When will set top boxes go the way of LP (record) players ?

Consumers are increasingly watching video content on a variety of Internet-connected devices, including Internet TVs, laptops, mobile phone, etc. In November 2008, over 75% of the US Internet population (~ 150 M users) watched an average of 4.5 hours of video on-line, an increase of 34 % YoY. While that number is remarkable in itself, if you drill down, the statistics are even more compelling:

A little more than 20% of the users (“the heavy users”) spent ~ 14 hours/month watching video on-line. Beat Kneacht, founder of Zattoo (http://zattoo.com/), a European online TV service provided anecdotal confirmation – Zattoo users in Switzerland spend roughly 14 hours/moth using the service.
This is not a teen or youth phenomenon anymore. The penetration of on-line video viewer-ship is largely similar to TV across age groups, except for the 65+ demographic
Close to 15 % of the total views are for professionally produced content while another 15-20% are for “audience syndicated” content (a nice word for pirated) while the rest is UGC
Yahoo, MSN, Viacom, Hulu, AOL and Turner all have more than 20 M UU/month, providing them with the reach/frequency required to be credible to media buyers
In a recent survey, SRG found that 50% of all respondents had watched TV online in the past. Furthermore, 70% of 18- to 34-year-olds have watched TV online in the past. In contrast, only 36% of that group had watched a show on a TiVo or some other DVR at any time in the past.
Furthermore, audiences are fragmenting as consumers view video content via a variety of web sites ranging from video distributors (e.g. Hulu, Joost, YouTube, MYSpaceTV) to niche special interest focused web sites (e.g. Glam, Martha Stewart). For example, Hulu.com which is the leading distributor of professionally produced video individually accounts for only 1.8% of total video views (in the US), of which 67% are consumed through Hulu’s syndication network (vs. on hulu.com).

Advertisers and content owners are responding to the shift in consumer behavior. In 2008, on-line video ad spend was $ 570 M (US), and it is one of the few spend categories that is expected to grow (45% YoY) in 2009 as advertisers shift budgets from TV and prioritize video over other digital spend categories. Content owners (e.g. CBS, Viacom) are aggressively expanding distribution of their (i.e. syndicate) advertising supported content to a multitude of websites so that consumers can “watch wherever /whenever”. Content owners are also actively mining their archives to create refreshed (or made for the web) content pieces – see http://www.nytimes.com/2009/01/26/technology/internet/26vault.html?_r=1And this is just the start. In 2008, 4 % of those who watched online video said that they would consider disconnecting their TV service. And, when I talk to people in their 20s in the bay area, most of them already seem to have done so – they watch TV on their PCs or through internet connected TVs. In addition, content availability could explode as networks recognize that the only way to avoid becoming irrelevant (like the music industry) is to aggressively expand and distribute online content. And in a couple of years, all TVs will come with internet connectivity out of the box. At that point, what percent of the US population will give up their cable connection to only watch TV online ? When will cable TV go away ? Or at least, when will the total number of connections start to decline ? Probably not next year, but also not 10 years from now!

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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