Video is big just about any way you look at it. Over 4 billion people have a TV set and the average American is in front of it for over five hours a day. Video is expected to generate between $425 billion to $450 billion including ad supported, box office, pay per view, and subscription revenues, making it by far the largest media market on the planet, according to PWC media research.
It’s also a medium that’s in flux. In my position at YouTube, I’ve observed this market over the last few years, and have taken note of the ways in which it is fundamentally changing.
Hyper-Fragmentation: This Is Not a New Story
Venture back in your memory to 1987. The number one show on TV was The Cosby Show. Everyone you knew watched it every week. In fact, it got a 35-point Nielsen rating and 50-plus percent household share.
Jump ahead to 2010: cable TV is ubiquitous, and the number one show on TV is American Idol. Everyone watches American Idol, right? Actually, American Idol had about one-third the audience of Cosby, even including DVR viewers, according to McNeil, Alex McNeil’s “Total Television” and Nielsen Data. Where did those viewers go? It turns out that they are still watching TV, they are just watching cable. Our data shows that over 50 percent of TV viewership is occurring on cable networks that have less than 1 percent share.
This transition was about a growing shelf – as the number of choices offered to consumers grew, the audiences naturally fragmented into their areas of interests. Some people turned their attention to the delicious creations on the Food Network, while others headed over to watch memorable sports moments on ESPN Classic.
Online video has all of a sudden created an infinite shelf for content, and the resultant fragmentation has been enormous. Every minute, more than 35 hours of content are uploaded to YouTube. And numerous other sites are hosting and developing online video. Now, if you’re a Food Network junkie, not only can you watch a dedicated network all about food, but you can go straight to your niche and spend that time watching just videos about vegetarian cooking while some other viewer may choose to spend their time just focused on how to select and serve cheese. If travel is more your speed, you’ve got online video options that run the gamut from TravelChannel.com, Travelistic, and ZoomandGo to National Geographic and Compulsive Traveler.tv.
It’s hyper-fragmentation, but in many ways, it’s just a continuation of a trend we’ve seen in video for the past couple decades.
Great Content Can Come From Anywhere
So, online video is just an extension of the video fragmentation story. As TV fragmented from three commercial networks to hundreds, all sorts of new content emerged. Online video is fragmenting video at many times the order of magnitude, and thus the variety of content creators is similarly changing.
A couple of years ago, Sal Khan’s cousin in Louisiana asked him for some math tutoring over the Web. But they couldn’t find an easy time to get on Web cams for tutoring sessions, so Sal decided to just record his lessons and send them to her on YouTube. But it wasn’t just his little cousin who was watching; millions of other viewers found his lessons to be useful and so they tuned in as well. So he made some more educational videos. Before he knew it, he had amassed million of views. We made him a partner and started showing ads on his videos and sharing the revenue with him.
Over a year ago, advertising was generating enough revenue for him, that he decided to quit his lucrative job at a hedge fund and focus on Khan Academy full time. We host videos from many educators – including taped lectures from universities like MIT and Stanford. But Sal’s videos have been viewed almost 30 million times, making him the biggest single educator on our site.
Advertisers Can Create Content That Users Love
Fragmentation and online video has changed everything for content creators. It also changes everything for advertising. On our site, some ads have gotten over 10 million views. Think about that. For years, marketers have tried to build ads and force viewers to watch them by bundling them with content. But viewers choose to watch these great ads instead of content. For some of my favorites, check out the Evian “Roller Babies” and Dove “Evolution.”
Our moment of insight came in 2009 when we launched Promoted Videos. Just like AdWords, you bid for placement in our site’s search results. What surprised us was how much people were bidding. The auctions regularly clear at 10 to 40 times the typical cost-per-view of ads on network TV. Initially baffled, we found our answer soon – the opted-in viewer is really paying attention, so the advertiser doesn’t need to buy additional frequency.
Based on these results, we will give advertisers the option to only pay for engaged views on a cost-per-view basis through what we’re calling our TrueView Video Ads. Under one format, called InSlate, viewers can choose to watch one of several available ads ahead of long-form content. Another format, called InStream, permits a user to skip the ad if they’re not interested. In both cases, advertisers bid on a cost-per-view basis, and only pay when a user chooses to watch their ads.
True View InStream:
This is the way the industry is moving. Most recently, Vivaki’s Pool initiative acknowledged the fact that advertisers can create content that users love by choosing the ASq format as the industry standard. ASq gives users a choice in the type of ad experience they want to see, and their research validates our ad evolution towards opted-in engaged views. We’ll be supporting ASq campaigns through TrueView, joining many other video networks that have backed up The Pool’s findings.
These ad formats are just two examples, but the broader concept is simple. For years, TV has produced higher monetization by showing viewers more ads per hour. We believe that online video can help reverse this trend – we will eventually show users fewer ads, but get much more advertiser impact out of each ad view, and deliver even higher monetization to content creators.
There Is No Online Video, Just Video
The days of the battle between online video and TV are coming to a close. Today, viewers are stuck in two separate worlds – TV, where I have access to all of my favorite shows, live sports, and movies – and the Web, where I can access my favorite sites and Web videos from my PC or mobile device.
This division is quickly fading. We can watch most TV programs across a range of devices now. And in the living room, we can watch and share our favorite “Web” videos on the best, brightest screen in the house.
This is why we launched Google TV, to bring together these two worlds into one seamless entertainment experience. We envision a future where the viewer won’t care whether there video is delivered to their TV set over an IP cable or a satellite feed – it will all feel like video to the viewer.
The video industry has exploded through many transitions already and it is about to go through its largest yet. We think that this will be great for both the industry and for the viewer. Fragmentation will produce new opportunities for content producers, interactivity will allow for great advertisers to compete for attention with content, and convergence of video sources will ultimately lead to a better experience for viewers. And that’s the future we’re working toward.
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