Players in the online video space that want to make serious money need to focus on two key areas: creating or distributing premium video content, and making it easy for viewers to find that content. But in the short term, social media is one of the best ways to publicize videos--and maximize ad revenue.
That's according to a new research note from investment firm Needham & Company. "Owing to the young average age of video viewers on mobile screens, plus the dearth of premium online video content, there is significant pricing power online, with CPMs of $20-40 for video ads in premium online videos," wrote Needham senior analyst and Managing Director Laura Martin and analyst Dan Medina.
"However, only 60% of the U.S. population watch online videos (flat since 2009), and online videos watched fell from 52B to 50B in the U.S. in 1H14," they added. "Why? Our answer is clutter. Although there is value in aggregation, curation becomes more valuable as volumes grow."
Despite the importance of having premium (network quality) content, OTT players using an ad-based model are still playing a risky game. The traditional TV model has two revenue streams: advertising and subscription, the report pointed out. "If the online video ecosystem wants to compete effectively with TV's dual revenue stream business model, it must have a second revenue stream."
There's no doubt that the crowded, rapidly developing OTT market is making it difficult for viewers to find and watch content they want. Vendors like Tivo, aioTV and Arris in the U.S., along with global entrants like Vidmind, are tackling the content discovery problem through various hardware- and cloud-based solutions. But it's early days for all-in-one aggregation, search and recommendation technologies, and no real solutions are on the market yet.
Needham's short-term solution to the video clutter problem: social media. "Through sharing, the social networks can surface the best shortform and long-form video content," the report said. "When one person shares a video with 10 of his/her friends, only the best videos get pushed out to their 10 friends too. A hit video becomes "viral" (representing exponential growth), reaching millions of viewers within hours. A bad video does not get shared."
The authors added, "We think content companies would do well to partner with social media outlets to drive younger audiences (i.e., the most valuable) to their (very expensive) content."
The firm held Netflix at a "Buy" rating--meaning the firm expects to see a 10 percent to 25 percent return within the next year--partly because of the "hidden asset value" in its international subscriber base. It also gave Buy ratings to social media leader Facebook; recent subscription video on demand (SVOD) entrant World Wrestling Entertainment, thanks to its dual revenue streams in offline and online content; and AOL and Yahoo!, both of which have their own ad-supported online video offerings.
- visit Needham's site
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