Predictions For Online Video in 2010

2009 brought a lot of change to the online video world. We saw the surging growth of new players like Hulu, the advent of TV Everywhere (TVE), the first steps of YouTube’s monetization, more live video and mobile video, and video starting to reach beyond media and into other sectors of society. Video advertising-based monetization also grew 50 percent year over year–the fastest growth rate for any form of advertising during the Great Recession.
From the energy of our customers to the phone calls from investment bankers, it is quite apparent that 2010 is going to be a very significant year again for online video. Here’s what’s going to happen:

TV Everywhere
TVE is a new framework that will enable participants in the established TV industry to bring more of their content online. TV networks will be enabled to put their shows on the Web with these three caveats:

  • That they make this content available through their distributor Web sites. The distributors are the ones paying them, and the ones generating subscription revenues, and they want to take that model to their subscribers on the Web.
  • They can put their shows on their own sites, but only if they first authenticate the users against distributor user databases.
  • They can only do these if they own the rights to put the content online. Most TV networks don’t actually own the online rights for their content.

2010 is going to produce a lot of first efforts in the TVE space, driven first by the large cable companies–Comcast (CMCS), Time Warner (TWC), etc.–and followed by their fellow distributors. We’ll see a decent amount of feature-length TV become available on ISP sites and via the sites of the TV programmers themselves. But 2010 won’t be a big year for TVE. There’s still way too much that needs to be worked out, from standards for authentication to business questions about revenue associated with TVE content, and to user experience issues that might be created by such a federated model of online media consumption.
For TVE, 2010 will be a great year for experiments and learning, and will largely be a setup for growth in 2011.

Connected TV

Just as the traditional TV industry makes moves to bring TV to the PC, the consumer electronics industry is making moves to bring online video to the TV. The TVE folks had better get moving quickly, because 2010 will bring a plethora of new opportunities for consumers to access video content directly from their living rooms.

Several trends are driving the industry forward:

  • Major TV set makers are seeing the opportunity to differentiate their TVs with built-in software to handle interaction with Internet-based apps and services.
  • There’s enough great content and services out there that consumers now understand the benefits of having something besides broadcast and cable–iTunes, Netflix (NFLX), Hulu, YouTube and thousands of other Web sites they visit that have video.
  • We’re seeing the consumer electronics ecosystem embrace an open approach to content services. Inspired by the iPhone App Store, these companies are opening their devices–using open formats and standards that will be accessible to anyone who can create a Web site. Opening up these devices in a model that is similar to the PC Web and the mobile Web will do wonders for innovation and we’ll see thousands of online services reach into these devices.

But don’t get your hopes up too high. This is going to be a slow-moving process. The churn cycle on TV is slow, and the devices are priced at a premium. They’re also going to have user experience quirks, and initially, limited adoption by developers.

Again, just as TVE will wait until 2011, open distribution to TVs will also have to wait. And, in fact, these two worlds may not collide, they may simply converge. If I’m a cable subscriber, maybe I’ll just flip on my new LCD Vizio, authenticate against (which in the background checks to make sure that I’m a subscriber), then I’d access all the glory of on-demand apps and content from ESPN over the internet and onto the device.

Mobile Video

With the surge in smartphone sales, mobile video adoption will become more than just a blip on the radar. Mobile advertising is becoming mature; in-app payment models for content is emerging; online video platforms such as Brightcove are making it easy-to-publish mobile video. Most importantly, however, are the scale and usage numbers–there are now more iPhone 3G subscribers than there are Comcast Digital Cable subscribers.

Video Monetization

In 2009, online video advertising grew faster than any other category in the global advertising market (50 percent). It’s forecast to grow 3-5X over the next several years.
Right now, the primary ad format for online video is the short video commercials that happen before and during programs. This is about one-fourth of the advertising load that television bears. There are also those clever little overlay ads that users can click on to watch a video commercial, but neither of these approaches comes close to generating the amount of revenue per viewer hour that broadcast television delivers.

We know that online users will not accept more of an ad load, so what is it going to take to drive the value of the advertising higher? In 2010 the industry will crack the code for higher-value video advertising. In order to be more valuable it needs to be a win-win-win situation (e.g. viewers enjoy more relevant ads, publishers generate more revenue, and advertisers get more targeted ads with more engaged viewers who drive direct action).

Here’s what will shake out:

  • The online media buying model that relies on buying specific content properties will break down. The problem is that buying inventory on a specific property in order to reach some of your targeted audience means you’ll also reach a lot of non-targeted audience. To address this, advertisers and publishers will look to build upon audience-targeting platforms like Quantcast.
  • Several global video ad networks will have break-out years, creating enough scale that advertisers can buy highly targeted audiences in video.
  • We’ll break the “ad format” logjam by embracing Flash-based advertisements, which can offer richer branding, more interactivity and engagement than video commercials, are cheaper to produce, will interact with web services and can be driven by data.

Video Commerce and Marketing

In 2009 we began to see the broad adoption of online video by all kinds of marketers and retailers. Why is this a big deal?

First, the two largest engines of growth in the Internet economy are digital marketing and online commerce, accounting for the vast majority of dollars flowing through the Web.

Second, every organization on the planet uses the Web as a marketing platform for their products, services, causes and agendas. The primary investment they make are in their own Web sites, the secondary investment is in online advertising to drive users to their Web site. The growth in online video in marketing and e-commerce is very significant. Marketers are using video on their sites because it is driving better metrics–longer visits and higher conversion rates. In e-commerce, video is driving a double-digit lift in sales and lowering customer service costs. 2010 will be a record year for marketers and for e-commerce site adoption of online video.

Online Video Platforms

In 2009, our industry finally emerged as a category: Online Video Platforms (OVPs), a cloud-based approach to video publishing and distribution. Just as Web hosting, ad servers, Web analytics and search have all moved to the cloud, so too has online video.
In 2009, some of these really became platforms, for which hundreds of third-party companies began building plug-ins and integrations.

Several things will happen in the OVP market:

  • Commoditization. Since every organization in the world wants to use video on their Web sites, OVPs will become commodities at the fundamental level. That’s a great thing for customers wanting to leverage these services for publishing video, and for the top one or two commodity suppliers it will also be a boon.
  • Deepening of value. As the entry level of the market commoditizes, the mid-market and high end of online video is becoming more sophisticated, and the leading OVPs will need to broaden the suite of features they provide. Advanced analytics, mobile video, social media, connected TVs and TV Everywhere are just a few of the areas of focus for this part of the market.
  • The end of DIY. In the past, companies thought that a DIY approach to online video would work out. These customers will feel the pain of not being contemporary with market innovations, and will see that to gain the benefits of commoditization and achieve value, they will need to move toward adopting OVPs.