Coming boom
in online TV viewing
The number will reach three-fourths of all users
By Diego Vasquez
Jul 29, 2010
When YouTube launched five years ago, short videos were all the rage, and music videos, random comedy acts and of course adorable kittens became ubiquitous. But five years later, with online video delivery technology improving, long-form video is slowly gaining popularity. A new report from eMarketer predicts that the percentage of U.S. internet users who watch television online will explode next year, going from 58.9 percent this year to 72.2 percent next year, the largest year-to-year increase in at least three years. By 2014, that percentage will reach 77. As online video viewers drift more toward longform professionally done content, we’ll begin seeing new business models as well. More sites will experiment with paid content rather than ad-supported content, as Hulu is doing right now. Whether they will have much success remains to be seen. Paul Verna, senior analyst at eMarketer, talks to Media Life about who’s watching online video, why they’re migrating to longer-form content, and whether paywalls will work.
What did you find most surprising or most interesting about this report?
I would say that, not in terms of the numbers but in terms of trends, what I find interesting is online video is in a transitional point.
I feel that we're on the cusp of the new wave of engagement with the medium. Up until now it's been people grabbing clips and it's now evolving into something much more interesting and potentially bigger or more satisfying.
How many people in the U.S. are watching video online?
Our estimates are that in 2010 147.5 million are watching, and that's people who watch at least once a month, any age. That's about two-thirds of U.S. internet users, and almost half of the U.S. population.
That number's been on a steady rise, and according to our forecast it will go up to 193.1 million in 2014.
Why are we starting to see greater numbers of people watching TV shows online, as opposed to shorter videos?
I think it's a combination of factors. For one, there's just more content available; Hulu did a lot to open up this world. Even though shows are available elsewhere, Hulu kind of crystallized this audience.
But they wouldn’t have gotten too far if people's home setups weren't changing—the technology is starting to work in favor of it. Internet-connect TVs, game consoles—there's a lot of ways to tap into the online feed on your TV.
Also, consumer behavior is changing. People are getting used to watching TV this way. It's similar to the way people use DVRs, it's time-shifted.
If you're not needing to see it live, you have so many options, and many of them are still free. You might have to jump thru a couple hoops to watch it on your big screen, but the payback is you're probably not seeing as many ads. All of those factors are contributing.
Has the quality of the online TV watching experience (i.e., the addition of HD-capable video players and fewer technical problems) helped boost viewership? Why or why not, and among what demographics?
I don't have data on how specific demographics are reacting to technological change. But in terms of the experience, yeah, I think it has gotten a lot better on every level, even if you're just streaming on your browser.
Anecdotally I found that most of the videos I stream are a pretty good quality, especially the full-length stuff. I think the technology has come a really long way. You can get very consistently good audio and video quality. The streaming seems to be robust so it doesn't stutter much.
There are some exceptions, but it's generally pretty good and that impacts people's decision to tune in online. If the quality weren't there we wouldn't see the audiences increase.
Is there one demo that's more likely to watch TV online and why?
People under 25 are definitely more likely, not necessarily to just watch just TV online, but online video.
I think the reason it's under 25, well there are a few things. These tend to be people who are comfortable with new technology. Even if you have an internet-connected TV, you still have to have some degree of technical savvy, it's the old story about people not knowing how to program their VCRs.
Also, the data doesn’t spell this out specifically, but what I think is starting to happen is there's this whole cord-cutting movement where people are cutting TV subscriptions because there's so much available online. Younger people may do this because budgets are smaller, and the idea of not having a cable signal is attractive to them. Whereas when you're older and have a family it's a bit harder to make that decision.
Right now, most of the popular video sites are ad-supported, but Hulu is experimenting with paid content, and UBS predicts that by 2012, 77 percent of U.S. online video revenue will come from paid content. What will drive that shift and why will people be willing to pay?
I'm not sure that people will be willing to pay. I think Hulu is taking a pretty big gamble.
It's a complicated issue. I understand the need to drive additional revenue. My sense is they're doing pretty well with advertising, but the sense is it may not be enough and they're trying not to pin their entire business around advertising. And I think online advertising around video programming, the expectations were a bit high to begin with.
But consumers are always willing to pay if you give them enough value for the money. That's the question. Is $10 a month to access a deeper library of titles enough, or do people need something more? The thing they'll have to take into account is people aren't just being asked to pay $10 for Hulu.
Now if you want to read the New York Times online you'll have to pay a fee, and some music services may go to more of a subscription mode. So there are many, many points where the consumer is being hit up for $10 here and $10 there. So what Hulu has to calculate is it’s not just competing against TV but competing against other forms of media and entertainment that are also going behind paywalls.
My personal view is they will pay, but I'm not sure the current incarnation of Hulu Plus is enough.
Will shorter-form video generally remain free? Why or why not?
Yes I do think so. I think it's hard to monetize shorter form video through any other method.
I also think we as an industry have kind of shifted back and forth. Three or four years ago there was a lot of paid content online, but it wasn't a big issue because the audiences were much smaller. Then suddenly everyone got the idea of advertising, and two or three years ago everything went that direction.
Now I think there's more of a sense that hybrid models will work. It could be that a content owner has some videos for free and others paid. Or it could be that one media company does it one way, and another does it a different way.
I really cannot envision where one or the other will be dominant. It's really going to depend on the content, the target audience, how soon after release it's being shown, etc. I do think in general the shorter clips will tend to be ad-supported and the premium stuff will be mostly paid and some ad-supported.
How is the mix of online video content shifting, and what is driving the shift?
The overall shift is toward longer content. And I think what's driving it is a lot of the things we've talked about—improved technologies, greater access to content online through places like Hulu, better integration between home TVs and computers—all of those are driving the shift.
In general there's an inclination toward TV shows and movies. Netflix just said 61 percent of subscribers streamed movies in the second quarter, and last year it was 37 percent. And they've added subscribers over that time, so that's a lot of people streaming movies.
That accounts for a lot of activity, and because those videos are longer, the amounts of time people are spending watching online video, that's going up as well.
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