online video sites a forrester content strategy review analysis

Making Leaders Successful Every Day

June 4, 2009

Online Video Sites: A Forrester Content Strategy Review Analysisby Nick Thomasfor Consumer Product Strategy Professionals

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© 2009, Forrester Research, Inc. All rights reserved. Unauthorized reproduction is strictly prohibited. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change. Forrester®, Technographics®, Forrester Wave, RoleView, TechRadar, and Total Economic Impact are trademarks of Forrester Research, Inc. All other trademarks are the property of their respective companies. To purchase reprints of this document, please email [email protected]. For additional information, go to www.forrester.com.

For Consumer Product Strategy Professionals

ExECuTiVE SummARyOnline video is increasingly popular with users, as sites like NBC/FOX’s Hulu and the BBC’s iPlayer continue to grow in popularity. Meanwhile YouTube, the biggest online video site of them all, is still struggling to monetize its audience. User appeal alone is not enough in these straitened times, as ad revenues have failed to grow as expected and as capital becomes difficult to access. Video aggregators should use the Forrester Content Strategy Review to assess their product in its market context as the first step toward building a competitive strategy. They must balance appeal with the ability to deliver a return, adopting a variety of tools to do so.

TAblE OF CONTENTSOnline Audiences Love Video, But User Appeal Alone Won’t Pay The Bills

youTube may be Struggling, but Online Video is booming

The Online Video market Will be Challenging

Using The Forrester Content Strategy Review To Map The Competitive Landscape

Video Sites must balance Appeal And Returns

RECOmmENdATiONS

Video Sites Must Use A Variety Of Tools To Increase Their Returns

NOTES & RESOuRCESForrester surveyed 4,284 European internet users across France, Germany, italy, Spain, Sweden, and the uK in September 2008.

Related Research Documents“How digital Consumption is Reinventing The media industry” may 1, 2009

“How media Ecosystems Can drive Content Sales” march 6, 2009

“European Paid Content And Activity Forecasts, 2008 To 2013” November 7, 2008

June 4, 2009

Online Video Sites: A Forrester Content Strategy Review AnalysisThis is the second document in the “Content Strategy Review” series.

by Nick Thomaswith mark mulligan and Erik Hood

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http://www.forrester.com/go?docid=47769&src=53760pdf





© 2009, Forrester Research, inc. Reproduction ProhibitedJune 4, 2009

Online Video Sites: A Forrester Content Strategy Review Analysis For Consumer Product Strategy Professionals

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ONLINe AUDIeNCeS LOVe VIDeO, BUT USeR APPeAL ALONe WON’T PAY THe BILLS

It wasn’t supposed to be like this. As aggregators, led by the mighty YouTube, created huge global audiences for online video, advertisers were supposed to flock to the sites to find those elusive demographics. You want young males? Don’t bother with TV; look next to the skateboarding cats and the dodgy Eminem video. The ad revenues would cover the enormous costs of serving millions of videos, and TV would struggle to compete. So what happened? The economic downturn brought us back to reality. Investors don’t want reach; they want a return. Meanwhile, the media old guard has fought back with an effective carrot-and-stick strategy: Genuinely compelling sites like Hulu and iPlayer have rapidly built an audience for free, top-quality content online, while crackdowns on the unofficial uploading of copyrighted content have weakened the appeal of user-generated content (UGC) sites like YouTube. So where do we go from here?

YouTube May Be Struggling, But Online Video Is Booming

While neither pioneer YouTube nor its parent company Google have yet worked out how to make online video pay, competitors with different models are succeeding. And the proportion of Internet users watching video online continues to grow. Reasons for optimism about the future of online video include the following:

· The online audience for video is strong, and it is still growing. In 2008, 38% of European Internet users accessed video content online, and Forrester forecasts that this will rise to 65% by 2013, making it the most popular category of content online.1

· Online video ad revenues are still growing. Forrester forecasts that revenues from video advertising online will grow from €239 million in 2008 to €986 million in 2013 in Western Europe. The exponential growth in inventory is creating downward pressure on costs per thousand (CPMs), but spend is shifting online.2

· Online sites are now a key part of broadcasters’ overall distribution strategy. The BBC’s iPlayer, for example, saw 276 million videos streamed in the UK in 2008 and has become a successful and high-profile part of the corporation’s mission to reach as wide an audience as possible.3 With no advertising and the support of a mandatory license fee, the BBC’s business model is not widely replicable, but as even arch-rival BSkyB acknowledged in an interview with Forrester in July 2008, the iPlayer has helped educate the wider audience about the possibilities of online video.

· Companies are learning what users want. Hulu epitomizes the importance of learning best practices and making the right investment decisions. By deciding to opt for a streaming experience, with no P2P client to download, Hulu, like the BBC with iPlayer, saw rapid growth in user adoption of its services. And by not including user-generated uploads, Hulu established itself as an advertiser-friendly destination for “premium content.”4

© 2009, Forrester Research, inc. Reproduction Prohibited June 4, 2009


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The Online Video Market Will Be Challenging

Online video aggregators face tough decisions about the future strategy of their businesses. For most, citing the impressive volume of traffic is no longer enough to justify their current proposition. Unless you have access to other funding, now is the time to prioritize monetization across all areas of your site. And this will not be easy, given that:

· Video piracy is not going away. The recent ruling about The Pirate Bay in Sweden may have temporarily boosted content owners’ morale in their ongoing battle against illegal file-sharing sites, but it is not yet clear that it will slow the growth of users pirating content. And the growth of online video means that TV and movie companies are now grappling directly with the problems that have bedeviled the music industry. In 2008, 10% of European Internet users admitted using file-sharing networks to download TV or movies.5

· The majority of online video consumption is free. While legitimate long-form content from TV has been very successful in engaging online audiences, the vast majority of video viewed online will remain free to the consumer. Forrester estimates that only 2% of European Internet users paid to watch online video in 2008.6 Unless attractive paid models get traction in the market soon, free will be the norm — even for nominally high-value content, such as movies.

· Content owners remain too conservative. A major reason for the weakness of paid online video offerings, in Europe at least, is the reluctance of content owners to embrace new models. Many are reluctant to deviate from the old windowing system of delaying releases by territory and by platform. For viewers, however, seeing a movie trailer on the global Internet creates a need that can’t be met locally by legitimate means, encouraging piracy. And wholesale pricing of movie content remains unfeasibly high, given the collapse of DVD prices and user expectation that digitally delivered content should be cheaper than the physical version of the movie.

· The lack of available capital will hit the sector hard. It’s not just consumers who are reluctant to open their wallets: The venture capital that was flowing around the online video space in 2007 and early 2008 has all but dried up. Sites without a focused and imminent strategy for monetization face extinction. This thinning of the market may, conversely, create opportunities for those who survive, especially for broadcaster direct-to-consumer initiatives, but it will equally drive users to file-sharing sites when the content they seek is not available through legitimate means.

USINg THe FORReSTeR CONTeNT STRATegY ReVIeW TO MAP THe COMPeTITIVe LANDSCAPe

We can help companies seeking to negotiate these tricky waters. To help them evaluate their digital content offerings, in this case online video sites, we have developed the Forrester Content Strategy



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Review (FCSR), a sophisticated analytical and quantitative tool to measure products’ effectiveness and strategic integrity. The FCSR measures current digital content strategies and offerings against more than 20 business-critical metrics across the following categories (see Figure 1):

1. Content control. This measures the degree of control that consumers have over the content, such as portability, supported devices, and level of ownership.

2. Strategic integrity. This assesses the competitive marketplace and how strongly your digital content offering aligns with your wider business strategy.

3. Pricing and packaging. This measures how well you have positioned your pricing and packaging to meet consumer demand and the revenue potential.

4. Consumer experience. This looks at the quality of the consumer experience and the extent to which it delivers added value compared with traditional alternatives.

We then group and weight these scores to create the four key FCRS strategic effectiveness scores:

1. Implementation. This scores how well positioned the service is in the competitive marketplace and how well it is woven into the strategic objectives and core business of the provider.

2. Appeal. This shows the effectiveness of a content service in meeting consumer demand and matching consumer needs.

3. Return. This indicates the economic integrity of the business model, such as a return on investment (ROI) time line or the average revenue per user (ARPU).

4. Final Content Strategy Review Score. This is a single score based on the combined results from the three criteria above.



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Figure 1 The Forrester Content Strategy Review measures Four implementation Strategies

Source: Forrester Research, Inc.53760

Scorecard variable Scales used for scores

Content control Maximum Minimum

Portability

Downloadable

Interoperability

Platform agnosticity

Portable Fixed

Downloadable

Interoperable

Ubiquitous

Streaming only

Locked

Limited

Pricing and packaging

Strategic integrity

Addressable market

Ease of implementation

ROI timeline

Competitive imperatives

Mainstream Niche

Straightforward

Near-term

Lead

Challenging

Long-term

Follow

Likely impact on core business

Competitive environment

Investment

Ability to monetize effectively

Market maturity

Strong

Benign

Strong

Strong

Immature

Modest

Aggressive

Weak

Weak

Mature

Consumer value propositionARPU potential

Competitive differentiationEase of access

High value Low valueStrongUnique

Easy

WeakUndifferentiated

DifficultOn demand On demand Programmed

Consumer experience

Ease of useQuality of service

Added valueValue to consumer

Intuitive ComplexCompelling

StrongGood value

PoorWeak

Poor valueDepth and breadth of content Deep and broad Narrow and shallow

Aggregated scores

Appeal score

Implementation score

Return score

Score between 1 and 5



Final content strategy review score Score between 1 and 5



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Video Sites Must Balance Appeal And Returns

Evaluating a sector like online video using the FCSR allows aggregators — whether broadcasters with a multiplatform offering or Web-only companies — to map their products against those of their competitors (see Figure 2). Using the tool, publishers can identify relative strengths and weaknesses and create a viable road map for their sites’ future. Looking at the scores for just a few of the highest-profile examples, we can see key trends emerging:

· Sites with the strongest appeal struggle to generate ROI. Most video aggregators have been successful in building appeal, leveraging growing consumer interest in the content. But now is the time to prioritize the ROI, especially where sites with the highest consumer appeal — such as YouTube — currently have the lowest ability to deliver ROI.

· Sites can’t rely on the appeal of their content alone. The best sites — Hulu and iPlayer — don’t just offer the most compelling, professionally created content for free; they also invest heavily in the user experience. Broadcaster catch-up sites, such as ITV’s Player, may have strong content, but they must continue to add features like social tools to their offering to compete.

· Me-too sites risk oblivion. With even well-established sites struggling to monetize their content, there will be no place in the market for sites that do not provide a differentiated experience — either in terms of content or user experience or, ideally, both.

· Paid sites, such as Apple’s iTunes and Microsoft’s Xbox LIVE, can balance appeal and returns. For both, the catalog available to users outside the US is currently too shallow — thanks in part to labyrinthine international licensing agreements. But the consumer proposition in terms of billing and delivery is well executed to minimize transactional friction. In both cases, the video proposition supports and drives hardware revenues, too.



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Figure 2 The Strategic Effectiveness Scores Of Selected Online Video Sites

Source: Forrester Research, Inc.53760

Low HighMediumAppeal score

Low

High

Medium

1 3 5

Bubble size reflects implementation score

Returnscore

iTunes

Hulu

blinkbox iPlayer

Xbox LIVE

YouTube

JoostITV Player

Dailymotion

R E C O m m E N d A T i O N S

VIDeO SITeS MUST USe A VARIeTY OF TOOLS TO INCReASe THeIR ReTURNS

The market for online video is booming, but video aggregators face considerable challenges. Strategic imperatives will vary — some broadcasters can position a catch-up service as a key part of a multiplatform strategy, while Web-only destinations must focus on elusive revenues. Nevertheless, we urge consumer product strategy professionals working with online video sites to adopt the following maxims:

· Now is the time to prioritize returns. To be fair to youTube, it is leading the way in looking for ways to generate returns from its site. it is investigating different ad formats, including pre-rolls, and has introduced long-form premium content to the site. Recently, youTube’s ultimate boss, Google CEO Eric Schmidt, has even been talking about subscriptions to certain content.7



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· Narrow your appeal to identify the most valuable users. Video site Veoh, for example, has focused on serving only the highest-value markets where ad revenues are strong and geo-blocking users from poorer countries, who represent only a cost in terms of serving the content with little prospect of a return. For licensing reasons, Hulu and iPlayer are not available outside the uS and uK, respectively, but the effect is similar to not spending money on serving “dead wood” audiences.

· Learn from your closest competitors. The major broadcasters were not necessarily the first to market with online video propositions, but in several cases, their second-wave products have proven the strongest in the market after learning from the trials of others. As is so often the case, the early follower succeeds where the first mover failed. They have learned what audiences want: in terms of user experience and simplicity, the likes of Hulu and iPlayer have become the sites to follow.

· Adopt best practices from beyond the video vertical. Actively monitor developments on your competitors’ sites and if they can enhance your own, implement them quickly. but cast your net wide. your viewers are using best-of-breed sites in all categories online — learn from the best sites out there, from Facebook to Flickr, from Spotify to Twitter, from Club Penguin to Steam. These are competing for your users’ time — what can you learn from them? For example, consider how the appeal of real-time updates, central to Twitter’s rapid growth, could enhance your video site. Or look at how games distributor Steam has built a safe, secure, and profitable way of delivering premium content.8

· Implement social tools. depth of catalog is important for video sites, but they must also invest in developing other features, such as social tools that allow users to engage with the content and share their experiences with others. This will be central to the next iteration of the iPlayer and will provide another form of differentiation, as well as an enhanced user experience.

· Innovate to differentiate. What is striking about the sites that score highly in this exercise is the rapidity with which they have developed their services. New features and improvements — in picture quality, in user experience, and in catalog depth — have kept these sites at the forefront in an aggressive market.

eNDNOTeS1 Sixty-five percent of European Internet users will watch online video by 2013, making it the most popular

online content category ahead of news. See the November 7, 2008, “European Paid Content And Activity Forecasts, 2008 To 2013” report.

2 With European online video ad spending set to more than quadruple in the next five years — nearing €1 billion in 2013 — the majority of publishers have now set their sights on the in-stream video ad. See the February 27, 2009, “Monetizing Online Video In Europe” report.






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3 “Virgin Media recorded a record 56 million views of video content in December alone, 17 million of which were BBC iPlayer shows.” Source: Mark Sweney, “BBC iPlayer boosts Virgin Media video downloads,” The Guardian, February 12, 2009 (http://www.guardian.co.uk/media/2009/feb/12/bbc-iplayer-virgin-media).

4 In just one year since its public launch, Hulu has climbed to the top of the video site rankings and is becoming one of the Internet’s premier brands. However, numerous competitors are lining up to challenge the young company in a battle to control the Internet TV space. To compete with Hulu, product strategists must understand how Hulu’s focus helped it win the early rounds and where the next battles for Internet TV will be fought. See the May 11, 2009, “Competing With Hulu” report.

5 Source: JupiterResearch/Ipsos Consumer Survey (9/08), n = 4,284 (France, Germany, Italy, Spain, Sweden, and UK).

6 Although online video will be the most popular content category online, music will see the highest pay conversion rates in an otherwise modestly performing European paid content market that will dominated by free. See the November 7, 2008, “European Paid Content And Activity Forecasts, 2008 To 2013” report.

7 “Chrystia Freeland, US managing editor, interviewed Eric Schmidt, chairman and chief executive of Google, in London. They discussed the future of newspapers, developing online advertising and antitrust issues. This is a transcript of that interview.” Source: “View from the top: Eric Schmidt of Google,” FT.com, May 21, 2009 (http://www.ft.com/cms/s/0/73bc2fe4-45b4-11de-b6c8-00144feabdc0.html).

8 A focus on service and ease of use is key to Steam’s success. A simple user experience and a robust, reliable platform are vital ways to reward payers — and discourage piracy. See the March 6, 2009, “How Media Ecosystems Can Drive Content Sales” report.





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