European online video strategies in an economic downturn

For Consumer Product Strategy Professionals

February 5, 2009
European Online video Strategies In An Economic Downturn
Why Now Is The Time To Innovate
by nick thomas
with Mark Mulligan, Tushi Banerjee, James L. McQuivey, Ph.D., Bobby Tulsiani, and Nate Elliott

ExECUT I v E S U M MA Ry
Demand for online video continues to rise among Europeans, especially given a challenging economic
climate in which free content will become even more popular. Content owners and media companies
must seize the opportunity to engage with this audience by making their offerings more compelling in
terms of both content and user experience. Direct monetization is still nascent and will remain so in
the midterm due to the economic downturn. However, rapid advances in the technology for filtering,
serving, and syndicating content will accelerate this market, while helping drive users to existing
revenue streams such as DVD sales. Companies must innovate to gain market share now and to build
foundations for future revenue growth once the economy recovers. Those that retrench now risk losing
their audience to pirate sites.

EuropEan DEmanD for onlinE ViDEo ContinuEs to Grow
Our recent consumer survey confirms that online video is continuing to grow in popularity in Europe,
even though the amount of time spent watching it remains a fraction of the amount of time spent
watching TV (see Figure 1). However, Forrester expects this to grow further in 2009 as the rollout of
legitimate long-form streaming video sites — following in the footsteps of NBC Universal/Fox joint
venture Hulu and the BBC’s iPlayer — encourages both increased take-up and greater amounts of
time spent watching content. Fuelled by a shift to free home-based entertainment — as the economic
downturn forces users to review discretionary spending on the likes of cinema trips and pay-TV
subscriptions — online video consumption will continue to rise.

· Some 115 million Europeans will be watching online video in 2009. The rapid growth of online
video consumption in Europe in the past two years will continue — with 46% of European Internet
users accessing video online in 2009, up from 30% in 2007. As a result, Forrester believes the total
number of hours spent watching online video in Western Europe will rise from 5 billion in 2008 to
nearly 9 billion in 2009.

· The increased availability of long-form content is driving time spent watching online video.
Short-form video sites like YouTube still dominate the market, but the success of free, legitimate
catch-up services such as the BBC’s iPlayer — which now receives more than 1 million program
requests daily — along with the continued appeal of pirated TV and movies from file-sharing
networks has driven the viewing of longer-form video online. This in turn has helped increase the
amount of time users are spending watching video online each week.

· Ninety-nine percent of video viewed online will be free. Only a minority of European users will
pay to watch video online (see Figure 2). Moreover, even viewers willing to pay will predominantly

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European Online video Strategies In An Economic Downturn 2

watch free video. Out of the 3 billion hours of online video consumed in Europe in 2007, paid-
for content accounted for less than 0.5% of the total hours consumed. Although that grew to
35 million hours in 2008, it still represents just 0.7% of total video hours consumed. Moreover,
while European Internet users want online video, only 16% of them are willing to pay directly
for it, and the “ad-supported” model is not yet proven.1 However, media companies that do not
embrace this reality risk losing their audience and future revenue prospects to pirate sites.

Casual piraCy tHrEatEns tHE futurE monEtization of onlinE ViDEo
In an introductory video shot for the Monty Python channel on YouTube — launched in November
2008 — members of the Python team address a key motivation for content providers: They want
fans to see the original content rather than a poor-quality user upload. Their mock indignation
about giving it away for free doubtless echoes many media executives’ concerns, but the reality is
that fans will now find and share the digital content they want to see online. Owners of premium
content like primetime sports broadcasts are right to police the Web, using companies such as
NetResult to preserve the value of their TV deals. However, most owners of archive content should
ensure that users can access at least some of the original, authentic version online for free. Such a
policy can generate revenue streams not just from advertising but also related merchandise, such as
DVD sales.2

· Pirates are not all young male adopters. While 29% of European male Internet users aged 15
to 24 file share video content, 21% of their female peers now do so, too — up from 16% in 2007.
Thus, online video file-sharing has achieved critical mass among both genders in the core young
audience. As long as demand outstrips supply and attractive alternatives from legitimate content
owners are lacking, pirate sites will continue to attract these users. Content owners and media
sites must compete with this threat by offering not just the content that users seek but also
something more: reliability, authenticity, and a great user experience.

· Illegal streaming sites could make casual piracy a mainstream activity. Twenty-eight percent
of Europeans who watched online video in 2008 accessed video content from file-sharing sites.3
However, as streaming takes over from downloading as the preferred model for accessing
content from both legitimate and illegal sites, casual piracy could flourish. Sites such as iPlayer
have educated a new audience of online video users about the benefits of streaming long-
form content. This audience may be attracted to content offered by a new generation of illegal
streaming sites that do not require downloads of P2P software.4

February 5, 2009 © 2009, Forrester Research, Inc. Reproduction Prohibited


figure 1 Online video Watching Is Growing But Is Still A Fraction Of Overall Media Consumption

“Thinking about your use of (information/entertainment) media and communications channels,
on average, how many hours per week do you conduct each of the following activities?”

15
TV
12

Weekly mean hours spent 9
on each medium Internet
6

3
Online video
0
2005 2006 2007 2008
Base: European online users

Source: JupiterResearch/Ipsos Consumer Surveys, Q4 2005 to Q4 2008
48095 Source: Forrester Research, Inc.

figure 2 Despite Strong Growth, Europeans Will Predominantly Watch Free Online video

Paid video audience
Free-only video audience
60%

45%
Percentage
of 30%
Internet
users
15%

0%
2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009
Germany France UK Europe
Base: European online users
Source: JupiterResearch Activity and Paid Content Model, Q3 2008
48095 Source: Forrester Research, Inc.



nEw mEtHoDs EmErGE to protECt, DistributE, anD monEtizE onlinE ViDEo
ContEnt
While YouTube has more or less defined the online video space and remains the world’s leading
video Web site, investors are now questioning its strategy of building an audience first and
monetizing it later. The company is rightly continuing to innovate: With advertisers uninterested in
user-generated content, YouTube is now focusing on stepping up the quality of its content offerings,
both via the implementation of high-definition (HD) picture quality and better audio — a bugbear
of non-professional content. And while experimenting with different ad solutions, the site continues
to forge new content partnerships, including longer-form TV and even full-length movie content.
The online video market is moving forward rapidly in a number of ways:

· New-style distribution embraces and monetizes pirated content. YouTube’s Monty Python
channel is a great example of top-notch, professionally created content being repackaged and
made available using the site’s Video Identification Beta system. This identifies all the rights-
protected material; when it detects content via the “video fingerprint” rights, holders can
either block it or allow advertising next to it. Video ID can even replace poor-quality clips
with the sanctioned official version. Advertising revenues are split between the rights holders
and YouTube, but the initiative can drive more traditional revenue streams, too. YouTube has
pointed out that following the launch of the Monty Python channel, UK DVD sales on Amazon.
com alone increased by more than 23,000%.5

· New-generation video platforms help content owners add value to their site. Content owners
that have faced the dilemma of “build or buy” when planning their online video strategies
now have a more acceptable solution via the latest generation of video platforms. Brightcove,
for example, has created an ecosystem of partner companies that have built offerings on the
platform’s API. This allows clients to access and integrate a wide range of features and tools to
ensure that their Web offering is compelling for both viewers and advertisers.

· Continued growth provides the scale online advertisers need. The prospects for monetization
continue to improve on the advertising side, not least because ad servers need scale to really
work well. To leverage the targeting capabilities of ad servers — which can drive better
performance and higher prices — you need lots of users and lots of advertising inventory in the
system and, ideally, lots of advertisers, too. So with more users watching more video and more
sites accepting in-stream ads, the potential inventory for in-stream ads is growing quickly —
and with more advertisers buying video ads, there are more ads as well. All of this means that
the publishers and the ad servers can do a better job of targeting the right ads to each user or
each piece of content.



R E C O M M E N D AT I O N S

“stiCk witH it; tHErE may bE monEy to bE maDE”
Such is the advice from Michael Palin in the Monty Python youTube clip cited above, a tacit
acknowledgement that although monetization models are nascent — as online video
consumption grows — rights holders and media companies must continue to deliver content to
wherever their fragmenting audience wants it. Companies not committed to Web-based delivery of
video content risk losing audience share to pirate sites, and no content owner ever made money
without an audience. The market is moving quickly, and to maximize the opportunities for success,
companies must actively seek out partners that can help them develop their offerings. Those that
retrench — hoping to hibernate until market conditions improve — risk turning into the Black
Knight from Monty Python and the Holy Grail, who insists on his own invincibility, even as he loses all
his limbs in battle.6 To avoid a similar fate, companies in this space must follow several tenets:

· Don’t retrench; innovate. Companies looking to engage an audience with online video must
continue to innovate with the content itself and with the user experience around it. Companies
should follow the lead of Apple, Dailymotion, and youTube in offering HD-quality images
online, for example. They should also expand the range of content they offer online — i.e., full-
length Tv shows and movies alongside clips and shorter Webisodes — and pursue syndication
partnerships across different sites and platforms, including games consoles and smartphones,
to maximize the reach of that content. And adding more social features, as both BBC iPlayer
and ITv in the UK are planning to do in 2009, will move the game on further.
· be pragmatic: follow your audience. Successful video initiatives, such as those outlined
above, demonstrate a new pragmatism appropriate to both a digital universe and a tough
economic climate. They also demonstrate the importance of effective partnerships with both
content and technology partners. Go where your audience is and aim to benefit from the
reality of multiplatform consumption, rather than trying to control the space.
· use video as part of a compelling user experience to counter piracy. you can’t eliminate
the threat of piracy, but you can counter it by making content available in a user-friendly,
reliable, and welcoming context. The analogy here is with a good bar: One that understands
and looks after its customers will always be successful, even though those customers could
easily sit at home with a cheap can of beer instead. And just as bars often make their profits
from food rather than drinks, successful online video sites will drive users to more mature
revenue streams, such as DvD sales, while the ad market continues to mature.

EnDnotEs
1
This issue is compounded by the fact that the total available video ad inventory for online video is
significantly less than on TV due to current online video advertising best practices.



2
Mainstream legitimate video aggregators — noting the success of streaming sites such as Hulu and
iPlayer — have now embraced streaming as the preferred model of distribution. For example, at the end of
2008, pioneering video aggregator Joost abandoned its P2P distribution model, which required a user
download, in favor of streaming content.
3
Source: JupiterResearch Consumer Survey (9/08) — France, Germany, Italy, Spain, Sweden, & UK, n =
4,286 (France, Germany, Italy, Spain, Sweden, and UK).
4
A quick search online brings up a number of portals — such as Online Video Guide — and sites — such
as TV Links and TV Shacks— offering free streams of TV and movie content. Another site offering live
streaming, Justin.tv, invited a lawsuit from the UK Premier League after live football matches were streamed
on the site.
5
Source: “Watch it on YouTube, then Click-to-Buy,” YouTube blog, January 21, 2009 (http://www.youtube.
com/blog?month=1&year=2009).
6
“It’s just a flesh wound,” he gamely insists. He’s wrong, of course.

Forrester Research, Inc. (Nasdaq: FORR) is an independent research company that provides pragmatic and forward-thinking advice to global leaders in business
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peer-to-peer executive programs. For more than 25 years, Forrester has been making IT, marketing, and technology industry leaders successful every day. For
more information, visit www.forrester.com.
© 2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions
reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are
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European online video strategies in an economic downturn

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European online video strategies in an economic downturn