Online video: Eyeballs and social networking to turn into ad revenues and stickiness in 2008
Posted by Mark Newman
January 11th, 2008
The explosion of mobile video on the Internet and the rise and rise of social networking was the biggest single story in the communications sector in 2007. There’s no reason to believe that growth will not continue apace in 2008/ But the big breakthrough that Internet firms and telcos alike are waiting for is the discovery of a business model that supports the colossal traffic burden that they are having to bear. This piece of analysis from our Broadband Editor Rob Gallagher looks at the merits of some of the different business models that are likely to come to the fore in 2008.
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The online video market exploded in 2007, with 230 million, or a quarter of all Internet users, visiting the website of market leader YouTube in October. This growth has been matched by a rise in the number of services available, as other Internet startups, major broadcasters and consumer- electronics giants have entered the market with an array of novel models.
For even the most established providers, 2008 will offer the first indications of which models will prove commercially viable. A key area of interest is advertising, which several providers hope will bring in enough revenues to support their bandwidth- hungry free video services. Bob Ivins, an executive vice-president of research firm ComScore, likens today’s online video providers to website owners in the mid-1990s and their experiments with banner advertising: there’s no doubt that online video is popular, but it is not clear how to profit from it.
A number of leading providers are openly experimenting with new advertising models. YouTube this month launched a programme that offers the most popular and prolific posters of content to its site a share of the revenues from adverts placed next to their videos.
“Those partners who are regularly producing videos with over 1 million views are earning several thousand dollars per month,” the Google-owned company says of a 100-user pilot launched earlier this year. YouTube expects to sign up “several hundred user partners” in the coming months, through which it says advertisers will be able to target a more relevant audience for their products.
Joost, a peer-to-peer-based streaming service still in beta, has been showing adverts from more than 30 major brands, including Coca-Cola, HP, Intel and Nike, in between programmes since May. The venture-capital-backed startup, which was founded by Skype’s creators, did not return requests for an interview on its progress and plans.
Babelgum, a startup backed by FastWeb founder Silvio Scaglia, provides an insight into the targets ad-funded providers may need to meet. Valerio Zingarelli, Babelgum’s CEO, says the service will have to attract “no less than 1 million” users shortly after its planned spring commercial launch in order to prove attractive enough to advertisers.
Telecoms operators are also trialling ad-funded online video. At the end of last month, UK incumbent BT began offering visitors to its BT Vision Download Store website the chance to rent certain films free in exchange for sharing their demographic information. This information is used to show viewers targeted adverts from auto club RAC, Norwich Union, the Territorial Army and others while they watch the films.
Video 2.0
Many also plan to build their businesses by taking advantage of other “Web 2.0″ trends, such as social networking and open application programming interfaces (APIs).
Babelgum is undergoing a major overhaul that will see the startup’s service become more like popular Internet portals and tools than traditional TV and video platforms. This would appear to be an effort to outdo Joost and YouTube, which already let users create their own channels and share videos with friends.
Social networking is also on the agenda of iPlayer, the BBC’s online video service. The UK public broadcaster is understood to be planning to allow iPlayer users to create their own channels and share their viewing interests in other ways, starting in 2H08.
The potential of combining online video with community has not escaped the attention of the web’s social-networking incumbents, however.
Earlier this year, Facebook and MySpace launched YouTube-like video-sharing services that members of the social- networking sites can integrate into their profile pages. And last month Bebo launched Open Media, a service that enables its members to create “personal video profiles” using videos from major content providers, such as CBS, MTV, the BBC, Yahoo and ITN.
Both those with online-video or social-networking origins are putting some store in open APIs, which allow developers to knit elements of the providers’ services into their own websites and applications.
YouTube launched an open API earlier this year and was followed by Facebook and Joost this autumn and Bebo this month. Babelgum plans to launch an open API in the second half of next year.
Joost has provided an indication of how online video providers might use the strategy to attract advertisers. Coca- Cola last month released the first commercial “widget” for Joost. The Coke Bubbles software component enables users to post comments on specific moments in video content, which others can see when they watch the scene.
Multi-platform moves
Many online video providers are also moving beyond the PC-based web to make their services available on TVs, portable media players and other devices.
YouTube can already be viewed on a TV via Apple’s Apple TV home-networking device, Users of online retail giant Amazon’s Unbox service can download video bought from the service directly onto TiVo personal video recorders. Likewise, customers can access US online video-download and -streaming service CinemaNow via a range of special broadband- enabled TVs from computer manufacturer HP.
A number of consumer-electronics manufacturers are coming from the opposite direction. Microsoft this month introduced film downloads for its Xbox 360 video-games console in the UK, Canada, Germany, France and Ireland, following the launch of a similar service in the US in November 2006.
Sony, meanwhile, is reportedly planning to put an online video feature in the latest instalment of its Gran Turismo auto-racing game for its PlayStation 3 (PS3) console that will enable users to buy related documentaries, digests and other programs.
It is not clear how successful these attempts to use the open Internet to bypass traditional TV and video-on-demand will be. Steve Jobs, CEO of Apple, reportedly admitted earlier this year that Apple TV was a “hobby” compared with its three main businesses, the Mac, the iPod and iTunes. He estimated that the current addressable market for bridging the gap between online video and the TV set could be just hundreds of thousands of users.
Many players are taking a less confrontational multi-platform approach. Sony last month announced that Korea Telecom’s IPTV service would be accessible via the PS3, while operator users of Microsoft’s Mediaroom platform can extend their IPTV services to the Xbox 360.
The BBC, meanwhile, is planning to extend the iPlayer to conventional TV services starting with Virgin Media’s cable-based platform around the turn of the year. A growing number of online video providers are also white-labelling their content for use on IPTV and other platforms, says Annelise Berendt, a senior analyst at research firm Ovum.
Perhaps the elephant in the room is a collaboration between Google and BSkyB announced last December. Web-advertising giant Google, through its ownership of YouTube, is by far the leader in online video, while BSkyB has considerable experience in traditional TV advertising. So far, the arrangement has seen Google provide its user-generated video, e-mail, search and targeted-advertising tools to customers of BSkyB’s broadband service. The longer-term goal is to merge the two’s web and TV advertising platforms.
