Ads growing with broadband speed

Ads growing with broadband speed
Bigger files draw more viewers; video spots likely to top $1 bil
By Paul Bond

June 13, 2007
Part One: Web video attracting broad band

If you need evidence for the recent boom in online video streaming,
take a look at Akamai Inc., a company that delivers as much as 20% of
the Web's traffic each day.

At its Web site, visitors can see a snapshot of what's happening on
the Internet each day. One day last week, for example, 728,892 people
were downloading music files every minute worldwide. At one real-time
moment last week, 671,280 people were enjoying rich media, much of it
video, simultaneously. And those numbers don't include files that
Akamai isn't involved in delivering.

The explosive video growth trend is clear during recent months. In
November, Akamai recorded peak moments of rich media streamers at a
rate of about 565,956 per minute, while last month it grew to 974,296
each minute during peak times.

The two major trends in broadband video, according to Tim Napoleon, a
product line director at Akamai, are bigger files and more people
watching them. As for the former, file sizes used to be about 300 kbps
and would typically fill a quarter of a computer screen with video.
Nowadays the more usual is full-screen video at 700 kbps.

"Four years ago it was a challenge at studios to do something as
simple as a movie trailer online," Napoleon said. "Now you can see a
full-length episode of 'Heroes.' "

And better online video is coming quickly. While Leichtman Research
Group said 70% of all U.S. Internet users surf via broadband
connections, these broadband connections aren't nearly as fast as they
could be. Japan, for example, enjoys Internet connection speeds many
times faster than those used by Americans.

Plus, regarding video on the Internet, Napoleon said the great news is
that "there's a business model in place with ad servers. That wasn't
true a few years ago."

Online advertising, according to the Interactive Advertising Bureau,
grew 26%, to $4.9 billion, in the first quarter compared with the same
frame last year. By some estimates, online video advertising -- now
proving its worth -- will account for $1 billion next year and explode
from there.

Media analyst Mike McGuire of Gartner Inc. said Apple Inc.'s Apple TV
and TiVo Inc. are correctly taking a measured approach to moving
broadband content to TV screens. "It's as much research as anything
else," he said. "They're being smart to get it out there and gauge the
response."

According to a report from Wall Street firm Bear Stearns, 33% of
Internet users would prefer to watch online video content on their TV
sets, while 21% said they don't like watching videos on their computer
screens at all.

While no one denies the popularity of online video, important
questions remain: How will it benefit, or hurt, major entertainment
companies? Which revenue models are likely to succeed? And is
user-generated content simply a fad? Bear Stearns addressed each of
these issues in its report.

User-generated content is here to stay, Bear Stearns argues. The firm
said that user-generated content, both the video and text variety,
made up no more than 1% of the content on the Internet in 2004, but
now makes up at least 13%.

But more content also could lead to frustration as consumers fumble
through disappointing videos.

Therefore, Bear Stearns concludes: "In an era of theoretically
infinite video choice, the greatest value can be created not by
producing content but by solving the paradox of choice and connecting
users' individual interests with the vast supply of content."

That's exactly what Steven Spielberg, Ron Howard and their partners
were thinking when they founded the ill-fated Pop.com. But it's only
one reason why video repositories like YouTube and others are so
popular, the other being the quirky user-generated content itself.

According to Bear Stearns, 77% of Internet users call repository sites
of all kinds of video their preferred method for seeking video
content. That's tied for best with links that are forwarded by
friends. And it's better than the 57% who said a search engine is
their preferred method or the 54% who prefer such a major media outlet
as MTV.com or ABC.com.

As for that pesky problem of monetizing online video, Bear Stearns
said that, while paying a la carte or via subscription for content
isn't appealing to consumers, they don't mind 15-second commercials
tacked on to each video, especially if the ads are for something
interesting to them.

On the downside, Bear Stearns sees possible trouble for media
conglomerates because of the migration to online video. Excluding Time
Warner because of its AOL unit, big media companies get only about 2%
of their revenue from digital initiatives, the firm calculates.

"Even assuming 20%-plus annual growth in this revenue stream over the
next five years, this figure would rise to only about 7% of total
sales," according to the report. "The risk is that core revenues
decelerate faster, which is what has happened with newspaper
companies."