Viewers Are Flocking to Streaming Video Content — And So Are Advertisers

The Internet has been seen as a disruptor to the traditional TV industry, but a new report suggests that it’s also where the industry’s biggest growth lies.
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With its new array of online options for viewing media — not to mention the increasing amount of original content created for online audiences — the internet has become a disruptive influence on the traditional television business, plain and simple. Even the staid Nielsen ratings standards have finally announced plans to include online streaming audiences in their metrics starting this fall. Now after years of talk about “cord-cutting” and the collapse of TV as we know it, a new report is suggesting that the rapid growth of the online audiences will fundamentally change not only the way viewers approach video content, but the way that advertisers do.

The report, titled “Global Video Index: 2012 Year in Review,” was released by Ooyala, a California-based company that specializes in online video and online video analytics. It found that the amount of video watched on tablet devices and mobile phones in 2012 increased by 100 percent over the previous year, and also that advertisers are taking notice of the shift to online video viewership, with U.S. ad spending on streaming video content climbing 46 percent to reach $2.93 billion last year alone.

“People are now starting to realize that a significant percentage of the television audience — and therefore, the advertiser’s reach — is happening online,” Bismarck Lepe, co-founder and President of Products, Ooyala told Wired. “In the U.S., depending on the month, we’re already seeing between 10 and 15 percent of all video viewership, including television and DVDs, is happening on [internet]-connected devices. That’s a huge jump from roughly about 1 percent when we started the company back in 2007.”

With more and more viewership migrating online, real-time data from streaming content offers advertisers a much more accurate picture of how the audience is interacting with ads. Rather than simply relying on overall viewership numbers as a “proxy number” for how many people watched an advertisement, advertisers can tell “whether they’re skipping an ad, or whether they’re not,” Lepe explained. The question now is how the advertising model will change once Nielsen integrates this new information into their metrics.

“It’s going to be like when Google launched the cost-per-click advertising model. Everyone who was used to the display advertising model was afraid that the online ad business was going to collapse, because now people were going to be held accountable about whether or not an advertisement was worth it.” Instead, says Lepe, when advertisers got a more accurate idea of where they were getting the most return on investment for their advertising dollars, they continued to spend; they were just able to allocate their money more effectively.

“I think that the traditional business model for advertising on television is being turned over,” agreed Jim O’Neill, a media research analyst who tracks trends in viewing habits for media and market research company Parks Associates. “It hasn’t reached the end of its life yet, but the business model is going to change, and the amount of choice online will mean that [marketers will] have a smaller, but more loyal, audience watching their content… I have two sons who just graduated from college, neither one of them has ever been connected to a cable system. They’re connected to the internet, and they watch everything on their tablets or on their laptops. They prefer that experience, and they are the ‘Never Were’s who really worry cable providers more than cord-cutters.”

The shift toward online viewership of television has been a long time coming, Lepe believes, thanks to the dual advances in both technology and viewership. Faster internet, more content, and more devices capable of streaming high-quality video have created a larger and still-growing audience for streaming video. “Growing audiences attract big dollars. Either from a subscription basis or an advertising basis, you’re able to generate big revenue. Now we’re starting to see that the economics make it possible for a [Netflix original series like] House of Cards and companies like Hulu to create streaming-first products that can also take on other forms of video…. Now, there are very few shows that you can’t actually find online, whether downloading them from iTunes, streaming them directly from Amazon or elsewhere, or even finding older movies and shows on Netflix.”

While he predicts that the “shiny disc” market of content like DVDs and Blu-ray will shrink, Lepe thinks that the market for video generally and streaming video specifically will only continue to grow. “Today, the entire video market is roughly half a trillion dollars, and that includes TV advertising and DVD sales, [as well as] paid access to content and VOD that you buy from your cable provider. And that half-a-trillion-dollar industry is going to migrate online.”