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Short-form video dominates the Internet today, but when longer content finds a comfortable place online, traditional TV may have cause for concern
For all the talk of Internet video killing television, broadcast executives haven't seen much reason to fear. To date, the Internet has remained something of a vending machine to television's five-star restaurant. Its main fare—two- to three-minute news bites and user-generated shorts—is about as satisfying as a sugary snack. For real sustenance, Internet users are still turning to television's menu of long-form programming.
In September, Time Warner's (TWX) AOL and the Associated Press released a study of the online viewing habits of more than 3,000 Web surfers. Though more than half watched Web video, most consumed clips that were too short to compete for time with television. In fact, 52% of the respondents who watched online video reported that their Internet viewing habits didn't affect their television viewing, and 32% said they actually watched more TV after being enticed by show clips. Only 15% responded that Internet viewing had reduced their television consumption.
Though TV executives don't have to sweat the Internet immediately, they have cause for concern on the horizon. Over the next couple of years, users are bound to demand longer Internet video as impediments to watching high-quality content online disappear, say industry players. That's going to create more competition for television networks as Internet users have to choose between, say, watching a half-hour network show on air, watching a half-hour independently produced Internet show, or watching on-demand TV shows that normally wouldn't compete for that time slot.
Change Is Coming
Already, some sites are noticing a demand for longer-form Internet video. Lycos launched video and social-networking site Lycos Cinema on Nov. 13. The site, which primarily streams indie movies, captures a typical user's attention for more than 60 minutes, says Chief Operating Officer Brian Kalinowsky. "People are staying online for a long time," he says. "They will sometimes start a movie, watch for five minutes, and then, if they don't like it, turn it off and watch another movie. But they stay on the site."
Suranga Chandratillake, co-founder and chief executive officer of video-search engine Blinkx, also sees demand for longer online content. "I think there is no doubt that it is going to move to longer and longer formats," says Chandratillake. "Most users today are still looking for the short-form user-generated content, but there are three big things that will change that."
The first is the ability to stream high-quality pictures over broadband. Today, downloading lengthy shows generally takes too long for the Internet's I-want-it-now audience, not to mention the valuable hard-drive real estate such shows demand. Streaming content, particularly when the stream is long, often delivers picture or sound quality that's inferior to that on television. When expanded to full-screen view, for example, the content sometimes appears pixilated. Streams can also freeze if the connection isn't high quality or the server delivering the content is under too much strain. This problem is lessening as media companies invest in servers capable of handling more bandwidth and as Internet providers such as Verizon Communications (VZ) get better at delivering broadband content over high-speed connections.
Opening the Door
The second obstacle is getting the content from the small computer screen to the big home theater screens, which have proliferated thanks to low prices (see BusinessWeek.com, 10/4/06, "Big-TV Battle: LCD vs. Plasma"). Watching video for long periods is obviously more pleasurable on a large screen in a living room. However, quality can suffer when connecting a PC and television via a cable.
Companies such as Microsoft (MSFT) and Apple Computer (AAPL) are tackling this problem. Microsoft developed a media center PC and its new operating system, Vista, promises to help open the door to a wealth of broadband content. Apple is scheduled to release its iTV product, intended to wirelessly beam computer content to the television, in January (see BusinessWeek.com, 9/13/06, "Apple's iTV: Bridging the Big Divide").
The third roadblock is the limited availability of longer-form content online. Network TV stations are already solving this problem by uploading more of their prime-time shows and back catalogs online on ad-supported sites (see BusinessWeek.com, 10/11/06, "Click Here to Catch Up on CSI"). Web media companies like ManiaTV, which boasts 6 million to 10 million monthly users, depending on who is counting, are adding to that content availability with original, made-for-the-Internet programs. Shows are often longer than the user-generated clips on Google's (GOOG) YouTube and other video sites such as Metacafe, which is rumored to be in acquisition talks. Acquisition could make the site more competition for both YouTube and television. One live show, hosted by comedian Tom Green, often lasts more than an hour. "Content will get longer as long as there is some kind of interactive element," says ManiaTV CEO and founder Drew Massey, adding that he does not believe short form will go away.
Mulling a New Ad Model
Massey believes interactivity gives him an edge over traditional content providers moving into the space. As evidence, he notes his site has 31 advertisers, including Coca-Cola (KO) and Nike (NKE) that pay for everything from commercial spots to product placement in shows. Traditional content providers have advertising on their videos too, but they have yet to prove their ability to generate as much money from their online content as they do from their television content.
An Internet broadcast from a major network, for example, will typically have one ad in the place of normal station breaks. Television broadcasts often have two or more minutes of advertising in the same spot. The network can engineer it so ads must be watched in order to see the Internet show, but whatever extra it can charge for that can't account for the difference in number of advertisers.
That, plus the additional competition for ad dollars from players such as ManiaTV and other independent producers, provides lots of reasons for television to be nervous about Net competition. To fight back, some are suggesting that television adopt a new ad model for the Internet—one that is not governed by station breaks or confined to including ads before "pre-roll," or after "post-roll," clips. Gotuit Media, a company that provides software and extensive tagging services, offers advertising that can be targeted to points within a video. For example, an advertiser for a men's razor could pay for all spots after the bearded main character enters the picture. The additional targeting capability could enable content producers to charge more.
Closing the Gap
Another option could be to pin ads to an amount of time spent watching video on the site, rather than to specific content. That way, TV producers wouldn't need to worry about selling advertisers on specific shows. Instead, they could sell them on the ability to attract attention online, in general.
What they can't do, however, is assume that television is where most of the attention from audiences and advertisers will go, and that the Internet will remain for clips. Not when online video advertising is expected to grow 89% next year, compared to television's 2.1% growth. Internet advertising is expected to pull in $16.4 billion this year alone, of which video advertising will make up 2.6%. By 2010, the amount of online advertising could be as high as $26 billion, if estimates from Forrester Research (FORR) prove correct. EMarketer estimates that 11.5% of the total in 2010 will go to video ads.
The share may be a drop in the bucket compared to the $71 billion spent on television as a whole this year. Still, roughly $3 billion—the amount eMarketer expects video ads to generate by 2010—is hardly insignificant. And, as videos get longer, the ad dollars will grow larger.