We can’t escape the voices in the industry.
« Cable television is dead. »
“Cord cutting is for real.”
“Millennials watch all of their content online.”
But have we truly reached a point where online video is replacing traditional broadcast television? Sure, it’s clear that online video is growing in popularity. The latest research from Limelight Networks says more than 55 percent of people watch 2 or more hours of online video each week, with more than 11 percent watching 10 or more hours per week. Cisco continues to predict that online video will dominate mobile traffic (70 percent by 2019). And according to Sandvine’s Global Internet Phenomena report, real-time entertainment (i.e., Netflix, Hulu, etc.) is responsible for almost 69 percent of downstream bytes on access networks during peak periods.
But when does adoption become downhill momentum versus an uphill climb? Right now, online video, for most people, is nothing more than an add-on to their traditional television experience. They might watch 2 or more hours of online video each week, but it doesn’t come anywhere near the daily 5 hours of traditional television watched by the average American (according to Nielsen’s March 2014 “Cross-Platform Report”).
Perhaps identifying the tipping point is a bit more complicated than just pointing a finger at a specific time. Why? Because the transition from television to online video is really dependent upon three axes. The first is consumer behavior—people want to watch traditional television content wherever they are, on whatever device. When, exactly, did this happen? We could argue that ESPN360, back in 2005, was the first precursor to TV Everywhere (TVE) and set the stage for today’s direct-to-consumer, over-the-internet delivery. But the demand for television content anywhere is also a byproduct of how intrinsic the smartphone and mobile data have become in our lives. Consumers are empowered with access to content, on a fairly high-resolution screen, wherever they are.
The second is the business model. Content owners are slowly beginning to transition their business models from being solely dependent on advertising to a model that includes subscriptions. Consider that, according to eMarketer, between 2013 and 2015, online video advertising spending almost doubled, from 2.2 percent to 4.4 percent. That’s billions of dollars being spent. And, as we all know, advertising money goes where the eyeballs are.
The third axis is delivery capabilities. Globally, broadband speeds aren’t anywhere near what they need to be to support widespread, simultaneous consumption of high-definition online video. According to Akamai’s State of the Internet Report for the second quarter of 2015, South Korea is at 23.1Mbps (No. 1 in broadband speed) while Finland is at an even 14Mbps (No. 9). Imagine a household of four people all streaming a different high-definition online video at 3.5Mbps. That barely works in Finland, and probably doesn’t work at all in the U.S. or dozens of other countries.
It would seem that part of the tipping point has already happened—consumers want to watch more content online (on their smartphones, their tablets, their TVs, etc.). It’s a demand that’s articulated in declining cable subscribers (the cable industry lost 600,000 subscriptions in the second quarter of 2015) and a willingness to terminate pay television subscriptions. According to Limelight Networks’ State of Online Video report, only 12 percent of respondents indicated that they would never terminate their cable subscription. That’s 88 percent of people willing to terminate under the right circumstances. But the other axes that form the tipping point are lagging behind. Content owners are still shaky when it comes to transitioning their business model to online, and broadband speeds need to catch up with the consumer demand.
Is traditional television threatened by online video? Sure. Are we at a tipping point for adoption? No. Desire and demand, yes. But true adoption? I think we’ve got quite a few years to go before online video really displaces the traditional television experience.
This article appears in the April/May 2016 issue of Streaming Media magazine as « Online Video vs. TV: Have We Finally Reached the Tipping Point? »