When Will IPTV and On-Demand Eclipse Linear Video?
On-demand video is the sort of development that terrifies everybody with an important role in the current value chain. It also is a trend that grows
almost daily. But a nearly complete shift to on-demand as the dominant way consumers access video might take a couple of decades—and perhaps as much as 40 years—to displace the way things are done now. Or at least that’s what some stakeholders believe.
“Nobody yet has figured out how to do anything other than pushing stuff down the pipe,” says Channing Dawson, senior advisor, Scripps Networks. “People are not monetizing two-way communications.”
“It is a serious mistake to port the television model straight over to the Internet,” says Dawson.
“Internet advertising will surpass $20 billion this year, but more than half of that is Google,” says Shelly Palmer, managing director, Advanced Media Ventures Group. And there is much less precision to Internet advertising than one might suppose. About 48 percent of the ads are a banner ad of some sort, Palmer notes.
“The lower right hand corner of a page is most valuable, because you accidentally miss the scroll bar and hit the ad by mistake,” Palmer says. That’s hardly precision, and not much of a reliable measure of advertising effectiveness.
In fact, the current TV model does not translate to the Internet, he warns. “They aren’t the same thing at all,” says Palmer. “The network is different, the resolution is different and the sociology is different.”
What he means is that people simply do not approach PC video as something one approaches expecting to watch three hours of video at a sitting. Still, “we are in a transition,” says Palmer. “Things will change by 2010 or 2015.”
But that still leaves many problems for advertisers to overcome before viewership attracts the sort of advertising the gross volume of viewing would suggest.
“Usage is going through the roof at Comcast, so interest has to be higher, but the economics of producing only for on-demand delivery probably don’t work for the moment,” says Tara Maitra, TiVo Content Services VP.
And there are other issues. TiVo knows quite a lot about what individual consumers are interested in. So it might make sense to push related content out to users that usage profiles suggest they might like. But “at this point, we don’t have the right to push content onto user hard drives,” says Maitra.
“For us, digital is still the tail,” says Rick Mandler, Disney ABC Media Networks VP. “To solve it, capital investment is required and it is pretty massive, but we have to be judged by near term results.”
| Who Watches Online Video The percentage of Internet users in each group who watch or download online video | |
| Total | 57% |
| Men | 63 |
| Women | 51 |
| Ages 18-29 | 76 |
| Ages 30-49 | 57 |
| Ages 50-64 | 46 |
| Age 65+ | 39 |
| HS Grad or less | 46 |
| Some college | 62 |
| College Grad | 64 |
| Less than $30k | 52 |
| $30k-$50k | 63 |
| $50k-$75k | 63 |
| $75k+ | 62 |
| Source: Pew Internet & American Life Project Tracking Survey | |
“It breaks down there,” says Mandler. “We think having our shows online helps the legacy business.”
Right now, though, it “could be problematic if lots of people start deciding they can watch online and stop viewing linear,” since Disney ABC does not have the necessary ability to monetize that viewing in both legacy and on-demand modes.
The other problem is that advertisers don’t have the ability to scale ad placement operations either. “As you move from linear media that is easy to buy and plan for, into Internet, you face hundreds of publishers with lots of different types of inventory,” says Eric Picard, Microsoft Digital Advertising Solutions director.
“You don’t buy one show,” he says. “You buy impressions delivered with pieces of content.” The problem is that buyers don’t know whether they are under-delivering placements or over-delivering them.
| U.S. Demographic Data for Videos/Movies Category June 2007 | |||
| Category | Target | Audience (000) | Audience % |
| Total |
88,252
|
100 | |
| Age |
2 - 11
|
4,401
|
4.99 |
|
12 - 17
|
10,073
|
11.41 | |
|
18 - 24
|
6,056
|
6.86 | |
|
25 - 34
|
12,820
|
14.53 | |
|
35 - 49
|
28,309
|
32.08 | |
|
45+
|
36,064
|
40.86 | |
|
55+
|
17,127
|
19.41 | |
|
65+
|
6,545
|
7.42 | |
| Source: Nielsen//NetRatings NetView | |||
“As more media moves to digital, the complexity of managing gets more complicated and difficult and the buying process doesn’t scale,” says Picard. “If video on demand becomes the way people watch, and ads are loaded dynamically, buyers can’t scale with that.”
Also, agencies fear that as automation is the way such problems are resolved, they might be cut out of the process. But the issues aren’t primarily technical.
“We could do it technically in three to four years,” Picard says. “It is the business issues that are slowing us down.”
“At some point, everything will go on demand, but it might take 20 to 40 years,” he notes. As but one example, cable TV industry ad placement mechanisms are built around local advertising. But on-demand video requires placement of
national ads on a dynamic basis. The systems simply aren’t built for that.
“The system is broken,” says Ann Soch, MediaVest VP. “I don’t get metrics for on-demand viewing for six months.” But it isn’t just a technology or business process issue. It is a competitive issue. “Companies are not willing to work together and share information right now,” says Soch.
And though most users, if asked, will say they are irritated by the number of commercials they see on broadcast, cable and satellite-delivered ad-supported channels, “there will never be fewer ads than you now see on cable TV,” says Palmer. The reason is quite simple.
| Top Five/Bottom Five - Trust in Advertising | |
| Philippines | 67% |
| Brazil | 67% |
| Mexico | 66% |
| South Africa | 64% |
| Taiwan | 63% |
| Latvia | 38% |
| Germany | 35% |
| Lithuania | 34% |
| Italy | 32% |
| Denmark | 28% |
“None of you will be happier if there were 10 percent less ads than at present,” Palmer says. “But the 10 percent of gross that is lost if programmers cut those ads will go straight to the bottom line and somebody is out of a job.” Result? No decline in ad time.
And though every advertiser and ad placement entity demands metrics, metrics mean commoditization, Palmer says. “Once it can be quantified, it is commoditized.”
“If you can quantify it, it becomes valueless,” says Palmer. “Once everybody knows the same thing, it is just a commodity and has no value.”
And though Palmer says the movement of video to online formats is inexorable, the revenue potential might be sharply limited.
| To What Extent Do You Trust the Following Forms of Advertising? | |
| Recommendations from consumers | 78% |
| Newspapers | 63% |
| Consumer opinions posted online | 61% |
| Brand websites | 60% |
| Television | 56% |
| Magazines | 56% |
| Radio | 54% |
| Brand sponsorships | 49% |
| Email I signed up for | 49% |
| Ads before movies | 38% |
| Search engine ads | 34% |
| Online banner ads | 26% |
| Text ads on mobile phones | 18% |
“The average viewer only watches eight to maybe 15 channels,” says Palmer, and six of the channels are watched by everybody.” That means most video, even on the most-viewed channels, probably isn’t worth all that much to an advertiser.
As telcos move further into video, they might want to keep in mind what the cable companies want to do. Right now, video represents half of cable revenue. Advertising is six to eight percent of their revenue. But they ultimately only want 25 percent of total revenue to come from video. Telcos might want to keep that mind and mind the voice and data store.
“Video is becoming so specialized or so ordinary that it isn’t revenue attractive long term,” says Palmer. “Only one percent of people create the great content on YouTube. It is really hard to do.”
| Asians Trust User Recommendations Much More than Europeans | |
| Hong Kong | 93% |
| Taiwan | 91% |
| Indonesia | 89% |
| India | 87% |
| South Korea | 87% |
| Hungary | 68% |
| Latvia | 68% |
| Lithuania | 64% |
| Italy | 64% |
| Denmark | 62% |
Of course, users still trust other users more than they trust advertising, according to a recent Nielsen survey. “Advertisers around the world are able to reach consumers across an increasingly diverse range of media platforms,” says David McCallum, global managing director for Nielsen’s Customized Research Services.
“Even so, the recommendation of someone else remains the most trusted sources of information when consumers decide which products and services to buy,” McCallum says.
You won’t be surprised to learn that users communicate bad experiences about five times more often than they share good service experiences.
The Nielsen survey found Filipinos and Brazilians (67 percent) to be the most trusting overall of all forms of advertising, while trust among Danes (28 percent), Italians (32 percent), Lithuanians (34 percent) and Germans (35 percent) were the lowest in the world.
The Nielsen survey also confirms that new platforms like the Internet are beginning to catch up with older media in terms of ad revenues, though traditional advertising channels continue to retain the public’s trust.
Newspaper ads rank second worldwide among all media categories, again lead by word-of-mouth recommendations from other people.
| Consumer Generated Media - such as Blogs - were considered a reliable source of information for North Americans and Asians | |
| North America | 66% |
| Asia Pacific | 62% |
| Europe | 59% |
| EEMEA | 57% |
| Latam | 53% |
| Global Average | 61% |
Although consumer recommendations are the most credible form of advertising among 78 percent of the study’s respondents, Nielsen research found significant national and regional differences regarding this and other mediums. Word of mouth, for example, generates considerable levels of trust across much of Asia Pacific. Conversely, Europeans are least trusting.
User opinions posted online are the third most trusted source of reliable information, trailing newspapers by just two percent. Among individual markets, Web-based opinions such as blogs are most trusted in South Korea and Taiwan while scoring lowest in Finland.
And there is no question that user recommendations, newspapers, online consumer opinions and major branded Web sites are highly trusted. On the other hand, only consumer-generated media and branded Web sites were trusted by more than half of all consumers.
But note: search engine and banner advertising, along with text ads on mobile phones, each scored at the bottom of the “trust” scale. Just a bit more than one third of respondents (35 percent) of total respondents trust them. Regionally, Latin American consumers found these ads most believable, while Europeans trusted them the least.
Still, advertisers will have to find ways to use developing online media formats as it is becoming a mainstream activity, even though a large proportion of digital content now is consumed by a small group of digital media super-users, according to research by ABI Research.
“Today we see a growing class of consumers that are just beginning to watch Internet video or are getting their first PVR,” says Michael Wolf, ABI Research director.
Generational differences remain, as you would expect. Users aged 30 to 34 are perhaps the most prolific in their use in both old and new formats, leading other groups in the size of their DVD collections (53 percent have over 40 DVDs), the likelihood they use a DVR (43 percent own one), and whether they purchase music online (24 percent).
Still, about 41 percent of surveyed U.S. users who said they watched videos or movies on the Internet in the month of June were between the ages of 45 and 55. About 19 percent said they were 55 to 65. Nearly eight percent said they were 65 or older.
Overall, about 68 percent of all surveyed users were 45 or older.
“One of the trickle-down effects of these generational changes to new media consumption is the impact on storage requirements,” says Wolf. “Hardware vendors will benefit from growing libraries of digital media as the average amount of storage required for digital photos doubles to 1.5 GB in 2012, while the average number of digital music tracks the average consumer has in his or her library will grow from 221 to 372 by 2012.”
And that’s just the impact on local storage. Online storage of email, photos and other files is expected to explode as well, creating new opportunities for hosted applications of all sorts.
Of course, gaming, including online gaming, also now is an important media format. More than a third of U.S. adult Internet users play online games weekly, according to Parks Associates, with games trumping social networking and online video as the most popular Web-based entertainment activity.
Online video (at 34 percent) came in as the second most popular activity, with some 29 percent of users watching short clips weekly, while social networking rounded out the top three at 19 percent.
“Despite the growing popularity of YouTube, MySpace, and Facebook, gaming remains the king of online entertainment, driven largely by casual gaming activities,” says James Kuai, research analyst, Parks Associates.
Casual games, loosely defined as easy-to-play online games targeted at a mass audience, will generate $400 to $500 million in revenue this year, with a significant portion of the revenue coming from advertising.
Sites like Yahoo Games and EA’s Pogo.com offer users access to a wealth of ad-supported games, where sponsors have options for branding opportunities, and display and banner ad placements. Some casual game sites offer low cost, ad-free gaming subscriptions and outright purchases, as new revenue models like micro-payments gain traction.
“Casual games don’t generate as much attention as social networking or video sharing, partly because many advertisers still don’t understand gaming as a medium,” says Michael Cai, Parks Associates director of broadband and gaming.
In sum, it is safe to make a couple of observations. Online-delivered video is growing fast, in just about every demographic but a large number of issues must yet be solved before any massive shift of advertising revenues can propel a transformation of video viewing.
Also, you would have a hard time finding knowledgeable observers who think most viewing will not ultimately be transformed in the direction of on-demand, customized viewing. What almost nobody seems to understand is precisely how long this process will take. IP
