Video On The Web

Loretta HoDecember 13, 2004

Fordham Business School

Introduction

Over the past several months, video on the web has become something of a

phenomenon. Streaming media has become a mainstream media format accessed by

millions of people daily. The growth in the number of videos streamed has exploded in

the last year alone. In fact, in 2003, the number of videos served/streamed was 7.87

billion, up 104% (See Table 1). In the first half of 2004, that number was already at 5.6

billion streams served.1

Table 1.

Most of this streaming growth took place on several selected big aggregator

platforms, such as Real Networks, ESPN (including Motion downloaded streams) AOL

1999

2000

2003

2004

2005

2006

2002

2001

and Yahoo. The proliferation of broadband access has also had a huge impact on the

growth in the number of video streams. Broadband streams made up 78% of total

streams accessed/served in 2003, up from 63.8% in 2002 (see table 2). As broadband

becomes more ubiquitous, streaming video and video advertising is becoming a more

viable solution to stagnant content. Improved quality and better delivery has also helped

make video advertising the most recent darling of online advertising.

Table 2.

Types of Streaming Media

There are several main ways to deliver streaming media using differing

technologies. The most common is streaming video on demand. A video will start

playing if it is called up when a page is loaded (advertising) or if a user specifically

requests the content (new, sports, entertainment). This is very convenient for the user

since they can view the requested document without having to wait for the entire clip to

download and videos are generally available on demand from the web site. It is also cost

effective for the content providers since they only have to pay for delivery of content that

is requested by a user. However, the video quality can suffer due to bandwidth

limitations and other factors. The use of buffering technology can cause hiccups and

pauses in the playback. While quality has been steadily improving, it is still not to the

point of television-like quality.

Another popular type of online video is the live webcast. Live webcasts use the

same type of buffering technology as streaming media, but the content is delivered live.

In other words, the user will be able to view content in real time. The benefit of live

webcasts is evident for content such as breaking news or coverage of an event. Here, the

video quality is often slightly worse than streaming video due to smaller buffers.

One of the latest methods of delivering video is through pre-caching. With this

method. the user will download a program that allows the content provider to pre-load

video onto the users hard drive during off-peak hours. Once the download is complete,

the user will be notified and be able to watch the video. The value of this type of service

is that the video quality is television quality since the entire clip is loaded onto the hard

drive before it is played. There are no gaps in the stream and the clarity of the picture is

comparable to television. On the down side the content provider has to pay for the

delivery of content that might not be consumed.

Popular Content Categories

Over the past several years the viewing pattern of online video has remained

fairly constant. Music videos, news and sports clips continue to be the most popular

content categories on a monthly and yearly basis. Of the total of 5.6 billion streams

served during the first half of 2004, 1.86 billion, or 33.2% were music videos. Slightly

over 1 billion (18.2%) were news and information videos. Approximately 17% were

sports videos, which includes download and embedded and or pre-cached video

applications such as ESPN Motion2 (See Table 3).

Yahoo!’s Launch is one of the most popular sites to view music videos. The

Launch site at Yahoo! has attracted almost 6.7 million Unique Visitors each month over

the past year.3 Launch streamed 200 million music videos in May to free and for-pay

consumers. Yahoo!'s Launch music service is a popular and frequently cited destination

of marketers and a popular venue for broadband video advertising. Overall, Yahoo!

counted 5.8 million fee-paying customers as of March 31 who subscribe to services such

as hosting, extra mail storage, LAUNCHcast Plus and others.4

News is also a consistently popular category for online videos. More and more,

traditional news outlets are producing news content specifically for an online audience.

CBSNews.com launched an online edition of the Evening News in September of 2004.

This shortened 7-8 minute clip features Dan Rather summarizing the day’s news and is

written and produced explicitly for the web site. The daily clip is available for free to all

users. In October, Gallup.com also launched a free daily newscast to talk about the

company’s latest polling data and what it reveals about current events.5 Even local online

newspapers are getting into the action. Delawareonline.com has debuted a twice-daily

online news webcast focusing on breaking news and top stories.6

1 Accustream iMedia Research: Streaming Media 2003: Brand, User and Audience Share Analysis2 Accustream iMedia Research: Streaming Video Viewing Share: 1999 - 2004 YTD: A Content Category Analysis3 Nielsen//NetRatings, October 20044 Elkin, Tobi. “Big Three Move On Broadband Video Sales.” Media Daily News 16 June 2004 <http://www.mediapost.com/PrintFriend.cfm?articleId=255589>

The next most widespread types of content are sports clips and film. Included in

the sports category is pre-cached video, which is used heavily by ESPN. Examples of

sites that offer film clips are iFilm.com and AtomFilms.com. Whereas AtomFilms.com

has original short films, iFilm.com aggregates film and television clips into one space.

One of their most popular segments is the viral videos section, which contains popular,

talked about clips.

Table 3.

The content for live webcasts is slightly different from the streaming media

offerings. The programming for live webcasts has also been expanding into new areas.

Where it was once the territory for news, entertainment sites are beginning to create live

shows to be streamed online. Breaking news and coverage of events, such as the Scott

Peterson verdict draws large amounts of viewers who want to be involved in watching

live news but may be at work and not near a TV. The live webcast has also become

5 Walker, Leslie. “Gallup Poll Moves Online With Webcast.” The Washington Post 10 Oct 2004 <http://www.washingtonpost.com/wp-dyn/articles/A19290-2004Oct9.html?nav%3Drss_technology&sub=AR>6 “'News Journal' Launches Twice-Daily Local Webcast.” 18 Oct 2004 <http://www.editorandpublisher.com/eandp/departments/online/article_display.jsp?vnu_content_id=1000673723>

popular for business uses including training sessions and viewing investor relations

meetings. Many large companies now offer a live webcast of the investor relations

meeting for those who are unable to attend in person.

The market for Internet TV rose substantially in the first half of 2004, to a 14.5%

viewing share (up from 6% in 2003) on the strength of cross platform programs such as

Survivor and Big Brother, but also AOL for Broadband offering broadcast network

previews for shows such as Jack and Bobby.7 House Calls was an Internet Talk Show

about Big Brother 5 produced just for CBS.com. Based on the success of the format,

CBS.com currently produces a similar show regarding Survivor: Vanuatu and plans to

continue the effort.

Disney has pioneered applications for the pre-loading of videos onto the hard

drive with the invention of ESPN Motion. Video and other data is streamed in bits,

downloaded, and then played automatically whenever the application is opened. The data

is replaced when the content is refreshed. Downloads avoid the quality issues by pre-

caching the video onto users' hard drives. For this reason, Disney, Sony Pictures Digital

and Universal Pictures have opted to preload content onto users' machines with their new

services. However, pre-cached video is also by its nature less immediate. For example, a

sports junkie wanting to see a replay couldn't get that clip with pre-downloaded sports

highlights. Despite its negative attributes, ESPN has seen such success with its Motion

service, that ABC (a Disney company) launched its own Motion services shortly

thereafter. In fact, ESPN estimates that about 1.6 million people have installed Motion

and about half that audience (800,000) watch clips daily.8

7 Accustream iMedia Research: Streaming Video Viewing Share: 1999 - 2004 YTD: A Content Category Analysis8 Olsen, Stefanie. “Disney to 'push' ABC over the Net.” CNET News.com 12 June 2003 <http://news.com.com/2100-1025_3-1016486.html>

The Growth Of Online Video Advertising

With so many people watching videos online it naturally follows that online video

advertising has also experienced an explosion. Analysts have proclaimed video to be the

latest rage in Net advertising, representing 11% of online spending. Online video

advertising spending is projected to rise to $657 million by 2009 -- five times this year's

spending level ($121 million) (see Table 4).

Table 4.

One of the reasons for the growing popularity of videos ads is that video ads can

get CPMs as high as $65. This is compared with rates as low as $1 to $5 for standard

banners. While this is obviously beneficial for the content provider in terms of revenue,

there are advantages for the advertiser as well. While the average click through rate for

banner ads is 0.5%, the average click through rate for a video ad is much higher, at

around 4% (See Table 5).

Table 5.

2.38% - 7.43% 5.05%Interaction rate

1.68% - 7.28%4.02%Click-through rate

14 - 31 seconds18.04 seconds

Ad Display Time

RangeAverage

2.38% - 7.43% 5.05%Interaction rate

1.68% - 7.28%4.02%Click-through rate

14 - 31 seconds18.04 seconds

Ad Display Time

RangeAverage

Source: Unicast Format Norms

Additionally, the consumer response to video commercials has been extremely

positive, especially compared to the attitude towards interstitials, pop-up and pop-under

ads. According to research conducted by Dynamic Logic on behalf of Unicast, only 27%

of consumers found online video commercials to be annoying. This can be compared to

78% of consumers who are annoyed by pop-ups (source: Gartner) and 38% who find TV

commercials to be annoying (source: Harris).9

Table 6.

Brand impact of video commercials has also been shown to be far more effective

than standard online ads across several different measures (See Table 7). Message

9 Unicast Video Commercial Final Report, April, 2004. Conducted by Dynamic Logic

association, brand awareness, purchase intent and brand favorability all show over 50%

lift for video commercials. This is far more successful than traditional online ads, whose

lifts are only between 6-24%. This translates to videos ads having roughly 10 times more

lift for each measure.

The success of video ads has been a boon to many content providers and several

media companies have begun to sell integrated advertising packages in the traditional

broadcast network up-fronts. According to AdAge, ESPN has had success selling video

ads to big clients, such as Gatorade and Lexus as part of the TV upfront. The three

biggest online sellers; Time Warner's America Online, Microsoft Corp.'s MSN and

Yahoo! have also been pitching broadband video offerings as part integrated deals in

conjunction with marketers’ upfront broadcast media buys.10

Table 7.

10 Elkin, Tobi. “Big Three Move On Broadband Video Sales.” Media Daily News 16 June 2004 <http://www.mediapost.com/PrintFriend.cfm?articleId=255589>

Despite all the advantages that online video ads have, there are still many

challenges that may hamper the mass adoption of video ads. First, there is a shortage of

slots for video commercials. Due to their large audiences, advertisers are competing for a

limited amount of spots on major portals like MSN and Yahoo!. Marketers believe that

the audience is too small on other sites to make video advertising worth the investment.

Another major concern is the ability to obtain reliable metrics on the efficacy on reaching

potential customers. Right now, different companies use varying methodologies to track

the effectiveness of video ads and no one standard exists.

Other concerns include ability to optimize online video advertising performance

across different platforms and connection speeds. This is a problem because while many

video watchers have broadband connections, dial-up users should not be discounted just

yet and video providers should have an option for these users. In addition, marketers will

need to determine and be able to control the frequency with which video ads should play

as to avoid annoying the consumer. To this end, video ads should also include a “skip

this ad” feature, yet this will lower the number of ads served and seen. Table 8 provides

other reasons that US marketers are reluctant to buy online video advertising.

Table 8.

Despite concerns over the current viability of online video and online video

advertising, it is clear that it is becoming the next big thing on the Internet. Many big

media companies have recently shown their commitment to online video by launching

video exclusive sites. MSN launched MSN Video in January 2004 and it has already

been a huge success. In less than a year, MSN Video has started serving an average of

one million streams a day, with about 5 million visitors a month. AOL is following suit

by introducing a free, ad-supported video service, AOL Video.11 The new services will

feature on-demand video entertainment, with advertising spots similar to those on

broadcast television. Some clips will be freely accessible over the Web, while others will

be available only to AOL members. AOL expects to create and audience of 100 million

or more per month for all three video services together. While this is an ambitious goal,

AOL believes that its top programming will be able to attract the mass audience it

desires. Their strategy involves playing up the content and programming ties it has to a

media conglomerate parent, as well as its links to Hollywood to obtain compelling

content for its video services.

MSN, AOL and Yahoo! all expect broadband to continue its exponential growth

and are thus preparing for expected consumer demand for video. They believe that there

will be more and more consumer and advertiser demand for a more TV- like experience

on the Internet. In the end, the goal for all three media companies is to attract an

audience large enough to draw in big advertising dollars. With audience sizes becoming

closer to mass-market audience sizes like TV draws, advertisers will have fewer reasons

not to divert advertising dollars online.

11 Olsen, Stefanie. “AOL cues up free video.” CNET News.com 19 Nov 2004 <http://news.com.com/2102-1024_3-5460390.html?tag=st.util.print>

Conclusions

The future of online video holds many exciting opportunities, such as peer-to-peer

video file sharing and transferring videos to mobile devices. Currently, much of the

video online is promotional in nature (Internet TV shows, short film clips) so there is not

that much concern over piracy, but as more exclusive content is made available online,

we can expect piracy concerns to increase especially with P2P video file sharing on the

rise.

It is clear that with the growth of households with broadband connections and

improving video quality, video clips and video advertising is quickly becoming

ubiquitous online. Consumers are demanding a more TV-like experience online, a

natural extension of the belief that a person can get anything on the Internet. The major

media conglomerates have recognized this trend as the future of online entertainment and

have accordingly integrated video into their online properties. As these major portals

accumulate mass-market sized audiences, advertisers are scrambling to secure online

video advertising spots. There is no denying that online video has arrived and is here to

stay.

Endnotes