As Internet TV Dawns, Visions Evolve, Conflict

The only thing more mystifying than online video’s future is interpreting the contradictory forecasts about how it will arrive.
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The only thing more mystifying than online video’s future is interpreting the contradictory forecasts about how it will arrive. Within a recent fortnight, researchers spewed their Internet video outlooks, which ranged from bullish expectations that nearly 87 percent of Internet users will watch online video by 2011 (according to eMarketer) to frets that only 16 percent of people who have downloaded video are satisfied with the experience (Parks Associates).

Magid Media Futures claimed that 14 percent of Americans ages 12 to 64 look at some form of online video on a daily basis. Nielsen, in a study for the Cable & Telecommunications Association for Marketing, found that 63 percent of broadband users (about 81 million people) have watched Internet video either at home or work, up 16 percent during a recent six-month period.

Other reports cited the inevitable strain that online video puts on telecom networks’ bandwidth capacity (New Millennium Research Council) and the continuing reticence of studios to make content available (eMarketer again, about the business’ barriers).

At the same time that these prognostications were flowing, a flurry of announcements arrived, such as the Veoh deal to carry NCAA Football online this fall (often in condensed “highlight” versions) and the looming arrival of the Fox/NBC “Hulu” online video joint venture.

Then there’s the introduction of multitudinous tools to help viewsers (a neologism for the interactive online customers) find and watch Internet TV content. For example, last month saw the expansion of Truveo, AOL’s new video search engine, where usage is growing at a 50 percent monthly pace. Blinkx.TV, another online video search service, surpassed 14 million hours of content this summer, and it has signed up more than 200 partners.

Meanwhile, consumers are loading up with “Internet Video Capable TV Devices,” says Emerging Media Dynamics, which expects the penetration of such units to go from 12 million homes now to nearly 50 million by 2012. That will include AppleTV (which is still in its infancy) and other set-top devices and media center units that are creeping into homes.

DIVERSE EXPECTATIONS

Despite these diverse expectations, it is certain that Internet video is part of our future. Part of the problem in calculating the timetable and scale of its impact is the simple definition of what “it” includes. Some experts focus on YouTube, Joost and other short-form services, while others concentrate on movies-on-demand—which includes streamed, downloaded and download-to-burn versions. (Many researchers veer away from on-demand porn-on-the-Web, which others grudgingly acknowledge as a major component in today’s usage figures.)

Hence, the obfuscated world of online video ranges from user-generated shorts to Hollywood spectaculars to who-knows-what.


(click thumbnail)Fig. 1: Media usage estimates for 2008-2009 advertising. Data is based on May 2008 annualized U.S. person hours of media usage. BlackArrow Inc., the source for this information, estimates its data on internal DVR/VOD deployment estimates and publicly reported data from Nielsen Media, Nielsen NetRatings, Comcast and comScore.One of the most perceptive visions about the future of Internet TV comes from BlackArrow, a start-up company that is trying to help advertisers and networks function in the on-demand environment. Among its analyses of the challenges facing media is a simple focus on how much video Americans will consume in the immediate future (see Fig. 1).

Its findings conclude that by the 2008-09 TV season, U.S. households will watch 376 billion hours of linear TV, which does not include the DVR usage (encompassing both time-shifting and nearly real-time viewing with ad-skipping). All those billions of hours of linear TV will add up to 9 percent fewer hours than Americans watched last year, according to BlackArrow. That is a remarkable drop for such a huge quantity over a two-year span.

More significantly, the hours spent watching online video will nearly triple during the period: from 2.9 billion hours to 8 billion hours. A similar tripling will take place in “conventional” video-on-demand viewing via cable and similar delivery systems. All of this is unfurling as overall media consumption expands: For example, Americans will spend about 50 percent more time on the Internet, not including their online video usage, during the next few years, the BlackArrow data suggest.

CANNIBALIZATION COSTS

While studios scuffle about rights management and protection issues, and as carriers (especially cable TV operators) mull the impact of online viewing versus their linear carriage contracts, viewers are opting to pick what they want to see on whichever delivery platform works best for their current needs.

Admittedly, suppliers have reason to fret about cannibalizing themselves—whether it is studios and TV networks worried about how to monetize content on the new systems or cable and telco TV operators facing new negotiations with their program suppliers. But, as cable TV insider Steve Effros recently pointed out, TV networks have already identified that they can exploit their Internet video offerings to drive viewers back to the linear delivery systems.

For now.

Of greater long-term significance are the questions of how content will be produced. Coinciding as it does with the broadcast digital TV transition, the explosion of online video creates opportunities and challenges.

On the plus side, more content is available for multicasting and on-demand delivery—both potential avenues for new revenue. Admittedly, this cornucopia of content also means greater competition for viewer attention and a search for ways to monetize the content.

In the “unknown” sector is the question of whether online video will encourage or impede HDTV usage. Some HD content may simply not be ready for—or appropriate for—online distribution, if only because of the bandwidth constrictions of near-term online delivery systems. For example, the DOCSIS 3.0 system that Comcast and other cable operators have embraced (with speeds up to 160 Mbps) is several years away from widespread deployment. The cable companies have reason to slow that pace to limit the impact on their linear subscription revenue.

In its online video outlook, eMarketer observes that suppliers are toying with business models, including ad-supported streaming and pay-to-own services. The New Millennium Research Council encourages urgent attention to telecom network upgrades to handle future traffic levels of “real-time TV-quality video” to throngs of simultaneous users.

The confluence of consumers’ appetites for online video and supplier capabilities offers a great new opportunity for creators, advertisers, technology suppliers (production and reception as well as carriage) and delivery providers.

But the timing is a lot sooner than many people expected.