Is Online Video Growth Really Slowing Down?

The headline on data that Nielsen released last week: growth in online video time spent is outpacing the growth in the number of users.   Growth in total minutes for the most recent period, August 2010-August 2011 (9%) is more than double the growth for users (4%) and higher than the growth for streams (7%).  Thus the average stream is longer than it was a year ago.  The chart is shown below.

This trend in rising length of stream is apparent from data in Nielsen’s January press release…I pointed it out here and noted that the finding makes sense; the audience for online video is becoming saturated while the upside for time spent is tremendous.

According to Nielsen’s June data, time spent for the average online video viewer is 4 hours/30 minutes per month.   Compare that to average time spent per TV viewer at upwards of 30 hours per week and it’s clear that online video time spent has nowhere to go but up particularly as consumers increasingly watch long form content over-the-top on their TV screens.

That said, what seems odd about the chart, not explicitly called-out in the accompanying text, is that growth for all the online video metrics has slowed severely over the past 12 months.   I’d expect growth in users to plateau (as per the chart) and I’d expect growth in number of streams per user to slow as people watch longer streams.  But it’s surprising that total time spent with online video is growing at less than 10%, year over year.

It’s particularly surprising since the base for time spent per user is so low.   To get a sense of how low it is, take a look at Nielsen’s June press release and do a little back-of-the-envelope on time spent per stream.  It’s only 2 minutes/40 seconds, on an average of 101.5 streams per viewer per month.  So, according to this information, the average viewer of online video watches somewhere around 3½ streams per day at less than 3 minutes apiece.   You would think, given Netflix, Hulu, Amazon and other long-form streaming options, that total time spent would be growing at more than 10% off this base.

Another interesting back-of-the envelope:  calculate the average streams per user and time per stream for the three competitors for which the press release provides monthly user, streams and time spent data.    For YouTube (with 108M users): 81.7 streams at 1:55 (mins/secs) apiece.   For Hulu (13.5M users):  46.7 streams at 4:45 apiece.    And for Netflix (8.0M users) 24.1 streams at 21:18 apiece.    The total is tilted toward the YouTube number with its enormous user base, but the Hulu number is surprisingly short and even the Netflix number, at less than half an hour per stream, makes me wonder about what might not be included in the data.

The shape of the Nielsen growth curve is contrary to the one below, for example, from Cisco data cited in ReelSEO earlier this year.   This predicts that bandwidth demands for streaming video will not decelerate but in fact accelerate over the coming years.

I suspect the Nielsen time spent growth curve is affected by a particular aspect of their methodology; they monitor online video activity on their respondents’ computers.    The way I read it:

Online video that people access through games consoles, Internet-connected TV’s, Roku boxes, Apple TV and any other device that circumvents the computer  and ports online video directly to the TV screen are not included.   This is probably not a substantial piece of the puzzle on a user basis or on a streams basis.   But the absence of this piece may understate the growth of time spent per stream with the increasing consumption of longer streams concentrated in non-PC devices.

This isn’t a knock on Nielsen’s methodology – it measures no more and no less than it says it does.  But if we’re really going to understand the total picture of online video behavior we’ll need to get a handle on the whole ball of wax no matter what devices the video streams flow through.

Soft Programming and the Missing Platform

At the Mediapost Future of Media Forum earlier this week panelists were asked what companies they expect to join Amazon, Apple, Facebook and Google as dominant players in the new media world.

No specific company names were mentioned but there was an interesting discussion between the moderator, Josh Quittner, Editorial Director of Flipboard, and Steve Lacy, CEO of Meredith Corporation about what makes Amazon, Apple, Facebook and Google so dominant.  “Platforms” was the key word of the discussion…the notion that these companies have created an environment for interacting with consumers that other players gravitate to.  As the discussion evolved, the phrase in my mind was “network effect”; the more consumers converge on these platforms the more gravitational power they gain to attract more content…and more usage.

That is not to say that other companies won’t break in…someone on the panel said there will be hundreds of new and successful companies capturing emerging, lucrative niches.  But the implication of the discussion was…if a new major player emerges it will most likely be the creator and owner of a new platform that speaks to some fundamental consumer need.

The question then becomes, is there a missing platform?  The clue is in an article that appeared in today’s New York Times, among the many that paid respects to Steve Jobs.  As per the article, despite the huge impact of Apple products on the way we consume media, TV, the medium that captures the bulk of our time, remains relatively untouched.   Both Apple and Google have taken aim but Apple TV is still a miniscule player and Google TV seems to have little or no traction.   My bet is that somewhere in this area the new platform and perhaps new corporate player will emerge.

What do people want in the area loosely defined as TV?   This includes traditional cable and satellite delivery, multi-platform and over the top delivery of online video, players like Netflix, Hulu, Amazon, iTunes and YouTube… all competing for share of the consumer’s video-viewing time.

I think the consumer wants what they want in every other sphere…choice and control…to find through the mass of everything available the content they want to watch at any particular moment in time.

Soft programming is the phrase I would use to describe the consumer need.   Hard programming is the old-fashioned model – we’ll schedule this show at 8P as a lead-in to this show at 9P.   Video search is on the other side of the spectrum – zero programming – if you know what you want we’ll help you find it.   Soft programming is something in-between…a user-friendly narrowing of the consumer’s choice without forcing anything down his throat.   The Netflix recommendation engine is an example of soft programming that works beautifully within Netflix…though it doesn’t help the consumer cut through the myriad video offerings impinging on him from all sources.   Another example of soft programming is old-fashioned channel surfing.   That’s how the consumer used to deal with the problem rather than fully accepting any hard programmed stream.   But there are going to be too many video options for that venerable method, or existing clunky channel guides, to address the need.

Will one magical solution come to the rescue?   Of the many barriers, I’ll name two.  Content owners and distributors will do anything before they allow a third party filter to come between their assets and the consumer…unless their hand is somehow forced.  And second, perhaps less of a show-stopper but bothersome, the consumer will resist buying any additional piece of equipment, any new “box”….see Apple TV and Google TV.

But any unmet consumer need is like water building up around a dam.  As video content, linear and on demand, continues to inundate the consumer from a myriad of sources, the need for a smart, personalized, soft programming filter will grow.  Eventually some Jobs-like genius will invent the video content platform of the future…and, to get back to the original question, his or her company will be the one that joins Apple, Amazon, Facebook and Google as a major player in the new media age.

Why The iPad Changes Everything

I would love to know how iPad owners compare the experience of watching full length video on their device versus watching the same content in traditional lean-back mode on their TV screens.   I think this is the critical question.  If the full length video experience on the iPad is judged equivalent or close to equivalent to traditional TV viewing, for most content most of the time, then we can expect the iPad and the tablet form generally will fundamentally change the future of TV.

I bet the same question for laptops would get a very different answer.   There are times, places and circumstances when people watch full length video on their laptops but, given the option, I expect they would mostly prefer to port the content to the big screen.   In contrast, the iPad may be more than an on-the-go, on the train, in the airport alternative; to the degree that it is a strong viewing option for full length video in any circumstance…that makes it a game changer.

Prior to the iPad all full length video was ultimately headed toward one door.    For Netflix, Hulu, Amazon, etc…the critical step was to get ported over-the-top to the TV screen.    It is in this scenario that on demand competitors might actually supplant cable and satellite subscriptions for at least some group of people who cut the cord.  And it is in this scenario that on demand competitors could compete with cable and satellite time –fighting for control of viewing behavior in the 10-foot screen.

In this pre-iPad reality, laptop and smartphone screens would likely play a secondary role for actually consuming full length content; their usage would be tilted to short form.  They would play a key role in helping people find the full length video content they’re looking for and let them socially interact around it.   These roles for other screens remains…but the iPad blows up the centrality of the traditional TV experience and opens another major door for full length video consumption.

Right now the numbers are small.   The latest U.S. penetration number that I’ve seen for tablets is 6%, as cited by Mark Walsh in MediaPost a couple of weeks ago.     Nielsen reported just under 5% earlier this year.    Sales projections are very bullish though:  Gartner is projecting worldwide tablet sales of 63.6M in 2011, up from 17.6M in 2010 and rising to 326.3M in 2015…so there may be 5-6 fold increase in penetration over the next few years.   Most important is data reported by In-Stat : “50% of tablet owners are viewing not only feature-length movies on their device, but TV shows as well”.    We don’t know how much, how frequently…but we have some indication that tablets are being widely used as a multimedia device, as a way to watch long form video.

And in that role they have the potential to change everything.

Media Multi-Tasking And The Battle For Attention

The average amount of time that people give to some media platforms is trending up (mobile and Internet) and others are trending down (magazines and newspapers).  But the average amount of time they give to all media combined is rising inexorably.

This is shown in an eMarketer item with the figures below: an average of 660 minutes or 11 hours a day across all media in 2010, up 1.5% from 2009 and up 3.9% from 2008.   This analysis does not include pre-recorded music which would surely drive the numbers higher.   You have to wonder where it will end; is there no limit to the amount of media that people will consume?

Media multitasking is one of the things that keeps the total number rising; people using two or more media simultaneously.   eMarketer is explicit; the time that they report is for each medium separately; an hour spent watching TV while online is counted in both the TV and the online numbers.  The rise of the total suggests that as more media find their place in people’s lives they are increasingly layered on top of one another.  So the question becomes not what medium are people using at any given time but which of the various media they’re using is capturing most of their attention; what medium is in the foreground while others are playing in the background.

A study conducted for Yahoo! by Nielsen, reported in mid-2010, suggests that when TV and online are used together online is likely to be in the foreground and TV in the background.    The way I read this press release, 75% of respondents ever use TV and Internet together and 51% of the 75% do so daily.   So 38%, a bit more than a third, show daily simultaneous use of TV and Internet.   What’s really telling, beside the frequency of the behavior, is that the online activity is generally unrelated to the TV programming or commercials being viewed – and 54% report that the Internet is the primary focus of their attention.   54% is not overwhelming; plenty of people are reporting background Internet usage.    But the picture you get, at least for some of the people some of the time: unrelated Internet activities like Google or Facebook are in the foreground of their attention while the TV plays in the background. The frequency of this pattern will of course be higher for younger people.

An implication of this for programmers and TV advertisers:  you need to be (or be advertising on) foreground TV, not background TV.   TV that’s winning the cross-media battle for attention.

In this regard I’ll suggest a hypothesis.  The medium that wins the battle of attention, for any given consumer at any given time, is the one where the consumer is making the most deliberate content choices.    Online tends to win against TV, though not overwhelmingly, because simultaneous users are more active online, choosing what they want to see and do while the TV plays on.

And so…if people choose to watch their TV fare on-demand, from over-the-top sources like Netflix or Hulu, that deliberately selected content will be more likely than more their more casual TV choices to capture attention versus other simultaneous media the user is engaged in.   To the degree that there is advertising on on-demand and over-the-top TV content, that real estate will be increasingly valuable in a media-multitasking world.

Is Over-The-Top Driving Long-Form Growth?

I’ve made the assertion that people will always prefer to watch long form video on the 10-foot screen as a human truism that will drive how the market evolves.   But I’ve felt a little pang about being so dogmatic since I don’t have data to support it.   And what about the iPad; might it not become a major outlet for watching movies and TV shows?

So it was interesting for me to find this CNET item from November 2010 citing a comment from Netflix CEO Reed Hastings:  the tablet craze affects us very little:

“People prefer large screens,” Hastings said. “So the impact of Xbox, PS3, the Wii phenomenon–huge impact. The impact of the iPad–it’s a great system, but the Mac laptops outstrip the iPad for Netflix viewing by a huge factor.” Long-form video viewing does not translate that well to mobile platforms, he asserted.

So this downplays the impact of the iPad, from a company whose strategy is driving the trends; they would be in a position to know. Though it suggests that the 4-foot screen, in the form of Mac laptops, is a major outlet for Netflix product.

I’d love to see data on number of streams and time spent with online video broken down by screen type – current state and recent growth. My hypothesis: the 4-foot screen dominates current online video consumption by far, but dominates less as length of stream increases, with the 10-foot screen being relatively stronger for longer form and the driver of long-form growth.

Though another paragraph in the CNET article suggests that this hypothesis may be U.S. centric, perhaps true only for a culture in which the TV is the center of life:

Former News Corp. executive Peter Chernin, who joined Hastings on the panel, said he agrees, with regard to the U.S. market, but that the story will be very different in developing markets, where big-screen TVs are less commonplace and cheap tablet devices will soon be readily available.

I’ve also argued that over-the-top will penetrate the home through the path of least resistance, assuming that Internet-connected TV, the simplest connection from a consumer perspective, will be the key driver. But both the CNET article and a June 8, 2011 MediaPost piece citing new data from CBS research chief Dave Poltrack suggest that video game systems are currently behind the growth in over-the-top consumption:

Poltrack contrasted Netflix’s remarkable growth with rather tepid adoption rates of other so-called “over-the-top” TV streaming platforms, such as GoogleTV, Boxee and AppleTV, but said that video game platforms such as Microsoft’s Xbox, Nintendo’s Wii, and Sony’s PS3 have become a major means of streaming TV programming, and that many of those platform users are actually doing so via Netflix.

So…it’s a box that already exists in the household, that’s already connected to the TV for some other purpose that is serving to-date as the main over-the-top conduit. And that makes some basic human sense.

How Will Networks Co-Exist With Over-The-Top?

I was busy poking fun at the Nielsen position on cord cutting the other day.   But it’s hard to deny that the trend seems relatively minor in the scheme of things.

A J.D Power and Associates study released yesterday shows that just 3% of residential TV customers have cancelled their multichannel subscriptions, 6% among Generation Y customers.   I’d argue that 6% among the younger audience is not insignificant; it’s a factor.   But those levels won’t be turning the TV world upside down.

This may sound odd, but I think the most important aspect of cord cutters not that they’re cutting the cord with their multichannel providers.   The most important thing is they’re likely to be driving online video over-the-top to their 10-foot screens.   The cord cutting aspect of the cord cutters…may be misdirection with regard to future trends.

To clarify terms, when I say “over-the-top” I mean streaming online video to a TV set rather than a computer or mobile screen and watching in lean-back mode, the way people traditionally watch TV.

Because over-the-top streaming is initially focused among the young, the tech-savvy, lower incomes, light TV viewers…it is more likely to replace traditional TV for these audiences.     But, as over-the-top becomes mainstream, only a minority of people will actually cut the cord.   Thus the key scenario, the one that will eventually play out for the majority of households, is that both traditional and over-the-top TV will compete for time in the 10-foot, traditional TV viewing experience.

I think some basic, human factors will drive to this scenario:

  • People will always prefer to watch long form programming on the 10-foot screen.   Watching full-length TV shows and movies on 4-foot and 2-foot screens will increase; the iPad will help drive its growth.    But the average length of an online video stream is still under 5 minutes.   I’d argue that the average length of online streams won’t really take off till the mainstream consumer is sending online video over-the-top to his TV.
  • Over-the-top will penetrate the home through the path of least resistance.   That path is the Internet-connected TV; the least number of extra boxes and wires entailed.   Blu-Ray players and Internet-connected game consoles will be secondary; boxes people already own for other purposes.   This path mitigates against cord-cutting; why buy a spanking new TV and then cut down your viewing options?    It also ties the rate of behavior change to TV replacement cyles and the briskness (or not) of new TV sales.
  • Network programming will continue to alleviate the burden of choice.    Lighter TV viewers may be able to subsist entirely on a diet of on-demand viewing.   But for heavier TV viewers it would be onerous to deliberately select everything they watch.  Channel surfing is a key part of their diet that can be supplemented but not entirely replaced with on-demand options.  And so…as over-the-top migrates to heavier TV viewers, a pattern of coexistence rather than replacement will be seen.

Here’s an interesting data point from the Leichtman Research Group.  30%  of all households report having at least one TV connected to the Internet via a video game system, a Blu-Ray player and/or the TV itself.   But only 10% of all adults watch video from the Internet via one of these devices at least weekly.    So a substantial number of households already have the capability; most don’t use it regularly.    Of course the numbers are much higher among Netflix subscribers…

When people have both forms of TV, traditional and over-the-top, available to them in lean-back mode, what do they do, what trade-offs do they make, what gets cannibalized?   If I were a network executive, this future scenario would concern me the most.

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