HD video is rapidly emerging as the next strategically important battlefield for online broadcasters. With demand for the highest-quality media viewing experience exploding, HD video is being rapidly adopted by both consumers and advertisers alike. The commercial potential of HD video is already making its presence felt. As consumers gravitate toward the best possible video quality they can reliably stream, broadcasters are confirming there's a clear link between spikes in viewing metrics and HD video. And where online audiences view, HD video-related revenue opportunities are set to blossom.
The immediate market potential of HD video looks impressive. Industry analyst Screen Digest projects that the total revenue opportunity related to HD video — including mobile gaming, video and TV markets — will be €8.5 billion by 2013 in Europe, Asia-Pacific and North America alone, with emerging markets in China, Eastern Europe, India, Latin America and the Middle East fuelling growth. With consumer demand for high-quality media experiences escalating, staying both relevant and competitive in terms of online audience viewing preferences is becoming a high priority for broadcasters.
Changing consumer behaviors
When it comes to entertainment, video quality is clearly a priority for consumers. According to a recent U.S. consumer survey, “U.S. Consumer Online Behavior Survey Results 2008, Part 1: Stationary Internet Usage,” from market researcher IDC, online video users rank uninterrupted viewing and high resolution at the top of their expectations list, with video window size following close behind. (See Figure 1.)
In July 2009, ARM Holdings, the global developer of microprocessor and graphics IP cores, confirmed a rapid growth of demand in Asia for mobile devices offering an HD entertainment and browsing experience, driven by the avaricious consumer demand for a high-quality experience.
Today's savvy consumers expect quick video start-up, high resolution and uninterrupted viewing, and in the race to win audience eyeballs, online publishers are responding to the growing demand for high-quality video delivery. Today's typical resolution for HD video currently stands at 720p at a 1.5Mb/s bit rate — a jump from an average of 480p in 2007 — with some providers already offering 1080p at speeds of 2Mb/s or more.
According to comScore, online video viewing is fast becoming a mainstream experience in Europe, with more than 84 percent of UK online users viewing a video every month. As a result, online broadcasters are boosting HD output and enlarging HD content libraries to capitalize on a groundswell of consumer demand.
Trend research conducted with attendees at the IBC2008 exhibition revealed that 82 percent of European broadcast organizations planned to offer HD video content online in the next 12 months, with 50 percent confirming that consumer demand for higher-quality video and the opportunity to attract new audiences with differentiated video experiences were the primary drivers for offering HD content online.
What's hot and what's not
Ubiquitous broadband availability and improved household Internet connection speeds are helping to drive online HD video consumption. Asia-Pacific is now the largest broadband market, accounting for more than 160 million subscribers, and is set to have 49 percent of the global market share by 2013, while in Western Europe, about 50 million households have adopted broadband in the past three years. Furthermore, higher than average connection speeds of 5Mb/s and up are already available in Hong Kong, Japan, the Netherlands, South Korea, Sweden and Switzerland, to name but a few countries. As a result, a growing number of households are now viewing video online.
No longer the domain of teenagers, an increase of online users are older, more educated and more affluent. These consumers don't just watch short-form videos such as news, sports, music clips and user-generated content. They want to view long-form premium content such as TV shows and movies, and services offering premium online video are both enabling and serving this change in consumer behavior.
An IDC study, “Consumer Internet Video Survey 2008,” says that watching TV shows online has become more popular than watching YouTube video clips. Increasingly, consumers want to view content on their own time schedule, and online video gives them the convenience and flexibility they seek. Parks Associates confirms that the ability to watch prime-time programming on-demand was a primary desire for consumers, alongside the ability to start over prime-time programming midbroadcast.
Such viewing preferences clearly benefit from high-quality video, as early results from an ongoing case study conducted by Canadian TV reveal. The study found a 50 percent improvement in average video viewing time, per unique daily visitor, for those watching the same episodic content in HD compared to those watching in SD.
While in the short to midterm most online video consumption is likely to take place on the PC screen, in the longer term, Web-enabled television will propel HD video streaming into the media mainstream.
The next big opportunity
The widespread penetration of household broadband access and escalating connection speeds, the availability of HD-capable TV sets, and the consumer adoption of home networks that provide a more reliable environment for viewing online video are all combining to make the consumption of HD video streams, via the primary viewing screen in the sitting room, a reality. The number of home network-enabled video devices also is burgeoning. (See Figure 2.)
This transition of video content to the living room will clearly boost online video consumption in general, and early viewing metrics from services that already distribute to televisions clearly indicate that consumers spend significantly more time viewing online video on the TV set compared with the PC screen. What's more, when it comes to consumer viewing preferences, premium long-form content tops the wish list. (See Figure 3 on page 12.)
For broadcasters, the ability to distribute to the living room combined with consumer demand for long-form content is likely to significantly increase the revenue potential and ROI opportunities afforded by HD video through one or both of its primary business models: advertising, where consumers are presented with advertisements that fund their viewing of free content, or a paid-for model, where consumers purchase a video or film to own, access it through a subscription or rent it.
HD video-related revenues will increase rapidly as the number of online video viewers expands. In the report “Economic Crisis Response: U.S. Internet Advertising 2008-2012 Forecast Update,” IDC estimates that in 2008, online video advertising (SD and HD) accounted for about €617 million in revenue in the United States. That's equivalent to more than 3 percent of the total online advertising volume and represents a growth of 74 percent last year. The paid-for segment, according to IDC's “Internet Video 2008-2012 Forecast and Analysis,” was worth about €843 million in 2008, and the market researcher forecasts this will increase by almost 70 percent in the next four years.
As the share of consumers' time spent watching online video rises, marketers will seek to follow the eyeballs and spend more on video advertising, while consumers themselves will spend more money on buying and renting online video content.
Advertisers are ready and willing to go HD, and they have steadily improved the quality of the video inventory of their online video ad runs and the video quality of the commercials themselves. In some industries — games and movies, for example — advertisers insist on HD video because their own products feature HD video quality and, therefore, can only be showcased in HD. Production costs for online HD video commercials are not an issue either, because these often feature repurposed TV commercials that are shot in HD quality anyway.
For advertisers, HD video advertising lives or dies by the quality of the video stream. Files need to start playing fast and need to run interrupted to achieve advertiser key objectives — getting more attention, improving brand and message recall, and achieving better click-through rates or enhanced purchase intent.
There are a number of factors that may potentially inhibit the uptake of online HD video. These include the costs of broadband access; the cost sof computers and other network-enabled devices; and the costs, interoperability and reliability of home-networking equipment. Bandwidth costs, however, look likely to continue on a downward pricing trajectory, making it increasingly feasible for online broadcasters to increase bit rates.
However, a potentially more significant barrier is the multitude of different file formats and codecs used by the industry and digital rights management, which can make it impossible for consumers to easily move content from one device to another, even if they are the rightful owner of that content. The time and storage costs associated with transcoding one master file into multiple file formats is a challenge for broadcasters that's likely to grow as the number of video-capable devices, such as mobile phones and personal media players, that need to be served continues to increase.
By far the greatest issue, however, is quality. Unreliable and choppy delivery of online video is a deal-breaker for consumers. Alongside high resolution and big windows, online video users want delivery without stoppages and are prepared to wait only less than 30 seconds before streaming video starts to play. Advertisers and ad agencies have similar demands.
To overcome intermittent degradations in service that result from concurrent high-volume streams or bottlenecks on the Internet at large, and to sustain the HD video quality and increased data volume needed to meet both consumer and advertiser requirements, broadcasters are using content delivery networks (CDN).
The introduction of streaming at variable bit rates (VBR) can also enhance smooth delivery and help make the HD experience more accessible to consumers. With VBR, video players can dynamically swap between pre-encoded streams based on the available bandwidth at any given time. This dramatically improves the user experience and ensures that broadcasters reach the widest possible audience without degrading delivery quality for users who access the Internet through slower broadband connections.
Capitalizing on the opportunity
HD video will increase its share of overall video usage as consumers move toward the best possible video quality. For this reason, more and more online video-related revenue is likely to become tied to HD as online video is adopted by both consumers and advertisers.
HD video will play an increasingly important role in driving audience reach and traffic, on the back of which will ride both advertising revenue volume and paid-for content sales. However, both consumers and advertisers will only adopt HD video if a high level of quality can be maintained, both in terms of the video image itself and the reliable streaming of that video. As a result, employing CDNs and VBR will be key for publishers when rolling out their HD video offerings.
Alex Gibbons is director of digital media Europe for Akamai Technologies.
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