Ads growing with broadband speed
Bigger files draw more viewers; video spots likely to top $1 bilPart One: Web video attracting broad band
If you need evidence for the recent boom in online video streaming, take a look at Akamai Inc., a company that delivers as much as 20% of the Web's traffic each day.
At its Web site, visitors can see a snapshot of what's happening on the Internet each day. One day last week, for example, 728,892 people were downloading music files every minute worldwide. At one real-time moment last week, 671,280 people were enjoying rich media, much of it video, simultaneously. And those numbers don't include files that Akamai isn't involved in delivering.
The explosive video growth trend is clear during recent months. In November, Akamai recorded peak moments of rich media streamers at a rate of about 565,956 per minute, while last month it grew to 974,296 each minute during peak times.
The two major trends in broadband video, according to Tim Napoleon, a product line director at Akamai, are bigger files and more people watching them. As for the former, file sizes used to be about 300 kbps and would typically fill a quarter of a computer screen with video. Nowadays the more usual is full-screen video at 700 kbps.
"Four years ago it was a challenge at studios to do something as simple as a movie trailer online," Napoleon said. "Now you can see a full-length episode of 'Heroes.' "
And better online video is coming quickly. While Leichtman Research Group said 70% of all U.S. Internet users surf via broadband connections, these broadband connections aren't nearly as fast as they could be. Japan, for example, enjoys Internet connection speeds many times faster than those used by Americans.
Plus, regarding video on the Internet, Napoleon said the great news is that "there's a business model in place with ad servers. That wasn't true a few years ago."
Online advertising, according to the Interactive Advertising Bureau, grew 26%, to $4.9 billion, in the first quarter compared with the same frame last year. By some estimates, online video advertising -- now proving its worth -- will account for $1 billion next year and explode from there.
Media analyst Mike McGuire of Gartner Inc. said Apple Inc.'s Apple TV and TiVo Inc. are correctly taking a measured approach to moving broadband content to TV screens. "It's as much research as anything else," he said. "They're being smart to get it out there and gauge the response."
According to a report from Wall Street firm Bear Stearns, 33% of Internet users would prefer to watch online video content on their TV sets, while 21% said they don't like watching videos on their computer screens at all.
While no one denies the popularity of online video, important questions remain: How will it benefit, or hurt, major entertainment companies? Which revenue models are likely to succeed? And is user-generated content simply a fad? Bear Stearns addressed each of these issues in its report.
User-generated content is here to stay, Bear Stearns argues. The firm said that user-generated content, both the video and text variety, made up no more than 1% of the content on the Internet in 2004, but now makes up at least 13%.
But more content also could lead to frustration as consumers fumble through disappointing videos.
Therefore, Bear Stearns concludes: "In an era of theoretically infinite video choice, the greatest value can be created not by producing content but by solving the paradox of choice and connecting users' individual interests with the vast supply of content."
That's exactly what Steven Spielberg, Ron Howard and their partners were thinking when they founded the ill-fated Pop.com. But it's only one reason why video repositories like YouTube and others are so popular, the other being the quirky user-generated content itself.
According to Bear Stearns, 77% of Internet users call repository sites of all kinds of video their preferred method for seeking video content. That's tied for best with links that are forwarded by friends. And it's better than the 57% who said a search engine is their preferred method or the 54% who prefer such a major media outlet as MTV.com or ABC.com.
As for that pesky problem of monetizing online video, Bear Stearns said that, while paying a la carte or via subscription for content isn't appealing to consumers, they don't mind 15-second commercials tacked on to each video, especially if the ads are for something interesting to them.
On the downside, Bear Stearns sees possible trouble for media conglomerates because of the migration to online video. Excluding Time Warner because of its AOL unit, big media companies get only about 2% of their revenue from digital initiatives, the firm calculates.
"Even assuming 20%-plus annual growth in this revenue stream over the next five years, this figure would rise to only about 7% of total sales," according to the report. "The risk is that core revenues decelerate faster, which is what has happened with newspaper companies."