While 2010 was a banner year for online video, it was also a year of missed opportunities.
Online video came of age in 2010.
- First and foremost, 2010 was the year of Netflix. With almost 20 M subscribers at the end of the year, it is closing in on Comcast which has 23 M subs. More than 2/3 of Netflix’s subscribers use its streaming service, with 3.5 M streaming during prime time on any given day. Clearly, mainstream consumers are watching online video!
- Internet connected TVs are becoming the norm. Over 100 M TVs (globally) are connected to the internet, mostly through gaming consoles. In addition, most OEMs are pushing Smart TVs heavily, and a variety of boxes (e.g. Google TV) that connect existing TVs to the internet are becoming available.
- Video quality issues are becoming a thing of the past. Companies like Conviva have made it possible to cost effectively stream HD quality video at scale (i.e. for millions of users) without buffering or other quality issues. Millions of people watched the Soccer World Cup in South Africa online. I watch Netflix movies on a 55” LED HD TV (with a Wi-Fi connection) without any issues at all.
However, content availability continues to be an issue online. Content owners are rightly concerned about replacing analog dollars with digital pennies. Yet 28% of US consumers say that they are considering cutting the cord, and HBO recently reported a decline in subscribers in the same year that Netflix doubled its subscriber base. Doesn’t it feel like they (content owners) are plugging holes in the dam with their pinkie fingers ?
Content owners should instead take embrace online video and work with players in the ecosystem to develop a viable business model.
- Content owners should aggressively make all their content available online.
- Free-to-air (FTA) channels like CBS and ABC should take advantage of the online medium to establish a direct relationship with their consumers. FTA channels should make all their shows available online (for On Demand streaming) on their web properties. In fact, they should aggressively resolve content rights issues and release their entire archives on-line. In addition, FTA channels should make it easy for content distributors like YouTube, Netflix, Joost, Hulu and others to syndicate their content while maintaining control over the advertising rights (see below for details)
- Premium channels should offer on-line only subscriptions, similar to Netflix’s streaming only offering. There is a risk of cannibalizing existing revenues, but if they don’t, then they also run the risk of becoming irrelevant.
- In order to effectively monetize their content through this transition, content owners need to be able to manage the advertising rights associated with their content irrespective of where it is viewed. For example, content owners need to bundle on-line inventory (across distributors) with TV inventory and ensure that “exclusive” rights are honored on0line. In order to do so, content owners are working with vendors like FreeWheel to put in place advertising rights management platforms and integrate ad operations across online and linear TV
- While online video distribution has its challenges, it also offers content owners and advertisers a host of new capabilities. Content owners can offer a broader variety of ad formats, superior targeting/ tracking and potentially a more engaged audience. For advertisers, online video enables them to improve the efficacy of their advertising by:
- Enabling more targeted advertising. Today, most advertisers focus excessively on reach, and not enough on audience segmentation. How often have you see TV ads that you thought were utterly irrelevant? With on-line video, Pampers can target moms with young kids while Lipitor can target middle aged men, both of whom might watch Greys Anatomy
- Customizing creative/messaging. On-line video allows advertising to add a “call to action” based on location, serve up different creatives to various audience sub-segments, or even change the creative based on where an individual user in in the sales funnel
- Blurring the line between advertising and content. TV artificially constrains advertisers to produce 15, 30 and 60 second spots. On-line, advertisers can offer longer form videos, or provide links to infomercials within traditional 30 second spots. On-line video enables advertisers to engage and build a relationship with interested consumers (also likely buyers) while maintaining a respect distance with others
Advertisers are not standing on the side lines. Several well know brand advertisers have taken the plunge and moved substantial budgets on-line. Some even talk about moving 100% of their budget from TV to online. Managing this transition is hard though. Harnessing the power of the medium requires a technology platform like TubeMogul to track where they place ads, analyze how consumers engage with those ads and then make decisions around creative and media buying based on that data.
The transition to online video is challenging for content owners, yet inevitable. At the same time, by making advertising more effective and accountable, this transition has the potential to increase total (TV+ online video) ad spend. I guess, the real question is which content owners are going to say, “fortune favors the bold”, and take the plunge!
PS: Through Foundation Capital, I am on the board of/or involved with Conviva, TubeMogul and FreeWheel