There is a â€œreasonable opportunityâ€ to make money from paid-for videos online but this is a hard market to work in, characterized by low margins, and multiscreen service providers should look towards digital retail, including digital lockers like UltraViolet, as a way to boost their revenue. That is the advice of Richard Broughton, Director, Broadband at IHS Technology, who was discussing the monetization of multiscreen services in a recent Videonet webcast.
His company estimates that in the UK this year, the online paid-for video market is worth Â£0.5 billion, covering download-to-own, rental and subscriptions. Net advertising revenues across online services, encompassing broadcaster catch-up services through to YouTube, are only worth 60% of this figure. â€œSo paid-for services are currently better monetized than free services in the UK but it is extremely difficult to build a successful paid-for online video platform.â€ Turning his attention to content owner multiscreen services in particular (like those from a broadcaster) he observed that it is especially challenging to charge online if your content is available free-to-air on broadcast.
â€œWe have seen lots of companies get it wrong,â€ Broughton said of content owner and aggregator multiscreen offers. â€œA lot of people look at iTunes and Netflix and think they could do that, but neither of those services make a lot of money. iTunes margins are low on individual sales [for Apple the service is part of the ecosystem that helps drive hardware sales] and in the U.S., Netflix runs on tiny margins while it still makes a loss internationally. Marketing is one-quarter of Netflixâ€™s direct costs internationally.â€
Broughton suggested that if a company wants to boost direct revenue from a multiscreen service they should look towards digital retail. â€œNobody has really got digital retail right yet. If consumers want to watch legitimately bought TV shows or films they can go to iTunes and watch those on their Apple TV or iPad or Mac, but what about on a YouView set-top box [UK hybrid broadcast broadband platform] or game console or Android tablet? You have to purchase the same show again from Google for Android so there is a serious problem there. For the consumer, digital retail is a poor cousin of DVD. You cannot watch it easily on the main television set; it is quite difficult to get it onto the television.
â€œService providers or content owners who want to monetise [their online offers] via ancillary business models and make a success of paid-for video should think about what they can do themselves or how wider initiatives like UltraViolet could make it easier to watch content across the different devices people have rather than restrict the availability of content. Restricted content availability is a key barrier [to payments] and is one of the reasons why digital is not making up for the loss of physical sales and why the home entertainment market is in decline at the moment. This is one of the issues that could be addressed by the content owners.â€
During the same discussion about multiscreen monetisation, Daniel Thunberg, SVP, Commercial at Piksel (the multiscreen and second screen solutions provider) predicted that advertising will eventually overtake paid-for as the primary source of multiscreen revenue. â€œThis will take a bit more time but advertising is a great opportunity for broadcasters, for example, who can now have a direct relationship with viewers that allows them to understand their behaviour and who they are, their device, location and other statistics that advertisers are interested in.â€
He said consumer goods brands with big advertising budgets have been telling investors that they can spend their marketing budgets more effectively in â€˜digitalâ€™ [which is where multiscreen/online video sits within the advertising world]. â€œThe migration of advertising dollars from broadcast to digital is already happening and at a faster pace than before. There is definitely a hunger from big brands and people who buy advertising to put money into the digital space because they perceive that they get more value from it.â€
Thunberg believes that all content owners, including those with subscription TV channels who have avoided advertising on broadcast TV, should view advertising as an opportunity in the multiscreen space. â€œIn the subscription TV space there has been an attitude that if you are charging a monthly fee you should not bother your customer with advertising, and to some extent they are paying you money to avoid advertising, but I believe that with the targeting technologies that are now available, and the consumer data that you can use, you can provide more relevant advertising that is valuable to the consumer as well.
â€œYou can do advertising in ways that are selective and it does not have to be intrusive. We are working with overlay technologies where the consumer can decide if they want to interact with a brand by clicking on a dot in the video. So the consumer can decide if they want to click through and find out more about that brand or add the advertisement to their â€˜lockerâ€™ to view later. Advertisers can see who interacts and how much time they spent with the advertisement, so there is a wealth of opportunities that have not been exposed in this space.â€
He also referred to the high engagement and click-through rates being achieved by some broadcasters (like ITV in the UK) on second screen apps that are designed to be â€˜viewedâ€™ in parallel with a show on the main television. â€œThe engagement rates are much higher than you will ever get on the web,â€ he declared, comparing them to standard non-video Internet advertising.
Thunberg thinks targeted advertising changes the game. â€œYou can see what targeting does. If something is relevant to the consumer they will interact with it. This is good news for the advertiser, of course, who gets a better understanding of who is interested in their product and they can have a meaningful relationship with those people rather than wasting their efforts on those who are not interested. That is where we are heading and I believe that about 85-90% of people are still willing to watch advertising in exchange for getting video free.â€
During the Videonet webcast (Advanced Multiscreen Engagement & Monetisation Strategies) a live poll indicated that half of listeners think it will be possible to monetize multiscreen viewing as effectively as classic linear living room TV viewing within two years. The poll asked: â€˜When will it be possible to monetise multiscreen viewing as effectively as living room TV (via STB) linear viewing? The answers were:
Already possible, 14.3%; Within 1-2 years, 37.1%; Within 3-5 years, 31.4%; It will take more than 5 years, 11.4%; It will never be possible, 5.7%.
Richard Broughton said IHS Technology would take a more conservative view of how quickly we will see value equalization. â€œFor individual content groups and media owners it is possible now but at an industry level it will take a bit of time due to advertising measurement issues.â€ Thunberg reckons this value equalization will be possible within 1-2 years in some markets, though it will take longer in others.