The Race to Monetize Online Video

Article ImageEveryone knows there is money to be made in online and platform-based video, but finding ways to profit from your favorite streaming clips, shows, and games is not enough. In November Bain & Co., one of the world's largest business consulting firms, surveyed more than 3,000 consumers in Asia, Europe, and the U.S. regarding online video, revealing some interesting findings.

Laurent Colombani, co-author with Patrick Béhar of the study "Connected Devices and Services: Reinventing Content," says there is a consistently high penetration rate in Western countries for connected devices. "Ranging from fifty to seventy percent," he says. Despite this high level of engagement, online and platform-based content continue to lag when it comes to traditional revenue streams.

The current problem is twofold: One, due to the saturation of online video, consumers are looking for high-quality content that is free or near-free. Two, the amount of time consumers spend on video is unlikely to shift dramatically as technology evolves, thus limiting the potential for volume-driven profits. "There is a strong interest," says Colombani. "However, there is a limit to how much time [consumers] can dedicate to search for new content." These factors have put traditional content providers in a state of flux.

"It's the Wild West right now," says Jose Castillo, new media marketing and technology consultant. "Everyone is trying to figure it out, and everyone is offering their own platform. For the most part, it's really annoying and frustrating." Consumers are plagued by ever-changing platforms and content offerings that are inconsistent and often difficult to find. With every provider, from Netflix, Inc. to NBC to Amazon Prime, fighting to become their consumers' source of information, they risk diffusing their base's brand awareness.

However, the plethora of players in the market is only the first obstacle. "Right now we're in a state of confusion," says Colombani. Different regions and countries rely on assorted technology platforms, and content providers can face various regulatory challenges. For example, Netflix is just beginning to make inroads into Europe. "We might see different leaders in the U.S., versus Europe, versus Asia," he says. But with more and more consumers turning to web and platform-based video, the fight to make this content profitable is worth having.

The Bain study stresses both the need to make content more attractive to consumers and to make it as nonintrusive as possible with advertising. Traditional television watching has been, in the past, a mostly passive experience. Successful video needs to be interactive and customizable. New interfaces open up the potential for consumers to engage with media in new ways. People can now choose their camera angles while they watch a live concert or discover the history of a specific painting while on a virtual tour of their favorite museums. But there is still work to do. "Where [content providers] have to invest probably more aggressively to stay competitive is user interface," says Colombani. "That's one space that has not been entirely addressed yet."

Data mining has also opened the door for personalized recommendations, similar to Amazon or iTunes Genius. Colombani stresses that for content providers to serve their customers, they need to understand that consumers have other options. Rich Hull, a contributor to Dancing With Digital Natives: Staying in Step With the Generation That's Transforming the Way Business Is Done, agrees organizations need to understand customers in ways they haven't in the past. "Take TV networks," says Hull. "If NBC only recommends other NBC shows, their viewers are going to go someplace that offers more. People aren't stupid."

Colombani also argues the crowding of the market offers organizations an opportunity to invest in ambitious content that polishes their brand name.

Consumers may not be able to tell the difference between an NBC sitcom and one from CBS, but that might soon change. Focusing on brand awareness allows organizations to evolve from being merely content distributors. "The key message is probably [an] increasingly diversified and hybrid business model that will mix both free and paid-for content," Colombani says. New business models could soon include app-only entertainment content and an increased focus on free online video.

Committing to online, portable viewing may be easier said than done. In February 2010, HBO launched HBO GO, more than 600 hours of streaming content available to subscribers online. In April 2011, HBO GO followed up with an app for the iPad, the iPhone, and Android devices. HBO GO has won over many critics with its easy navigation and HD picture, but others fault HBO for only offering its content to those with an existing, traditional cable-package subscription. In November, HBO announced it would not offer HBO GO as a stand-alone subscription, forcing consumers to purchase an add-on to their cable packages rather than buying straight from the source.

HBO's decision highlights many networks' fears about streaming media and the market's inability to monetize it. Hull argues that more ads are inevitable. "Something's got to give," he says. "It's been close to free for too long." And that may be true for the foreseeable future. Castillo agrees more ads might be coming, but he also doesn't think consumers will be forced to watch the same length of ad blocks as with traditional television. "Advertisers will have to get creative," he says. "They'll have to sponsor more shows and do more advertising within the content rather than between it."

"Whichever side you're on, change is coming," Castillo says. "Whether you want to jump in or whether you want to be pushed in kicking and screaming, you're going to have to go." And with more than 60% of Western consumers expected to view video and play games on multiple devices by 2014, the content tide certainly is flowing in that direction. Providers will now have to be creative and adept if they want to cash in.