Online Video Keeps Growing

Online video got through several iterations of the hype cycle, going all the way back to the late 1990s, so it’s easy to treat news of growth with some scepticism.

And some scepticism is in fact warranted, at least with regard to claims that people are “cutting the cord” and replacing cable with online video. But that shouldn’t overshadow the other big story of online video, which is that it is growing and a real market.

A lot of people seem to think the internet will replace TV, with ad/subscription dollars to follow as people “cut the cord” en masse. That’s not happening: as we explained in a note, “cable” is shedding subscriptions, but when you account for bundled services (like “triple play” with internet, phone and television), pay TV is actually gaining subscriptions (see chart).

Pay TV Net Subscription Adds

Photo: Bernstein Research

More broadly, consumers like “TV” just fine: it’s a “lean-back” medium where people can just consume content, as opposed to the internet, which is “lean-forward.” So while the internet will probably swallow TV some day the way it swallows everything else, it won’t happen any time soon in the fast-and-furious way many expect. (Unless Apple changes the game with a revolutionary TV product that shifts consumer expectations.)

This reality should not obscure the fact that online video is growing really fast, both in terms of engagement and dollars. This was the topic of our special report last week. In other words, the online video story is not primarily about “cutting the cord” and connected TVs but about video on the internet.

We forecast that online video will be a $9 billion market by 2016, but in the meantime here are some facts on the growth of online video.

More people are viewing video online (as broadband becomes ubiquitous), and more importantly the people who are already watching video are watching more:

Online Video Growth

Photo: comScore

Where engagement goes, of course, dollars follow. Online video has been the fastest-growing segment in online advertising, and it is showing hockey stick-like growth.

Online Video Advertising Revenue

YouTube is becoming a destination for mainly premium video content, not viral content, and is selling lots of premium ad units like “masthead” ads on its frontpage. (That 1Q number seems low, but it’s because of seasonality with the holiday season–Y/Y 1Q12 is more than double 1Q10.)

YouTube Display Ads

Most of the ad dollars are going to longer-form video, which puts a premium on more “professional”, premium content, as opposed to viral, dogs-on-skateboards videos.

Ads Per Video

Photo: FreeWheel

Click here to read our special report on the future of the online video market →

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