There can be no doubt about it, online viewing of video content is booming around the world, and with the continued rapid growth in usage of smartphones, connected TVs and tablets this trend is set to continue and revenue generation is an important aspect, as Jim Bottoms points out.
The fact that consumers are bombarded with free video content, both legitimate and pirate, often drives the perception that online content should be free and this represents a major concern for the industry. Changing this perception and establishing a revenue stream is vital for the future health of programme makers around the world, not least the major Hollywood studios.
To begin, let’s look at some of the key statistics that define this overall segment. This year we estimate that consumers in the US will access nearly 500 billion online video views, compared to nearly 300 billion across Europe’s three lead markets; UK, France and Germany. This equates to a staggering 1,500 views per man, woman and child in the US, regardless of age, and close to 1,375 per head of population across the lead European markets.
Digging into the detail shows that almost 50% of the total is accounted for by people watching video on YouTube. In fact, all these video views (including part views) together only amount to just over two hours of online video viewing per week in the US, with European viewers typically spending between 90 and 100 minutes, depending on their country of residence. As a reference point, this compares with about 30 hours per week spent watching TV for the average UK viewer.
Catch-up TV also plays its part in encouraging consumers to access video content online, notably via the BBC iPlayer. Impressive growth in catch-up TV usage in all major markets has adversely impacted the revenue generating possibilities, with those content services offering paid-for online TV programmes and movies not growing as fast as anticipated. Overall, paid-for video content continues to play a very small part in the overall online video viewing activity, although there are signs that this may be changing, particularly in the US.
Subscription services, such as Netflix, are driving much of this growth, and until the recent issues caused by its changing business model and pricing structure, the company was seeing rapid expansion in the numbers of people signing up to use the paid for streaming service.
Total paid for video revenues in the US are projected to reach close to $3 billion this year, a significant increase over last year’s performance. In the European big three, revenues are running at a much lower level with an estimated total of $230 million. The fragmented nature of the European market and the wide-scale availability of online catch-up, has restricted the growth rate although we still expect to see a 50% increase over last year.
To date, the paid-for online video market has been dominated by Apple iTunes. Games consoles have also emerged as important viewing platforms, particularly for third party services such as Netflix and BBC iPlayer. Sony and Microsoft have, at the same time, built their own online video stores.
Looking to the future, there remains considerable potential for online video revenue growth, some from online purchase and rental transactions, but more important will be subscription services and an anticipated expansion in advertising funded services. YouTube has already started to increase its efforts in monetizing videos, with over 25% of videos now carrying advertising and many new initiatives being launched to increase consumer engagement on ad-funded videos.
As interest in viewing premium content on YouTube grows, it is highly likely that a paid-for subscription offering will be added. For many, the main focus for the future is on generating revenues for electronic sell-through (EST) movies and TV shows. While the movie studios would prefer consumers to continue purchasing movies – as they have done with DVD and BD – to date consumers have shown that they are happy with the rental model for accessing video online.
The launch of UltraViolet in the coming months in the US (and probably around this time next year in Europe) is seen as a possible route to stimulating the consumer purchase and ownership of digital content, while also potentially providing a boost to disc-based content sales.
The general idea behind UltraViolet is that consumers purchase a title once, physical or digital, and can then access it across a range of devices owned by that individual, be it TV, PC or mobile/handheld device. Strong industry support for UV among the content community, retailers and the hardware industry (with one or two notable exceptions in each case) and a carefully thought-out business model will help build awareness, but whether or not this will be enough to encourage consumers to want to pay to own content again remains to be seen.
In addition to this we can expect to see a number of key video streaming services, similar to Netflix, emerge over the next couple of years. Apple will be a key challenger, with its launch expected sometime in 2012 in the US, to coincide with the anticipated introduction of a smart TV service.
Amazon has also shown its intentions with the impending launch of its Kindle Fire, supported by an impressive content eco-system spanning video, music, books and games. It has further signalled its intent by offering a one month free trial to its video streaming service. However, it is likely to be more than just an Apple, Amazon and Netflix world, in both Europe and the US, with a number of high profile participants expected to take part in the land-grab and establish a cross-border footprint.
Consumer ownership of a wide range of connectable devices, offering different functionality and screen sizes to meet both a high quality in-home experience at one end of the spectrum and a personal, highly flexible on-the-move experience at the other end, is stimulating both content companies and service providers to step up their activities in trying to better meet consumer wants and needs.
This in turn will continue to drive annual online video revenues towards $10 billion by the second half of this decade, excluding ad funded. Access to free content will continue to play an important role but we can expect to see greater creativity in the ad funded model to ensure that free services continue to attract a growing revenue stream.
