On-line Video: When will the networks get it ?

While TV networks have begun to experiment with posting shows on-line, they continue to struggle with both the limited audience size (relative to TV) and monetization. I would argue that both issues are in part a reflection of the fact that that the medium is nascent and in part a reflection of the poor execution by the networks. Lets look at both issues.

Audience Size: According to comScore Media Metrix, ABC.com had 8.5 million unique visitors (across its entire lineup of shows) for the whole month of February, while NBC.com had 7.9 million. By comparison, a single episode of CBS’s “CSI” recently took in more than 20 million TV viewers in one night. So may be reach is an issue. Or is it ?
Its been less than a year since the networks began to release content on the web. By comparison, how many many people watched network TV in the first year ? As a reference point, TV broadcasts started around 1939 and it was only in 1948 that the number of households with a TV set crossed the 1 M mark. But just 5 years later, in 1953, there were more than 30 M households watching TV.
Around 140 M people (in the US) watched video on the internet and spent over 3 hours/month doing so (comScore MediaMetrix data for October 2007). Another survey indicates that heavy users (who account for 20% of all users in the US) spend over 14 hours/month watching video on-line (see http://news.softpedia.com/news/Are-You-an-Online-Video-Heavy-Viewer-78807.shtml for more details). So maybe the issue is not the size of the audience available, but more the fact that the networks have not been able to attract audience to their content. What does that say about the future of the networks ?
Personally, I think the real issue is the networks have just not put enough content on the web – many popular shows are not available on-line, and for the shows that are on-line, very few episodes are available. Most viewer comments on hulu.com lament the lack of content, “why is there only 3 episodes out of 14 seasons?????” was a recent post on the ER page on hulu.com. Networks still seem to apply the “programmed experience” model to the web whereby they can dribble out content on their time-line, but user expectation have changed.
Monetization of On-Line Video: While the networks are currently able to charge 40-100% higher (on a CPM basis), the size of the audience coupled with the fact that there are fewer ads per episode make the total numbers small. Here again, I would argue that the networks only have themselves to blame. Their current ad serving model attempts to replicate thee TV experience on-line vs. trying to take advantage of the power of the web. So, what could they do differently ?
Improving relevancy: My experience with abc.com, hulu.com, fancast.com and cbs.com is that the ads I see are almost entirely irrelevant (to me). And to compound this, often, the same ad is repeated 5 times in through out the episode. Does that make any sense on the web ?
Testing multiple ad formats: When will networks realize the the old “interrupt and repeat” advertising model is dying. What about trying over-lays, 3-D ads, “hotspots” (see http://www.asterpix.com/ for an example) and other new ad formats. While some blog post have recently argued that pre-rolls work well for professionally produced content but not for UGC (see http://blogs.mediapost.com/video_insider/?p=168), I think that multiple ad formats can be effective in professionally produced content – in fact, I think that hotspots that tag the stars and what they wear can be the next generation of product placement revenues for studios, and a way to increase consumer engagement at the same time.
The old adage is that 50% of all advertising is wasted. In a world of fragmentation (in media and consumer behavior), I would argue that 80 or 90% of all advertising is wasted. On the web, that does not need to be the case. Precision targeting coupled with innovation around the ad formats could result in CPMs that are 5-10 X of TV rates. And if the networks actually posted all the episodes of most shows, then the networks might even get the 100 M + people (in the US) who watch video on-line but do not visit network web-sites to give them a try! What do you think ?

About Ashu

General Partner with Foundation Capital. Areas of interest range from digital media, mobile and internet infrastructure to all things related to India. Currently on the board of TreeHouse, Aspire, Conviva, Agni and TubeMogul.
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