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Online Video not Commercially Viable, New Report Says

globaltelconews-admin by globaltelconews-admin
24 March, 2009
in English
0

The recent disagreement between Google/YouTube and the Performing Right Society (PRS) over music videos in the UK is only the start of major battles that will break out in the struggle to make money from online video.

A new research report “Online Video Market Study” by the Telco 2.0TM Initiative finds three potential online video market scenarios.

  • Old Order restored: Historic distribution structures and business models are replicated online. Existing players (e.g. established media and broadcasters) reinvent and reassert themselves against new entrants.
  • Pirate World: Distribution becomes commoditised, copyright declines in relevance and Internet piracy destroys value.
  • New order emerges: New or evolved distribution models, actively enabled by Telcos and ISPs, replace existing ones. Content aggregators and rights’ owners recapture pirated value. Delivery of video is assured via a multitude of devices and networks – a “Telco 2.0” world.

The key questions that face all the industry players are: which of these scenarios will dominate, when, and what can they do in order to prosper in each? The report finds that to succeed, players across the industry and particularly Telecoms Operators need to make some important changes.

Online Video Market to grow over 10 times current size in 5 Years

The online video market is worth $2Bn today, with the majority of revenue coming from IPTV services. While these services are forecast to grow, there is also significant growth potential from web advertising and eventually mobile TV services. The Telco 2.0TM forecast for the total market in 2013 is $28Bn, with the majority of this coming from web advertising.

In context of traditional Cinema and TV revenues of over $350Bn the forecasts amount to less than 10% of the total market.

The report finds that the growth forecasts do not guarantee success and the issues go beyond the current music video combatants. “What we’re seeing today is just a part of the picture. The big problem is that nearly everyone involved today is worried about how they are going to make money – the overall business model for online video is just not working” according to Chris Barraclough, MD of the Telco 2.0TM Initiative and report editor.

Many consumers are also turning to self-copied and pirated video content found on streaming or P2P sites. And although there is a lot of creativity in user-generated video it is not being matched by revenue, especially from advertisers.

Despite some similarities with the development of the online music market, online video also has some key differences, most significantly in the data volumes required to deliver a quality viewing experience. This is an important clue as to how Online Video might avoid the value destruction saga played out in Online Music.

A New Active Role for Telecoms Operators

The enormous growth in video traffic volume is already pushing costs up faster than revenues for some operators. Critically, this means that they are obliged to act. They could choose to choke off demand by raising prices to the end user or by letting quality suffer. While this may manage the cost side of the equation it would potentially create a PR disaster and is unlikely to lead to further profitable growth.

Alternatively, Telecoms Operators can take a more active role in the delivery of online video content. “This means taking an approach similar to Fedex in physical distribution, offering different distribution quality and pricing options to both distributors and end-users. By doing this the Telcos can work with the rest of the industry to build a business model that works for everyone in the chain” says Barraclough.

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