european online video strategies in an economic downturn

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ExECUTIvE SUMMARyDemand for online video continues to rise among Europeans, especially given a challenging economic climate in which free content will become even more popular. Content owners and media companies must seize the opportunity to engage with this audience by making their offerings more compelling in terms of both content and user experience. Direct monetization is still nascent and will remain so in the midterm due to the economic downturn. However, rapid advances in the technology for filtering, serving, and syndicating content will accelerate this market, while helping drive users to existing revenue streams such as DVD sales. Companies must innovate to gain market share now and to build foundations for future revenue growth once the economy recovers. Those that retrench now risk losing their audience to pirate sites.

EuropEan DEmanD for onlinE ViDEo ContinuEs to Grow

Our recent consumer survey confirms that online video is continuing to grow in popularity in Europe, even though the amount of time spent watching it remains a fraction of the amount of time spent watching TV (see Figure 1). However, Forrester expects this to grow further in 2009 as the rollout of legitimate long-form streaming video sites — following in the footsteps of NBC Universal/Fox joint venture Hulu and the BBC’s iPlayer — encourages both increased take-up and greater amounts of time spent watching content. Fuelled by a shift to free home-based entertainment — as the economic downturn forces users to review discretionary spending on the likes of cinema trips and pay-TV subscriptions — online video consumption will continue to rise.

· Some 115 million Europeans will be watching online video in 2009. The rapid growth of online video consumption in Europe in the past two years will continue — with 46% of European Internet users accessing video online in 2009, up from 30% in 2007. As a result, Forrester believes the total number of hours spent watching online video in Western Europe will rise from 5 billion in 2008 to nearly 9 billion in 2009.

· The increased availability of long-form content is driving time spent watching online video. Short-form video sites like YouTube still dominate the market, but the success of free, legitimate catch-up services such as the BBC’s iPlayer — which now receives more than 1 million program requests daily — along with the continued appeal of pirated TV and movies from file-sharing networks has driven the viewing of longer-form video online. This in turn has helped increase the amount of time users are spending watching video online each week.

· Ninety-nine percent of video viewed online will be free. Only a minority of European users will pay to watch video online (see Figure 2). Moreover, even viewers willing to pay will predominantly

February 5, 2009

European Online video Strategies In An Economic DownturnWhy Now Is The Time To Innovateby nick thomaswith Mark Mulligan, Tushi Banerjee, James L. McQuivey, Ph.D., Bobby Tulsiani, and Nate Elliott

© 2009, Forrester Research, Inc. Reproduction ProhibitedFebruary 5, 2009

2European Online video Strategies In An Economic Downturn For Consumer Product Strategy Professionals

watch free video. Out of the 3 billion hours of online video consumed in Europe in 2007, paid-for content accounted for less than 0.5% of the total hours consumed. Although that grew to 35 million hours in 2008, it still represents just 0.7% of total video hours consumed. Moreover, while European Internet users want online video, only 16% of them are willing to pay directly for it, and the “ad-supported” model is not yet proven.1 However, media companies that do not embrace this reality risk losing their audience and future revenue prospects to pirate sites.

Casual piraCy tHrEatEns tHE futurE monEtization of onlinE ViDEo

In an introductory video shot for the Monty Python channel on YouTube — launched in November 2008 — members of the Python team address a key motivation for content providers: They want fans to see the original content rather than a poor-quality user upload. Their mock indignation about giving it away for free doubtless echoes many media executives’ concerns, but the reality is that fans will now find and share the digital content they want to see online. Owners of premium content like primetime sports broadcasts are right to police the Web, using companies such as NetResult to preserve the value of their TV deals. However, most owners of archive content should ensure that users can access at least some of the original, authentic version online for free. Such a policy can generate revenue streams not just from advertising but also related merchandise, such as DVD sales.2

· Pirates are not all young male adopters. While 29% of European male Internet users aged 15 to 24 file share video content, 21% of their female peers now do so, too — up from 16% in 2007. Thus, online video file-sharing has achieved critical mass among both genders in the core young audience. As long as demand outstrips supply and attractive alternatives from legitimate content owners are lacking, pirate sites will continue to attract these users. Content owners and media sites must compete with this threat by offering not just the content that users seek but also something more: reliability, authenticity, and a great user experience.

· Illegal streaming sites could make casual piracy a mainstream activity. Twenty-eight percent of Europeans who watched online video in 2008 accessed video content from file-sharing sites.3 However, as streaming takes over from downloading as the preferred model for accessing content from both legitimate and illegal sites, casual piracy could flourish. Sites such as iPlayer have educated a new audience of online video users about the benefits of streaming long-form content. This audience may be attracted to content offered by a new generation of illegal streaming sites that do not require downloads of P2P software.4



figure 1 Online video Watching Is Growing But Is Still A Fraction Of Overall Media Consumption

Source: Forrester Research, Inc. 48095

0%

15%

30%

45%

60%

2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009 Germany UK France Europe

Percentage of

Internet users

Base: European online users

Source: JupiterResearch Activity and Paid Content Model, Q3 2008

Free-only video audience

Paid video audience

figure 2 Despite Strong Growth, Europeans Will Predominantly Watch Free Online video

Source: Forrester Research, Inc. 48095

“Thinking about your use of (information/entertainment) media and communications channels, on average, how many hours per week do you conduct each of the following activities?”

Weekly mean hours spent on each medium

2005 2006 2007 2008

TV

Internet

Online video

0

3

6

9

12

15

Base: European online users

Source: JupiterResearch/Ipsos Consumer Surveys, Q4 2005 to Q4 2008



nEw mEtHoDs EmErGE to protECt, DistributE, anD monEtizE onlinE ViDEo ContEnt

While YouTube has more or less defined the online video space and remains the world’s leading video Web site, investors are now questioning its strategy of building an audience first and monetizing it later. The company is rightly continuing to innovate: With advertisers uninterested in user-generated content, YouTube is now focusing on stepping up the quality of its content offerings, both via the implementation of high-definition (HD) picture quality and better audio — a bugbear of non-professional content. And while experimenting with different ad solutions, the site continues to forge new content partnerships, including longer-form TV and even full-length movie content. The online video market is moving forward rapidly in a number of ways:

· New-style distribution embraces and monetizes pirated content. YouTube’s Monty Python channel is a great example of top-notch, professionally created content being repackaged and made available using the site’s Video Identification Beta system. This identifies all the rights-protected material; when it detects content via the “video fingerprint” rights, holders can either block it or allow advertising next to it. Video ID can even replace poor-quality clips with the sanctioned official version. Advertising revenues are split between the rights holders and YouTube, but the initiative can drive more traditional revenue streams, too. YouTube has pointed out that following the launch of the Monty Python channel, UK DVD sales on Amazon.com alone increased by more than 23,000%.5

· New-generation video platforms help content owners add value to their site. Content owners that have faced the dilemma of “build or buy” when planning their online video strategies now have a more acceptable solution via the latest generation of video platforms. Brightcove, for example, has created an ecosystem of partner companies that have built offerings on the platform’s API. This allows clients to access and integrate a wide range of features and tools to ensure that their Web offering is compelling for both viewers and advertisers.

· Continued growth provides the scale online advertisers need. The prospects for monetization continue to improve on the advertising side, not least because ad servers need scale to really work well. To leverage the targeting capabilities of ad servers — which can drive better performance and higher prices — you need lots of users and lots of advertising inventory in the system and, ideally, lots of advertisers, too. So with more users watching more video and more sites accepting in-stream ads, the potential inventory for in-stream ads is growing quickly — and with more advertisers buying video ads, there are more ads as well. All of this means that the publishers and the ad servers can do a better job of targeting the right ads to each user or each piece of content.



R E C O M M E N D A T I O N S

“stiCk witH it; tHErE may bE monEy to bE maDE”

Such is the advice from Michael Palin in the Monty Python youTube clip cited above, a tacit acknowledgement that although monetization models are nascent — as online video consumption grows — rights holders and media companies must continue to deliver content to wherever their fragmenting audience wants it. Companies not committed to Web-based delivery of video content risk losing audience share to pirate sites, and no content owner ever made money without an audience. The market is moving quickly, and to maximize the opportunities for success, companies must actively seek out partners that can help them develop their offerings. Those that retrench — hoping to hibernate until market conditions improve — risk turning into the Black Knight from Monty Python and the Holy Grail, who insists on his own invincibility, even as he loses all his limbs in battle.6 To avoid a similar fate, companies in this space must follow several tenets:

· Don’t retrench; innovate. Companies looking to engage an audience with online video must continue to innovate with the content itself and with the user experience around it. Companies should follow the lead of Apple, Dailymotion, and youTube in offering HD-quality images online, for example. They should also expand the range of content they offer online — i.e., full-length Tv shows and movies alongside clips and shorter Webisodes — and pursue syndication partnerships across different sites and platforms, including games consoles and smartphones, to maximize the reach of that content. And adding more social features, as both BBC iPlayer and ITv in the UK are planning to do in 2009, will move the game on further.

· be pragmatic: follow your audience. Successful video initiatives, such as those outlined above, demonstrate a new pragmatism appropriate to both a digital universe and a tough economic climate. They also demonstrate the importance of effective partnerships with both content and technology partners. Go where your audience is and aim to benefit from the reality of multiplatform consumption, rather than trying to control the space.

· use video as part of a compelling user experience to counter piracy. you can’t eliminate the threat of piracy, but you can counter it by making content available in a user-friendly, reliable, and welcoming context. The analogy here is with a good bar: One that understands and looks after its customers will always be successful, even though those customers could easily sit at home with a cheap can of beer instead. And just as bars often make their profits from food rather than drinks, successful online video sites will drive users to more mature revenue streams, such as DvD sales, while the ad market continues to mature.

EnDnotEs1 This issue is compounded by the fact that the total available video ad inventory for online video is

significantly less than on TV due to current online video advertising best practices.


Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business and technology. Forrester works with professionals in 19 key roles at major companies providing proprietary research, consumer insight, consulting, events, and peer-to-peer executive programs. For more than 25 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For more information, visit www.forrester.com.

© 2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please email [email protected]. For additional information, go to www.forrester.com. 48095

2 Mainstream legitimate video aggregators — noting the success of streaming sites such as Hulu and iPlayer — have now embraced streaming as the preferred model of distribution. For example, at the end of 2008, pioneering video aggregator Joost abandoned its P2P distribution model, which required a user download, in favor of streaming content.

3 Source: JupiterResearch Consumer Survey (9/08) — France, Germany, Italy, Spain, Sweden, & UK, n = 4,286 (France, Germany, Italy, Spain, Sweden, and UK).

4 A quick search online brings up a number of portals — such as Online Video Guide — and sites — such as TV Links and TV Shacks— offering free streams of TV and movie content. Another site offering live streaming, Justin.tv, invited a lawsuit from the UK Premier League after live football matches were streamed on the site.

5 Source: “Watch it on YouTube, then Click-to-Buy,” YouTube blog, January 21, 2009 (http://www.youtube.com/blog?month=1&year=2009).

6 “It’s just a flesh wound,” he gamely insists. He’s wrong, of course.

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