Originally posted on Advertising Age.
All of the social media hype has, to some degree, diverted attention from the bigger storyline to emerge over the last few years – the meteoric rise of long-form, streaming video viewing.
Unlike Twitter and YouTube, which propelled ordinary geeks and moms to cult-like status, the Hollywood content community here has been the runaway winner. There’s more demand than ever for professionally created and curated content.
However, a new dynamic is emerging that could completely upend the economics – that is if it doesn’t break the Internet first.
First, a look at the trend lines.
For years streaming video was a two-foot viewing experience that took place largely at desks via PCs. While YouTube’s user-generated and viral clips dominate short fare, long-form streaming video is coming into its own and on different platforms.
The entertainment community – with the help of partners and in a race against piracy – has been aggressive in making their content available as on-demand streams rather than solely as downloads. This means that studio content is now far more widely available than ever before – and it’s “couch friendly” too. Online video has become a seamless archipelago that spans a one-foot experience on smartphones and tablets to a ten-foot experience on set-top-enabled TVs.
Consider Netflix, for example. The company’s on-demand video rental service is available on dozens of connected devices. This includes everything from the Roku set-top box to mobile and tablet devices. By one measure, Americans are eating it up.
Sandvine reported last week that Netflix alone represents a staggering 20 percent of all downstream US Internet traffic during what’s normally primetime (between eight and 10 p.m.) This is remarkable given that the overwhelming majority of Netflix subscribers – 98% according to Sandvine – are not streaming content yet.
Xbox Live, which carries Netflix and other content, is seeing a similar pattern. Larry Hryb (aka Major Nelson), Xbox Live’s Director of Programming, blogged last week that 42 percent of Xbox Live’s more active 25 million US users are streaming an average of an hour of television and movies per day. (Disclosure: Microsoft is an Edelman client)
Digital primetime is here. Madison Avenue should be giddy with excitement. Hulu served nearly 800,000 ads in July, comScore reports. What’s more, the proliferation of interruptions are not stopping Hulu users from watching an average of 2.6 hours of video per month.
But there are potential challenges ahead as Xbox, Netlfix and Hulu supplant the TV nets as the new kings of primetime.
For starters, as more Americans become “cord cutters” we may opt for ad-free on-demand rentals or all-you-can eat subscriptions. The appeal is interruption-free viewing. Some 13% of Americans intend to cut the cord in the next 12 months, according to Strategy Analytics – a market research firm.
However, the more scary scenario is that all of this video consumption and cord cutting could push the Internet to a breaking point.
Nielsen reports that 64 million people watched at least part of the World Cup online. That’s a drop in the bucket by what we’ll see in 2014 when Brazil hosts the event. The Internet may not be ready for it.
Akamai President David Kenny says that in five years the average user will consume two hours a day of HD video. To accommodate this insatiable demand, the Internet will need to increase capacity 548 times from where it is today. Factor in net neutrality debates, cable companies squaring off with TV networks and it’s easy to be pessimistic that there’s enough “shovel-ready” broadband projects underway to pave the way.
Advertisers, not just the content community and distributors, have a significant stake in the future of Internet video. However, the debates around net neutrality and capacity aren’t front page concerns for most us. They need to be.
The danger is that the ad community will be left out of the debate. Even worse it may not have a voice in creating viable ad-supported ways for the providers to invest in infrastructure, just as millions of cord cutters flee cable TV for ad-free content and push the Net to the limit.
Image credit: jeffgunn