Broadband Penetration Is Not What's Driving Online Video

So many press releases and reports I read still talk to broadband adoption as if we are still in the year 2000. They say things like "due to the growth of broadband", "because of the proliferation of broadband subscribers" and "the widespread penetration of broadband" etc... broadband access is not the reason online video usage is growing.

At least 55% of all connected households in the U.S. are already accessing the Internet via a broadband connection (some reports say as high as 63%) and the majority of all users who are on a computer at work are on broadband. Yes, the downstream speed of broadband is growing but anyone who is on a DSL line gets at least 1.5Mbps which is plenty fast enough to get a 300Kbps stream, which is considered broadband today. And it should also be noted that two years ago, the standard rate at which "broadband" video was encoded, is the same it is today. So for all the hype around broadband, two or three years later, we're still encoding and consuming the majority of our online video content at the same speed. So the growth of broadband has done nothing so far to change that.

When you talk to a company about it's services or products in the space it's amazing how many of them always throw in the broadband growth sentence as if they have to mention it, as if that validates something or makes them look like they "get it". And most times, if you then ask them for market data on how broadband is growing, at what speeds and in what regions, they have no idea. It's like somebody in their marketing dept preps them and says "make sure to mention about how broadband is growing." I see it all the time on CNN as well when they interview someone on the stock exchange floor. The person being interviewed always make a reference to some aspect of broadband if they are from a tech company.

Yes, broadband plays a role in the consumption of video, but we've had over 100 million households with broadband access for almost the past 4 years now. We should be talking about the real factors that are driving the growth of online video and more importantly the factors that are limiting the usage and growth.

Comments

[Jeff]

I'd suggest there are three things driving online video right now - assuming "broadband penetration" is already taken for granted, per your article:

1) Lower cost of distribution. 12-24 months ago, video sites were paying CDN's upwards of $1 per GB of delivered content. No matter what your monetization model is, there is almost no way to make money with distribution costs that high. Today, market leaders are paying as little as $0.10-0.20 per GB delivered, and with secure P2P technology we'll see that drop further. Lower costs mean ad-supported and other "free" models start to work, from an economic standpoint.

2) Digital rights agreements. Owners of professional content are cutting more favorable deals with distributors. Circling back to point #1 above, if a site is distributing a 2 GB movie, charging $4 for a digital download to rent, paying $2 for distribution, then giving up 60% of every dollar to a studio:

Revenue: $4
Cost: $2.00 (distrib) + $2.40 (rights)
Net Loss: ($0.40), not including customer service, etc.

Not a real attractive proposition.

3) Legitimacy. Let's remember that "online video" has been distributed in massive quantities via file sharing networks for years - as much as $8B in illegal downloads this year, by some estimates. With the growth of "legitimate," rights-protected and user-generated content, we're now seeing recognition by the mainstream press and analysts that "video on the Internet is for real."

My $0.02.

[Richard]

Hi Jeff,

I agree with your comments, the illegitimate part of this whole business is huge and there is a way for advertisers and content producers to tap into that market..Take the music business for example, the money has moved from selling CDs to selling concert tickets... if someone downloads free songs on the internet, they have some spare money to go and watch a live concert.. (that cannot be pirated.. ).. so industry has started realizing this and one company that is helping a lot of televisions networks and record labels is divinity Metrics.

you can see their scope service on http://divinitymetrics.com.

Cheers,

Richard

[xocai]

Brian and Sarah McCoy offers home based business by selling or marketing xocai products.

[None]

Useful info, It's like somebody in their marketing dept preps them and says "make sure to mention about how broadband is growing.

[Mesothelio]

Thanks for the excellent list. With the growth of legitimate, rights protected and user-generated content, we're now seeing recognition by the mainstream press and analysts that video on the Internet is for real.

[Monavie]

Useful info, Let's remember that "online video" has been distributed in massive quantities via file sharing networks for years - as much as $8B in illegal downloads this year, by some estimates.

[anonymous]

Realy nice post. The person being interviewed always make a reference to some aspect of broadband if they are from a tech company.

[bath and body]

Thanks for the excellent list. We should be talking about the real factors that are driving the growth of online video and more importantly the factors that are limiting the usage and growth.

[coimbatore flights]

Thanks for this excellent compilation of companies operating in this space.