Buoyed by faster networks, better devices and a big market boost from Apple iAds, growth in mobile video advertising is poised to take off over the next four years. But advertising won't be the dominant revenue source from mobile video. Instead, subscription services will. To be sure, advertising will be a vital component of the ecosystem, but the mobile video business will be driven by three main forms of revenue: direct pay-per-view downloads, subscriptions, and ad-supported video, according to a recent report from eMarketer.
The mobile video market will grow from $548 million in revenue this year to $1.34 billion in 2014, with nearly 24 million mobile video viewers in the United States this year alone, the firm said. By 2014, there will be 57 million mobile video viewers. While other mediums are shifting more fully to ad-supported models, ads will only form part of the foundation for mobile video. That's because many customers have already grown accustomed to paying for content on mobile phones via apps, making subscription fees and download prices easier for them to swallow.
The tripling in mobile video revenue over the next four years comes from the societal explosion in mobile usage, said Noah Elkin, eMarketer's senior analyst, who wrote the report. Smartphones are becoming prevalent and the iPhone has trained consumers to expect more from their devices - specifically, the ability to watch videos.
"You need the greatest bandwidth to consume video on a broad scale on mobile devices and you need the right devices. You have that now," he said. "If you think about five years ago, all the carriers had launched subscription services, but they were only available on limited devices."
Now those advanced phones are in consumers' hands. "In some ways the iPhone set things in motion. It was the idea that the mobile phone should be a media consumption device," Elkin said.
That's why consumers will spend plenty of money in this medium. For starters, they're used to paying for mobile phone plans. But they also view the phone as both a must-have and a convenience, and those factors make consumers more amenable to downloading videos for a fee. And because a rising tide lifts all ships, as consumers watch more mobile videos they've paid for, they'll also watch more ad-supported video, too. That will usher in more brand dollars.
Further bolstering the field are iPads and other smart devices. The iPad's quick uptake has reinforced the notion of portable devices as entertainment venues for consumers, as evidenced by the success ESPN and Netflix are having with streaming video on tablets, Elkin said. Plus, the migration of Hulu and Netflix to mobile platforms will spur interest in subscription TV options on handheld devices.
Finally, Google's investment in the mobile platform should not be discounted, especially since sales of Android phones are outpacing iPhones. Google-owned YouTube said this summer that consumers watch more than 100 million videos each day on its mobile service.
"The more content you have on mobile video the more attractive it becomes and even necessary for advertisers," Elkin said. Challenges remain, though. More research needs to be done on the length and frequency consumers will tolerate for ads on mobile devices.