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September 7, 2009 / 9:50 AM / in 8 years

Video-on-demand succeeds for broadcasters, for now

By Paul Sandle - Analysis

LONDON (Reuters) - Video-on-demand was seen as another threat to broadcasters reeling from slumping ad revenues and fragmenting audiences but has been something of a savior, at least in the short term.

ITV (ITV.L), Britain’s top free-to-air commercial broadcaster, makes more money per viewer streaming talent show ‘The X-Factor’ to computers than broadcasting it into homes.

“We are hugely pleased with the numbers for on revenue,” ITV’s director of online content Ben McOwen Wilson said at the Edinburgh Television Festival.

“We get 8 pence per hour on TV. Online, we are getting more than that.”

Dan Cryan, broadband analyst at Screen Digest, says ITV will make 34 million pounds ($56 million) from online this year, up from 8.9 million in 2008, and will reach 75.3 million by 2013.

”ITV is succeeding in selling programs stuffed with ads,“ he said. ”They are genuine world leaders -- in the United States ad loads are significantly lower.

“At the moment ad prices are sustained by scarcity.”

Online was also attracting new money, Cryan said. ”There’s some evidence that not all ad spend is coming from traditional ad budgets: they are growing the pie.

“And when audiences are fragmenting you’re better off cannibalizing yourself.”

Simon Nelson, controller of multiplatform and portfolio at the BBC TBBC.UL, said the publicly-funded broadcaster’s iPlayer catch-up service had made a big impact, but it did not mark the end of broadcast TV.

”Live viewing is stable, and is even going up a little bit,’ he said. “iPlayer hasn’t changed things as radically as some might have expected.”

Online television was constrained by slow broadband speeds and small screens on PCs and mobile devices, he said.

On demand totaled 5 percent of viewing, including services from Virgin Media VMED.O and BSkyB BSY.L, he said, with the majority watched within 24 hours of broadcast.

“70 percent of all viewing is in the catch-up window and 30 percent is in the long-tail,” he said.


Ashley Highfield, head of consumer and online at Microsoft UK (MSFT.O), however, said the tipping point from traditional broadcast and toward multi-platform viewing had already been reached.

“The future is here, it’s just not evenly distributed,” he said. “(TV‘s) got something like a two-to-five year window maximum to adapt or face its iTunes moment.”

Competition online is coming from aggregators such as Hulu, owned by NBC (GE.N), News Corp (NWSA.O) and Disney (DIS.N), which combines shows from 150 broadcasters on a single platform.

News Corp, which holds a stake in BSkyB, has hedged its bets by investing in Hulu through its Fox subsidiary in the United States.

“Hulu is committed to the free space, Sky is committed to the pay space -- we are complementary partners,” said BSkyB’s on-demand director Griffin Parry.

ITV has also talked to Hulu but they have been unable to agree on who sells the advertising, Cryan said.

    While aggregators are able to monetize broadcasters’ archives -- something they’ve largely failed to do themselves -- they take revenue and viewing from the broadcasters’ channels.

    “Channel brands are very important, they are a reference point,” McOwen Wilson said. For programs on ITV2 such as ‘Katie And Peter’ and ‘Gossip Girl’ as much as 15-20 percent of the audience is watching on the ITV2 channel online.

    Microsoft’s Highfield says the answer lies in broadcasters looking beyond their channel structures.

    “All user interfaces are going to become two-way,” he said. “TV has always been one-to-many, it can’t do many to many.”

    Sky has already struck a deal with the company’s X-Box gaming platform, and Highfield predicted by 2012 viewers could submit X-Factor auditions for a micropayment, and the show would be watched by 20 million people on multiple platforms.

    Charging for content is another untapped revenue source, and was pushed up the Edinburgh agenda by James Murdoch in his broadside against the BBC. [ID:nLS269590]

    BSkyB has profitably replicated its subscription model online, but that’s easier when your content is unique, such as its coverage of the recent Ashes cricket series between England and Australia.

    Nonetheless, charging for individual shows has not been ruled out by other broadcasters.

    “You’d be mad not to be open to micro payments,” Cryan said. “But nobody has found a way of getting it to work -- newspapers have tried and have fallen by the wayside. In essence, PC is the free platform.”

    Microsoft’s Highfield said giving content away remained an unresolved issue, but some models such as highly-targeted advertising were working.

    “In the future of the TV business, winners will collaborate and share,” he said. “The future is still so much bigger than the past.”

    ($1=.6123 Pound)

    Editing by David Cowell

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