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Online Video Content Siphoning TV Ad Money?

24 Jul, 2013 By: Doug McPherson

NEW YORK – A new report says online video content creators might soon enjoy a bigger slice of the TV ad money pie if consumers start spending more time watching video on mobile devices. Laura Martin and Dan Medina, analysts with investment bank Needham & Co., authored the report.

"We’re optimistic about the ability of the … video online ecosystem to take share from the TV ecosystem over time," they write.

Key conclusions in the report include:

  • Unbundling dwarfs any other risk to the TV ecosystem, as 50 percent of total TV ecosystem revenue (about $70 billion) would evaporate and fewer than 20 channels would survive in an a la carte world where consumers are required to bear 100 percent of the cost of the channel. Today, advertisers bear 50 percent of TV content costs.
  • A sports tier would be a partial unbundling of today’s TV ecosystem, driving $13 billion of lost revenue annually.
  • Video-on-demand (VOD) represents $10 billion of annual advertising revenue upside, if VOD viewing with full commercial loads replaces DVR viewing (where most commercials are skipped) over time.
  • TV advertising upside from Internet advertisers is $5 billion (6 percent of 2012 TV ad revenue) annually by 2015, driven by growing competition among Internet companies on desktop and mobile devices.
  • TV Everywhere has the best chance of elongating TV subscription lengths, potentially adding $4 billion per year to subscription revenue.

The analysts also advise those looking to see the risks of unbundling to take a look at recent events in the music and newspaper industries. “Now that the old system of bundling songs into albums has unraveled, global music sales are down by more than half from 1999,” Martin says. “Unbundling articles from newspapers by making them available online has caused a similar shrinkage.”

Martin says there are solutions. “Find a negotiated compromise that allows both content and distribution to win and the bundle to stay intact, or grow,” she says. “We can find no math where unbundling is the best economic answer.”

Plenty of companies are investing in the opportunity. For example, YouTube has spent about $350 million since 2011 to create video for its site. Netflix has spent roughly $1 billion to license traditional TV and movie content in 2012 and another $200 million on original programming. And Hulu spent about $500 million to make online video programming last year.

Yet Needham's study says there’s still the risk that online-video-ad inventory will become commoditized, just as it already has for the rest of the text-based internet. Plus, online audiences can be fickle, the analysts say.

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