getting content to multiple screens is no longer the problem at all; the problem is the creation of a unified, seamless consumer experience. Such a unified experience requires a complex evolution of business and advertising models, interoperability, and user interfaces—a more complex set of solutions than solving the technology roadblocks.

In 2008, several factors collided, pushing the video market closer to prime time. On the online video side, the Olympics were quite successful. Hulu.com, a joint venture between NBC Universal and FOX, had significant success. And Netflix, stuck for more than a decade in the physical media arena, launched a device in conjunction with Roku to deliver video content on demand to consumers. On the mobile device side, Apple’s iPhone 3G, Google’s Android, and RIM’s BlackBerry Bold, among others, brought multimedia to a much larger mobile audience. In addition, Sling Media released SlingCatcher, enabling PC content to be viewed on living room televisions. While some companies, such as VuDu and Joost, have had mixed success, overwhelming momentum finally exists in this market.

One thing is clear as the market evolves: Viewing habits are changing. “What TV is today is not what my father called a TV,” says Gartenberg. “When kids say they are watching TV, they often point to their PC or phone.” Eyeballs move from device to device, sometimes watching the same content but often watching new forms of content optimized for a specific viewing device, such as short clips from a traditional long-form show for playback on PCs and mobile devices. In the recent U.S. presidential election, the popularity and utility of such clips has been witnessed. Clips from the vice presidential and presidential debates, interviews with the candidates, and parodies such as Tina Fey’s sendup of Sarah Palin on Saturday Night Live have been very popular online, serving to extend the viewing experience to more consumers and giving those who watched the long-form content a chance to re-experience the highlights.

Shaking Things Up

But what happens to traditional players if eyeballs start moving to new devices and delivery networks? Today, power is held by the content holders—namely, the studios, broadcast networks, and traditional cable and satellite service providers. The future poses several nonmutually exclusive possible scenarios, which, in rough order of probability, are as follows:

—User-generated content gains enough popularity to pull eyeballs away from traditional premium content, shifting some power away from the studios.

—The market pie of opportunity expands so much that old and new players hold on to power, including all content generators, device manufacturers, and service providers.

—Mobile operators find their power increasing as they negotiate for more content and advertising dollars and control more hours of the content-viewing experience.

—Advertisers gain more power because the path to monetization of video content remains heavily weighted toward advertising.

—Telcos gain power as service providers because their all-IP network more readily enables a ubiquitous content experience.

—Cable and satellite providers lose their hold on providing services to consumers and become dumb, fat pipe providers. Content holders and those who provide channels of content, be it the traditional networks or emerging networks, will happily bypass the middle-man service provider to get content directly to the consumer, negating the power of traditional and new service providers.

—Power shifts to new players, such as Apple, Google, Microsoft, and others.

While user-generated content is quite popular—and YouTube, which consists of mostly user-generated content, broadcasts 17 times the number of streams of its nearest rival, Fox Interactive Media—premium, quality content will always be king. Quality brings in money, even if garbage can bring in consumers. According to Steve Robinson, CEO of Panache, an advertising technology company specializing in delivering content into new video networks, although more than 50% of video content is consumed on YouTube, 96% of monetization goes to network-related sites, where more traditional, premium content can be found and legally consumed. As Brendon Mills, CEO of video transcoding hardware company RipCode says, “If you make good art, then you can succeed as a content provider, regardless if you are traditional or new and regardless of what network and device your content is for. But historically, art needs patrons. Who are the patrons of the new age of content?”

So far, the patrons of content continue to be those with deep pockets and ties to traditional content delivery networks—and it’s hard to imagine that changing dramatically within the next 5 or so years. This is particularly true if the networks continue to innovate on ways to aggregate and get content online, much like Hulu does today. Seemingly outside the establishment and offering at least some unique content compared to the partner companies, the online network has been a successful example of innovation.

Lessons From the Past, Trends for the Future
One emerging content area (once predicted to be the raison d’être of internet video but now starting to flounder) is long tail content, which is typically content that is very much focused on a narrow topic, be it a particular sport, language, or ethnic group. The power of IP was supposed to make such channels cost-effective to deliver, even to tiny audiences. In reality, long tail content is anything but the driver for the video growth we’ve seen. According to Robinson, long tail content is proving to be like the Pets.com of the dot-com boom—what seems to be a unique and improved way to deliver something to the consumer turns out to have limited appeal.

Who survived the dot-com bust? Aggregators such as Amazon and eBay did. And with no shortage of old-school and new-entrant aggregators providing content for the masses, we should anticipate a similar trend in video. Long tail content may survive inside the wrapper of a YouTube-like delivery mechanism, but aggregation will be important, just as quality content will remain key.

Another advantage of mass market, deep-pockets content is the common experience it creates for the viewers, both while watching a broadcast in front of the TV and while discussing it among social circles the day after it airs. While the water cooler might be more virtual now, conversations about recent broadcasts are still a critical part of our social makeup, whether they occur in person or on web-based social networking sites. Broadcast TV as we know it will never go away even though viewing devices and business models will be revolutionized.

One evolving content area is the customizing of content for the screen and to the lifestyle and usage habits of the screen owners. For example, broadcast, long-form content is not very popular on mobile devices. Similarly, PC video content is not necessarily something people want to see on their TVs, and it is starting to morph into a hybrid of long- and short-form video with more interactivity and new ad models. Although the current demographic for much online and mobile content is 12–34-year-olds, older audiences may be pulled in. And the current audience will age, suggesting that providing the right content for the right device will be a moving target challenge.

In 2008, a couple of key things were discovered about online content for the PC. One principle is that web broadcasts of a certain type of content have yet to take eyeballs from the TV. In fact, it is believed that Olympic content delivered on the web led people to turn on the TV to watch. It also proved that people may watch the full event on TV but then go online to rewatch their favorite moments or see interviews with the winners.

Another lesson is that consumers are willing to watch online content concurrently with broadcast content, but they have newly raised expectations. Mio Babic, CEO of iStreamPlanet, a company that provides managed webcasting services and SaaS-based media applications, says that despite customer acceptance of multiple-screen and sometimes simultaneous viewing, quality is still a major concern.

“In the past, we were able to say, ‘It does on the web, so we don’t need to worry about quality,’” Babic says. “But now, people expect perfect quality and an enhanced experience, such as multiple viewing angles.”

Another interesting trend is that people are starting to watch PC-based versions of events, especially sports, that are longer than those they watched on TV. This is largely because consumers are used to spending longer amounts of time in front of their always-on PCs.

Another area innovating around content is mobile. Both free services (e.g., mywaves) and paid services (e.g., MobiTV) exist. With free services, content can be subsidized by ads or by carriers, which realize the value of additional minutes and the ability to decrease subscriber turn by offering video services. According to Susan Cashen, VP of marketing for mywaves, users of her service are spending 20 minutes per visit and finding mobile video content to be quite compelling.

“People are connected to their phone constantly; in Europe and the U.S., it’s about business, and in India and in other developing nations, it’s just cheaper than broadband, so it’s natural for people to spend time looking at content on their phone,” she says. But the content these users seek is far from traditional. “Users are not looking for full-length content, they are seeking out short content—quick blurbs about things important to their [demographic], which is primarily males 18–34 years old: celebrity clips, music videos, silly comedy clips, sports highlights, animation, and other content typically considered appealing to this demographic.”

As for female viewers, they’re just not watching mobile video yet, although that may change over the next 12 months as more content tailored to their interests becomes available and is marketed to them.

Despite some success, mobile video has taken a backseat to online video, according to Kelly Egan, senior vice president of business development and sales at Swarmcast, an online streaming video provider. Mobile video is certainly the infant market of the three screens, but it will begin to mature in 2009.

Reimagining Advertising

An area of content that must evolve is advertising. As eyeballs shift from one viewing experience to the next, the relevancy of traditional broadcasting will diminish. The same ads cannot be place-shifted to a mobile device or PC. Designed for insertion into broadcast TV during certain times and shows and timed for people viewing relatively long-form content, these ads don’t translate. On mobile devices, consumers do not wish to spend valuable minutes watching long ads. And online, traditional ads tend to be too long for the content.

However, advertising is slowly evolving to match the media. Highly engaging, shorter ads, user-generated ads (such as the one Doritos did through a contest), overlays, opt-ins, prerolls, and product placements are all evolving. In fact, some advertisers are making advertising a value-add part of the experience, according to Troy Young, CMO of VideoEgg, a video ad network for online communities. For example, consumers might be able to find show times during a movie trailer or a map to the nearest McDonald’s.

While the experience might be innovative and engaging, advertising online is harder to buy, harder to plan, and harder to measure. Because of this, according to Young, 45% of brand dollars go to traditional TV advertising and only 5% go to online advertising. But the mix will change slowly over the next several years. And as long as the advertising models lag, so will content to different screens.

Scrambling for Influence

Assuming that more traditional content providers maintain their power and that consumer demand is increasing for the multiple-screen experience, who delivers the content to the consumer? How does power shift in other places in the video value chain? According to Thanasis Iatrou, CEO and president of transcoding company Media Excel, the video industry is in between the perfection of the technologies and the actual growth of the market. Several other industry experts echoed this sentiment, and the consensus is that the next 5 to 10 years will be pivotal in reshaping the video industry.

Power must shift among content delivery providers. Today, cable and satellite operators control the traditional broadcast network, and cable companies and telcos control the broadband pipeline to the house. However, none of these companies control the content creation or the content networks, a long-standing thorn in their sides. What these content deliverers are starting to see is the bypassing of their traditional profit-sharing agreements with the networks, which are simply using broadband pipes to reach the consumer directly. So for the first time, telcos actually can gain real value by offering IPTV. While networks can still choose to go around the telco, the telco’s position is strengthened by an IP delivery network and a business model unencumbered by historical norms. And without the bias of “how business is done” hanging over them, in theory, telcos should be able to roll out new services, such as interactivity.

Of course, traditional service providers are not going to sit back and watch their content-subscription revenue dry up. Fighting the Net Neutrality battle may ultimately lead to the providers being able to charge much more for high bandwidth utilization, although it is unclear who will get charged. Unfortunately, the satellite operators don’t have back-channel bandwidth play, and therefore, they have fewer options. A better alternative for the service providers is innovation. Just like the content providers must deliver quality, the service providers must deliver experience, and the same old sit-back-put-your-feet-up-and-watch-TV experience is over—it has been over since place-shifting was adopted by the mass market.

One interesting experiment we are seeing is DIRECTV’s efforts to make some premium content available to its customers early. For example, Friday Night Lights is available on a special channel months ahead of its regular broadcast. From the cable companies, we’ve been seeing the popularization of video on demand and the rise of high definition and DVRs. We are also likely to see service providers attempting to become their own online networks (picture Comcast.com) and hosting content in competition with other online networks and traditional broadcasters.

The New Powerhouses

Of course, there are new entrants with wildly different approaches entering the market and changing the game. Companies such as Apple, Google, Amazon, Microsoft, Adobe, Sony, and Netflix all have major investments and major roles in the industry today; all of these companies are motivated enough to put the full-court press on the incumbents. Both Apple and Google are charging after the video ubiquity market in a big way, and Sling Media continues to influence the nature of the game.

Apple has been the most successful so far at creating a seamless user experience, with a unified content store and a host of devices that enable purchased content to be available on any screen at any time within the confines of a walled garden. If Apple does one thing right, it’s that the company brings the “three screens” together for the consumer, negating concerns over interoperability and unifying the experience in a way that makes ubiquity easy. So far, consumers have been willing to pay a premium for the content and devices Apple offers. The company continues to innovate, showing that, at least for some consumers, a premium experience works.

On the other hand, Google serves up the most online content—more than all of the other major providers combined—with its YouTube acquisition. It is also tinkering around with interesting concepts via the Android mobile phone product area. Between having mobile devices, software, and spectrum, Google could very well be envisioning a new mobile service, which would be a major disruptor to the market. If you believe all video content belongs in the cloud, served down to any device on demand, then you can believe Google probably has a play or two up its sleeve that could revolutionize the market beyond mobile.

Lastly, the popularizer of the place-shifting concept, Sling Media, which is now owned by EchoStar, cannot be counted out. While content and service delivery mechanisms are key, devices continue to define the consumer experience. Through recent product launches, Sling Media’s portfolio now provides TV-to-PC, TV-to-mobile, and PC-to-TV functionality. Brian Jaquet, director of public relations for Sling Media, explained that, from a device perspective, getting content from multiple sources to multiple devices is still in its infancy. A company with a fan base among the early adopters, Sling could very well choose to expand its role and take more power by providing more content, for example, and providing a more open sourced content garden.

Looking Toward 2009

2008 proved to be the year of the aha in the video market. More consumers watched more hours of content and more streams of content than anyone imagined just a year ago. Events such as the Beijing Olympics proved that consumers watch the same content both online and on TV. And eyeballs don’t necessarily drift off one source to another but rather move back and forth from source to source. In addition, time spent watching video appears to increase when it is available on multiple devices.

While many technical hurdles have been overcome, business models are in flux, and power might shift radically in the next few years. 2009 will prove whether 2008 was a trend or an anomaly in the march toward video ubiquity. But without hesitation, expect the industry to look entirely different in 5 years.

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