• by Diane Mermigas , February 2, 2009

Television goes Straight from digital to Wi-Fi

Live, from the Internet ... it's Saturday Night Live (and everything else once relegated to the boob tube). The Hulu-YouTube-MySpace world of viewing video and commercials anytime on any screen is ready for prime time. Television, the living room shrine to a fading broadcast age, has become just one of countless screens in a broadband universe of smartphones, iPods and iPhones, video game consoles, laptops and cable set-top box servers. Students no longer lug tv sets up to their dorm rooms, because they can connect monitors to high-speed networks for any video imaginable.

Cutting the Cord
The wireless mobile video revolution was well underway even before sets were sentenced to go digital or go blank. Three-quarters of 2,800 consumers surveyed by ibm in six countries said they have watched online video and nearly half of them do so regularly. As a result, 36 percent said they watch significantly less television. Seventy percent of respondents said they preferred ad-supported over consumer-paid video models; 60 percent said they would provide advertisers with some personal data in exchange for relevant marketing or content of value. Some consumers are willing to pay for video anywhere, whether $50 annually for Xbox's premium Live service or to Pando Networks to deliver video from a "cloud." Clearly, video producers and distributors must find ways to monetize new platforms or see their value shift away as it did with the music industry.

"There always will be demand for well-produced video on all screens that represent new opportunities. If people who produce and sell that content can convince advertisers that a view is a view is a view, there should be a very good future for everyone," says Ross Levinsohn, managing founder of Velocity Interactive, which funds next-generation video ventures. Levinsohn acquired MySpace for News Corp. when he was ceo of Fox Interactive Media.

Even amid the worst recession ever, consumers' voracious appetite for video has not subsided - though they are less likely to upgrade to the latest gadget. That represents an unprecedented interactive value proposition for advertisers, in spite of high-priced traditional media losing its potency. Spring's upfront ritual could mark a deceleration of broadcast network unit prices as the Web equalizes, targets and commands premiums for the same audiences. "Television has become like an old, decaying family mansion - a relic from the past turned into a money sink to keep it up. It's time to tear it down and build a new estate," declares former Forrester analyst David Graves.

Two out of three consumers complain about too many commercials on television and one-third admit to ignoring them. By 2012, half of u.s. households will use dvrs to skip ads. Exploding forms of video-on-demand, pay-for-play and social networking eliminate advertising altogether. The only way back is to match consumers with relevant products and services.

Analysts expect online video to generate nearly $5 billion in ad revenues by 2013 (up from just $324 million in 2007) followed closely by download-to-rent video. Although 41 percent of the most active online users consider ads to be a fair bargain for free video content (according to a recent Veoh-Forrester study), the key to future success lies in formatting ads that are relevant to users, not just prevalent. Interactive features like click to buy, sharing with friends and user-generated reviews make advertising more engaging and social.

Despite distracted viewers with shorter attention spans, television continues to take 25 percent of all 285 billion domestic advertising dollars and that number is only expected to decline by a little more than 4 percent or by about $3 billion in 2009, according to eMarketer, in part because of the dire economy and the collapse of major ad categories such as automotives and financial services. While television struggles to maintain its stronghold, online video advertising is expected to hit $6 billion, or 10 percent of all Internet ad spending by 2013, up from just 2 percent or $500 million in 2008. Video will continue to reign as the fastest growing segment of online ad spending, according to the Interactive Advertising Bureau and PricewaterhouseCoopers.

Support Group
The diverse strategies to achieving monetization are scattered across the new video power base anchored by the likes of YouTube, Hulu, MySpace and abc.com.

Google's YouTube, which leads the pack, is integrating full-blown professional video with its wild user-generated content to attract advertisers to its nearly 5 million unique visitors and its searchable premium content that now includes tv episodes, films, trailers and video clips with commercials. While YouTube dominates with a 55 percent share of online video viewing, compared to roughly 4 percent each for Time Warner, NBC Universal Web sites and Fox Interactive Media (led by MySpace), the competition is undaunted: "We're cautiously optimistic we can continue to grow our business," says MySpace CEO Chris DeWolfe. MySpace has aggressively launched the customizable MyAds for smaller advertisers, MyMusic and other new applications, including mobile, across its leading base of users. cbs is also upping the ante by integrating more video into the tv.com site - inherited in its CNET acquisition - that is a historical archive of all television programs running parallel to its own branded streaming-video site.

Hulu, the free ad-supported video service launched just a year ago by NBC Universal and News Corp.'s Fox, already ranks as the sixth-most viewed site on the Web with more than 130 content providers. ABC, Disney and ESPN take a cross-platform approach to branding. "ABC is a content brand that commands a premium on any platform and any device. The risk we have with video aggregators is that they diffuse and disaggregate content from the brand," says Albert Cheng, executive vice president for digital media at Disney-ABC Television Group. Disney.com ranks eighth and espn.com ranks 10th among online video platforms, according to comScore.

In spite of YouTube's popularity, a recent study by Conference Board-tns revealed that 65 percent of respondents still prefer official tv network home pages for viewing related video online, while 41 percent prefer YouTube. However, YouTube viewers are less passive consumers, according to a new study by Mindshare and the Online Testing Exchange, which concludes that YouTube users are 1.5 times more attentive and engaged in advertising than TV viewers.

"If anything is going to break YouTube's stranglehold on the online video space, it will be the emergence of a larger market for viewing full-length tv programming online," says eMarketer senior analyst Paul Verna in a new report on video content. However, consumers of all ages are becoming increasingly platform-neutral when it comes to viewing video on any screen. As the domestic online video audience approaches 190 million by 2012, or 88 percent of the Internet user population, the focus will be on video selection - not video screen. "The future of the video industry will depend largely on how stakeholders navigate technical challenges, infrastructure, upgrades, the migration to mobile and ongoing consumer resistance to ads and payments," says Verna.

That's where mashing GPS, social referrals, sharing and commerce among friends on mobile devices can make all the difference to video aggregators and other digital gatekeepers seeking a competitive edge. MySpace is transforming itself into a social portal by leveraging 12 percent of all Internet minutes in the u.s. and 75 million monthly active users, each who spend an average of four hours on the site and have 111 friends - as well as 40 percent of all moms - to whom they can be brand advocates. Video is a key component. "Location-based services enable a whole other form of advertising, especially when you layer targeting capability on top of it. It can be very powerful," says Jeff Berman, MySpace president of sales and marketing. MySpace revenues jumped 18 percent last quarter from the prior year, fueled by its new services aimed at siphoning Internet portal dollars.

A potential deal, once valued at $10 billion, between MySpace and Yahoo would boost News Corp.'s social network well past its $1 billion annual revenue target, which it hopes to gain through home page premium ads, hyper-targeting, Web cam videos (which can be uploaded to a browser-based MySpacetv), and friend channels to share music, films and news. A much-speculated-about micro-payment system would tie it all together. Facebook has been working to leverage its 40 million unique global views to catch up with original projects such as Mass Animation shorts, courtesy of former Sony Pictures digital chief Yair Landau with funding from Intel and Dell.

The Brass Ring
"Good things happen when you put the users front and center," says Hulu ceo Jason Kilar. "In the fullness of time you will see Internet-based viewing in the living room in a big way." With more unique video works landing online, and television network production diminishing in the face of deteriorating ratings, some analysts wonder, though, whether Hulu's success can endure, even as it becomes the de facto television of the Web. As long as the service continues to focus on interface details, then Hulu's formula, which relies on revenues generated by a 70-30 split with content providers for two-minute ads that are palatable to 88 percent of its users, can remain successful indefinitely.

The brass ring for emerging online video, social networks and widget categories is the $4 billion they'll be worth by 2010, up from $425 million in 2007, according to advertising consultant Jack Meyers. So far YouTube and Hulu are leading the pack, with each generating an estimated $200 million in annual revenues. Google's innovators are looking to make quick advances with solutions like its fingerprinting software Videoid, which allows participating content owners to control and track ads that can be uploaded by users.

Pirating copyrighted content may become a thing of the past as legitimate ad-supported video access proliferates. Even mtv Networks, whose corporate parent Viacom has a $1 billion lawsuit pending against YouTube for copyright infringement, has a new online video monetization strategy with MySpace to encourage content uploads from their Web site with advertising. In what could be a template for industry-wide use, Auditude, a new profit-sharing fingerprinting application, will allow MTV to identify the use of their content and provide the analytics to collect and implement viewer data for marketing and sales follow-up. The click-to-buy and co-branded entertainment opportunities are potentially more lucrative than the standard ad overlays.

In keeping with its slogan, "Broadcast yourself," YouTube users can subscribe to a "channel" of specific videos from particular sources, the choices for which can be published on users' profiles. It is one of many discreet - and sometimes not-so-discreet - ways YouTube and its peers collect, publish and mine the bounty of user data they collect despite the existence of some early privacy-protection laws. As a result of YouTube's evolution into more of a video-sharing engine, the site must now be concerned with copyright-protection issues.

That explains why some major content producers want to maintain financial and creative control of their own product, like CBS Interactive's organic, independent approach to online video which it hopes will grow its $600 million in digital revenues to more than $1 billion in three years.

"Consumer consumption is ahead of business models," says Tim Hanlon, managing director of VivaKi Ventures, which explains some of the amazing financial discrepancies. According to eMarketer senior analyst Carol Krol, typical primetime television cpms of $25 compare with $40 cpms online (and as much as $70 cpms online for the most popular content). Online video advertising rate cards range from $10 to $30 on the low side for blip.tv, to $25 for MySpace, and as much as $75 for Hulu. As advertisers break free of the packaged cross-platform buys beginning with television networks, they will be inundated with online options. The television dollars shifting online comprise the largest portion of advertisers' and agencies' overall media budgets.

The competitive lines blur as traditional players extend their franchises to the Internet, such as Blockbuster downloads, Netflix online, Microsoft's Xbox and Sony's PlayStation 3 game consoles. aol has revitalized Bebo with successful original Webisodes such as "KateModern" and "Sofia's Diary." Joost and others are pursuing a similar strategy with intriguing content partners, including independent studio Generate, WebRidestv for car enthusiasts, India's Rajshri Media studio and green living video network The Green House. Sling Media has launched an online video hub. Comcast's streaming video service, Fancast, is the largest distributor of ad-supported broadcast content on the Web - with the largest library. Amazon has followed Sony, Netflix and Microsoft into the streaming video-on-demand space.

Clearly, whatever streaming video is today, it will continue to broaden and evolve, but will probably involve paid ads and free content. "The resurgence of this economic model means television will survive in a big way. This is the renaissance of television, not the demise of television," claims Jason Hirschorn, president of Sling Media Entertainment Group.

I Want My ADD
It's ironic that the most formidable impediment to online video is one that television helped to create: viewers' short attention spans. Their tolerance for Web videos is only about 10 seconds, 90 percent of the time, according to TubeMogul. Only about 10 percent of viewers watch more than five minutes - but are still not necessarily candidates for long-form content on any platform.

If the new television - online video - is to grow, the host Web sites and platforms must narrow the gap between professionally created content and content created for the Web - a process that was unexpectedly advanced by the unprecedented use of the Internet in the 2008 presidential elections. Barack Obama's election-night victory speech received 500 unique placements viewed more than 6.8 million times within 36 hours. YouTube, which cosponsored primary debates this year, did not even exist for the 2004 election. u.s. online video viewers and online video advertising viewers are 80 percent and 67 percent of all Internet users, respectively - expected to increase to 88 percent and 81 percent, respectively, by 2012, per eMarketer. nbc's online Olympics coverage cracked a record 1.3 billion in page views.

With the explosion of video and the demands on bandwidth, access pricing and the demand for additional capacity will likely increase. Internet service providers and other traffic cops will seek to manage and limit user connections or monetize demand by establishing premium-priced service tiers - all of which will preoccupy a new fcc. Already, online video comprises one-fourth of monthly consumer Internet traffic, according to Cisco. By 2012, Internet video will be nearly 400 times what the entire u.s. Internet backbone was in 2000, reports Cisco.

The sheer volume of video has created the potential for traffic surprises, but the system is not in danger of collapsing.

Given the lightning-fast evolution and intense competition of online video, it is ironic that the new viewing platform could get its ultimate boost from a looming Screen Actors Guild strike. The Writers Guild strike a year ago steered original tv-starved viewers to the Internet for amusement - and many now make it their video platform of choice. Once again, negotiations are stalled over the digital distribution of content, of course.