Can Broadband Infrastructure Handle Digital Prime Time?
Unlike Twitter and YouTube, which propelled ordinary geeks and moms to cult-like status, the Hollywood content community 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 2-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 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 1-foot experience on smartphones and tablets to a 10-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 the iPhone and the iPad. By one measure, Americans are eating it up.
Sandvine reported last week that Netflix alone represents a staggering 20% of all downstream U.S. internet traffic during what's normally prime time (between 8 p.m. 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, Xbox Live's director of programming, blogged last week that 42% of Xbox Live's more-active 25 million U.S. users are streaming an average of an hour of TV and movies a day. (Disclosure: Edelman, my employer, handles Xbox's PR needs.)
Digital prime time is here. Madison Avenue should be giddy with excitement. According to ComScore, Hulu served more than 780,000 ads in July. 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 prime time.
For starters, as more Americans become "cord cutters" or cancel their cable, 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 scarier 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 compared to 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 and cable companies squaring off with TV networks and it's easy to be pessimistic that there are enough "shovel-ready" broadband projects under way 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. But 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.
|ABOUT THE AUTHOR|
Steve Rubel is senior VP-director of insights at Edelman Digital.