Monday April 20, 2009 – Antonette Goroch
Consumers have a voracious appetite for viewing video content on the Internet. No surprise there. Most of what they are consuming is free of charge, while the providers are supposed to be making money from selling advertising. But what happens when there aren’t enough advertising dollars to support on across-the-board “all you can eat for free” business model?
According to comScore/Media Metrix, Google’s ad-supported YouTube alone generates from 70%-90% of traffic in all world regions. While this clearly has fueled usage, it has failed to generate profits. Indeed, because of the high costs of servicing this bandwidth, Google is consistently operating YouTube at a loss. YouTube’s recent announcement that they will carry full length TV shows and movies from big name studios is an obvious attempt at generating more revenue through advertising.
DTC estimates nearly 400 million Internet viewers worldwide are streaming or downloading some 23 billion videos monthly. The largest concentration of viewers is in the U.S. with more than 150 million viewers. Not coincidentally, the U.S. also has the greatest number of content offerings available via ad supported, subscription and transactional business models. Usage in countries like the U.K., France, Italy, Spain, Japan and South Korea, is increasing exponentially.
Most of that content is made available free to the consumer. Although less than 1% of video streams/downloads are purchased directly by the consumer, there is hope for pay business models as DTC estimates that there was 20% growth pay services in 2008. Apple is the undisputed leader worldwide in premium/pay video downloads, but has more recently been joined by others such as Xbox Live, Amazon, Blockbuster, Netflix, and blinkbox.
It’s not clear how Internet video usage, free or premium, will affect the incumbent pay TV business. At the recent NCTA conference in Washington D.C., the largest cable operators seemed relatively complacent thinking of Internet video (i.e. over-the-top content) as a long term issue, rather than a near term threat. With Internet video providers already attracting hundreds of millions of viewers, pay TV operators may benefit from seeing the explosion of online video consumption as a near-term threat and/or opportunity. Anyone counting on a slowing of appetite for consuming TV and other online video entertainment might lose their seat at the dinner table.
