Welcome to The IP Development Network Blog
Monday, 12 March 2007
Part 1: The Online Video Market
While the mass market is getting hooked to online video thanks to YouTube, social networking is causing demand spikes for hot content to get ever more peaky and pirate copies of 20GB HD movies are also appearing on the internet. Sooner or later, someone like Apple is going to come along with something like an iPod that brings this all together for the masses.
When that happens, ISPs and content owners need to be ready. Over the coming weeks, we will be looking at how to plan for this. Please go here to see the full schedule or articles.
What content is out there?
A step change is occurring. At the bleeding edge, DRM pirates are cracking the HD crypto keys and sharing 20GB files in private clubs over member’s ADSL2+ broadband connections. Content that was previously locked away safely on the satellite or cable platforms can now be copied and sent around the world on the internet – for free!
Further down the adoption curve, the internet has suddenly become an accepted medium for video. YouTube has kicked the doors down, much in the same way as Napster did for music. While YouTube is largely a bit of fun at the moment, it is becoming increasingly commercialised. Advertisers are learning how to use the platform to hit their target audience much more cleanly than is possible with broadcast splattercast. The big studios, now that Google is ensuring that DRM is taken seriously, are starting to exploit the vehicle too.
Content is a “hot” commodity with live sport carrying the highest premium. Consider first DVDs: In the US, new DVD releases gross on average 51% of their total in the first 4 weeks. For those that enter at Number 1, this is even more concentrated: 52% of gross in first 3 weeks. For sure, there is a huge archive. Netflix carry 75,000 titles, so there is a long tail, but 85% of the market revenues come from the top 50 titles in any given week, so in commercial terms this is a bit like the long tail on an elephant.Social networking is a phenomenon that is new since the music industry evolved and this is clearly going to help shape how online video evolves. But how will social networking enhance the experience and what does that mean to the industry?
The key element of social networking is the ability to interact, which takes on one of two forms: the most obvious is the the long tail created by the ability to “Broadcast Yourself”, but the second and by far the most powerful is the ability to wade through the long tail and rapidly promote high quality, obscure content through peer recommendation.
Social networking’s ability to create more traffic doesn’t come from giving a consumer a long tail of choice; it comes from the ability to filter that choice and make it accessible to the masses. Of course, it needs someone to watch the archive to get the ball rolling, but it means that if that someone does like what they see, they can quickly recommend it to others allowing the cream to rise to the top. Social networking brings the ability to uncover new artists, to wade through the long tail and to make something “the next big thing”.
As before, there is still a heavy emphasis on a small number of hot items but what social networking does is enables the next big thing to come to the surface so much quicker. Whereas in the past it took days or even weeks for word to spread about X, Y or Z being good, now it takes hours or even minutes… The same is true of when the content goes cold – when it is no longer the next big thing. Consider YouTube’s “Today’s Views” on the 7th March where the top title (an advert for an EA computer game) was running at 719,000 views that day. Clearly, that video was hot, but in the whole of the week from 5th to 12th March, the same video only attracted 813,000 views.
If the top title had 719,000 views, where was the tail? It is worth noting that the 20th most popular had only 21,000 views on that same day. You might think that over the course of a year or so, this might even out, but the top all time title on YouTube boasts 44 million views, while the 20th has been seen only 8 million times. Certainly, 8 million views is not a small number, but it is 18% of the result achieved by the number 1 title. Ranking DVD rental gross figures in the same way will show that the top title over the year (Nov 05 to Nov 06) generated $62m, while the 20th ranked title generated 79% of that figure at $49m. Does YouTube and social networking in general actually concentrate audiences? It certainly seems that way at this stage.
Where is it going?
Going back to Napster… Napster’s impact was to wake the world up to the possibility of using the internet to get music. It was only a matter of time before that demand was tapped legitimately because there was a mass market out there that wanted the content and was willing to pay a fair price for a legal version that came with a simple widget that made it all work. Cue Apple’s iPod / iTunes businesses – now worth $16bn a year to the company.
Is the same thing on the horizon for the online video industry? Might a device come along that brings the internet to your TV along with a wealth of quality, legal content? Much as the fashionable iPod accessory allowed iTunes to made music downloads simple, an elegant set top box that solves home networking problems is all it could take.
ISPs do not see a penny of iTunes $1.5 music download revenues. They could argue that it drove the switch over to broadband which would be fair enough – it did. The problem was that while ISPs were sacrificing high margin dial up minutes to get customers onto broadband, the value added services that justified that sacrifice were being sold directly to their customers – bypassing the ISPs that were bearing the cost.
Sooner or later, someone like Apple, is going to combine the content rights with social networking and a simple widget that makes it work. Are we going to see the same with LLU and HD as we did with Broadband and Music? Are ISPs really going to miss the boat again as they go for yet another land-grab?
Quite possibly… but what is wrong with the status quo? So ISPs might miss out on content revenue streams again, but they can still make their money from access like they do today. A lost opportunity perhaps, but if you have never tasted it are you really going to miss it? The problem is that the elephant is so much bigger this time around. We will be going into the cost issues in detail in next week’s article, but for now it is worth considering the following:
Today we have the mass market watching low quality YouTube “clips” online but they are buying up HD Ready TVs. Clips on YouTube today are around 200 kbps and are short – usually less than 10 minutes but HD TVs need to be fed at upwards of 10 Mbps. TV programs are also much, much longer: the average UK household watches just under 23 hours TV per week. As HD content, this is 448 GB per household per month, 10 times the average ISPs “acceptable use policy” today.
And users expect their TV to be largely “free”. Sure, some consumers will pay for an “event”, whatever that is to them, but the majority of TV is not in itself worth paying for. And here lies the rub: the content is there, people want it but many cannot afford it or cannot justify paying excessive fees for entertainment. They feel ripped off. They feel like they are being robbed. Whereas with satellite, consumers have had to suffer in silence or go to the next car-boot sale, the internet and pirate copies provide a much more discrete way to obtain what you want quickly and cheaply. If you feel that someone is trying to rob you, you are probably less likely to let moral objections prevent you from robbing them…
Piracy already makes premium content free to those at the bleeding edge, with their unlimited broadband maxed out. In fact, it is free to anyone until they hit their download limit, or they get caught by the traffic management police. Who’s the bad guy when that happens and the customer can’t get what they want? We will be looking at this in more detail in two weeks time in our piece on Traffic Management.
So it seems clear that the market is there for all this content, but it is still not yet certain that this will end up on the internet. Just because there is a demand does not necessarily mean there will be a supply... The reasons for this will be much clearer after the investigation into the costs of delivering video online, to be published next Monday 19th March. It is our view that unless there are major structural changes, ISPs will have no option but to throttle demand (see the article due to be published on 26th March on that subject).
What those changes need to be will be looked at on the 2nd April and a conclusion will be discussed at the IIR ISP Forum in London on the 26th April.
Other Articles in the SeriesPart 1: The Online Video Market
Part 2: The cost of Online Video
Part 3: Traffic Management
Part 4: Routing the Money
Part 5: Routing the Packets
How to make money from Video
IIR LLU Conference
IP as a Natural Monopoly
Intelligence at the Edge
Local Loop Unbundling
The Venice Project
Web 'n' Walk to permit VoIP
A fragmented market
O2's sensible view of convergence
Getting into the spirit